COMPANY ANALYSIS

KENTUCKY FRIED CHICKEN (KFC)

Submitted to:

Mannan Amin

Submitted by:

Joel Peter

Zary Aftab

Ebadullah Bhalli

Samia Cornelius

Date: 06-04-2010
 CONTENTS
Executive Summary

Introduction

Structural Analysis

Blue ocean strategy and competing on resources

Using game theory to shape strategy

Playing the improvisational edge

Capturing cross business synergies

Gaining advantage of the past

EXECUTIVE SUMMARY
One of the major models of analyzing a company’s competitor position in the
market is given by Porter. Porter’s five forces comprising of threats of new
entrants, bargaining power of buyers and suppliers, threats of substitutes
and the rivalry among existing competition determine the degree to which
investment in a particular industry will drive rates of return to the free
market level. In short, porter’s five forces determine a company’s
profitability and opportunities in the industry.

KFC, one of the largest chains of fast food restaurants faces all these forces
and tends to eliminate them to strengthen market position. KFC has been in
the fast food industry since the 1930’s. It entered Pakistan in 1907 and has
carried out successful business. It is a well established multinational offering
a premium experience of value added chicken meals and other fast food to
its customers.

KFC has put up moderate barriers to entry for potential entrants. Hence,
although it is not very difficult to enter the fast food industry, it is extremely
difficult to enter as KFC’s competitor. Well established brand name, high
economies of scale, a moderate level of product differentiation, high capital
requirements and access to distribution channels make it a successful
business altogether and thus makes it difficult for a new entrant to enter the
industry and compete with it.

Rivalry among existing competitors is moderate, since all major players have
a prominent position in the market. Price competition exists, but KFC focuses
more on differentiating and marketing efforts to raise sales than bitter price
wars and advertising battles. Exit barriers for the firm are high due to
accountability to not only its loyal customers but its suppliers, employees
and the band name itself. High exit and entry barriers promise high returns
but make the firm risky at the same time. A new entrant promising KFC’s
special recipe at a lower price will definitely hurt the company.

Substitute products for KFC have gained power due to renewed health and
obesity concerns. In Pakistan, issues like not using Halal chicken have
seriously damaged the brand, but KFC has overcome this by effective
marketing and branding efforts. However, during the process it lost some of
the trust people placed upon it and has given space to substitutes like made
to order and ready made recipes. KFC loyal customers will however not shift
to substitutes due to high switching costs which can be both monetary and
emotional.
Customers usually are given great importance and their feedback is deemed
to be critical for the company’s performance. However, they do not have the
power to bargain with the company unless major issues arise which affect a
group of customer for example issues of halal meat and opera coupons.
KFC’s customer base is huge and although it wants to fulfill most of its
customers demands it is not inclined to fulfill each and every demand they
impose.

Suppliers are a major part of KFC’s value chain. Both KFC and its suppliers
bring benefit to each others brand names. Among all the suppliers, the
maximum bargaining power can be said to be with Pepsi and K n Ns.
Although, both will not want to loose partnership with KFC, they have the
power to bargain to a certain extent, being as big and as successful.

The analysis, in conclusion, suggests KFC’s strong position in the competitive

environmental, partly because of its differentiated marketing and operational
strategies. It can work upon decreasing exit barriers and be less liable to the
stake holders and so acquire the best position in the market.

Although not operating in the blue ocean, KFC competed majorly on its
valuable resources. These include both tangible and intangible resources.
Furthermore, it keeps leveraging and investing in them to stay ahead in the
game. Also, it can use the same strategy to enter a blue ocean by combining
for instance food with amusement.

KFC also utilizes game theory to change the game to its advantage. It is also
involved in creating win-win situations for the industry. Although, most
strategies are employed to be ahead than competition, they imitated and so
benefit the industry on the whole.

Furthermore, the chain focuses on competing on the edge. This is evident

from its rich and successful operational history. The organizational hierarchy
is neither too structures nor chaotic. Team play is efficient but answerable
and accountable for actions. A critical mass of people is always kept within
the firm which includes both experienced and new employees. The firm also
builds upon its past concepts utilizing the concepts of modularity to gain
advantage from them.
KFC
KFC Corporation is a chain of fast food restaurants based
in Louisville, Kentucky in the United States. KFC has been a brand and
operating segment, termed a concept of Yum! Brands since 1997.

KFC boosts upon having a special recipe which has not yet been imitated.
This is the recipe which the colonel used and is still used to build many
products. KFC primarily sells chicken pieces, wraps, salads and sandwiches.
While its primary focus is fried chicken, KFC also offers a line of roasted
chicken products, side dishes and desserts. Outside North America, KFC
offers beef based products such as hamburgers or kebabs, pork based
products such as ribs and other regional fare. It modifies its recipes
according to the local taste, while some like the 11 herbs and spices and the
zinger recipe remain universal. In Pakistan the menu consists of mainly
chicken products, including chicken pieces, burgers, sandwiches, nuggets,
hot shots, chicken wings etc. They also provide rice and some salad variants
in their product line.

In 1930, Sanders opened the first ever KFC, by the name Sander’s court and
café, at a gas station in Corby, Kentucky. In 1937, the court was expanded to
a motel with 142 seats. With the introduction of the pressure cooker in 1939,
colonel grew as a delicious chicken provider by providing fresh chicken much
faster. In 1952, franchising of the business started, firstly by moving into
towns by collaborating with restaurants and cooking batches of chicken for
them. By 1960, there were 140 franchisees and 400 franchise units in the
United States and Canada. In 1966, the business went public as the Kentucky
Fried Chicken Cooperation. In 1971, with 3500 franchisees and company
owned restaurants Heublein Inc. acquires KFC. In 1980, after giving the chain
the publicity and trust it demanded to carry on business the colonel died and
the business became a subsidy of R. J. Reynolds Industries Inc. (now Nabisco
Inc.) as a result of the acquisition of Heublin Inc. In 1986, PepsiCo acquires
KFC from Nabisco Inc. In 1997, PepsiCo announced the spin-off of its quick
service restaurants into Tricon Global Restaurants Inc., whose name, in
2002, changed to YUM! Brands Inc.

KFC came to Pakistan in 1997 with its first branch in Gulsha-e-Iqbal, Karachi.
It currently has 68 branches operating in 18 major cities. It is operated by a
Dubai based company, Cupola, which took it over in 1999 with 4 major
outlets. Major competitors include McDonalds, Nandos, Hardees, AFC (Al-baik
fried chicken), Fri chicks, Go chicks and Dixy Chicks when talking about
similar products. As in industry, however, KFC’s competitors will include all
fast food chains: McDonalds, Pizza Hut, Geno’s, Hardees, Cock n Bull,
Subway etc.

KFC occupies a major position in the fast food industry, being the largest
seller of chicken products in Pakistan. It captures 30 percent of the total fast
food market in the country. Porters five forces analysis of KFC will further
help to clarify its competitive position in the fast food industry.

STRUCTURAL ANALYSIS
INDUSTRY

KFC operates in the fast food industry. However, for convenience of

understanding and application the group has carried out the analysis by
considering KFC to be in two major industries, the first being fast food and
the second being franchise. Hence, industry analysis is carried out by taking
the industry to be fast food franchise.

PORTERS FIVE FORCES

Porter’s five forces help to identify the key structural factors determining an
industry’s competitive position in the market and its profitability. They
highlight the strengths, weaknesses opportunities and threats along with
their significance of the industry. Analysis helps to understand the current
competitive position the industry occupies, animates positioning and clarifies
areas of improvement. It will also help determine intensity of industry
competition and the forces impacting strategy formulation.

RIVALRY

Numerous competitors operating as fast food franchises exist in the market.

Some of them are Nandos, McDonalds, Pizza Hut, AFC, Go Chicks, Dixy
Chicks, Cock n Bull, Hardees, Salt and Pepper and Subway. These
continuously fight against each other for a better position in the market.
Rivalry among competitors takes place in the form of price competitions,
advertising battles, product differentiation and increased customer services.
Rivalry in fast food industry can be measured by analyzing the following.

Number of competitors and size

Fast food franchise industry in Pakistan consists of large number of firms

having large variance in size and scale. Also, they differ a lot in prices,
quality and service. So, they do not have to monitor all the firms for their
actions and they can make moves without the risk of severe retaliation.
However, few large players that compete against each other have resources
for vigorous retaliation when some close competitor makes an important
move. Hence, KFC’s competition is restricted to the size of the competitor.
KFC will usually not consider what Cock n Bull or AFC is doing as important as
to what McDonalds or Nandos is doing. Fierce competition might result in the
form of various deals and price cuts offered specially in burgers between
McDonalds and KFC, but on the whole rivalry in the industry remains
moderate due to the existence of numerous players operating in various
sizes.

Industry growth

Pakistan’s fast food franchise industry is still unsaturated and is in its growth
phase. There is a lot of room for firms to enter and be profitable. As barriers
to entry to the industry as a whole are low, more and more firms as well
individuals are entering in this business. For past few years the industry is
growing at the rate of 10% annually. For instance, Subway successfully
entered the industry a few years ago and now Hardees has also followed
suite. Due to industry’s absorbent and unsaturated nature competition for
gaining market share is not bitter. Also, existing firms are increasing their
number of outlets quite fast. Moreover, firms continue to introduce products
and expand their product lines, hence, entering the new markets and
targeting the new set of buyers. Hence, because the overall profitability from
the industry is high, the rivalry is not very bitter and everyone gets its share
of profits without diverging into severe price-wars and advertising battles.
However, major players in the market, mostly equal in size, do get influenced
by each others strategies and imitate quickly but that usually does not result
in price wars. The rivalry thus remains moderate.

High fixed and storage costs

For the fast food franchise industries the fixed costs are usually high due to
the royalty charges they have to pay to operate as a franchise. As for KFC, it
takes the cooperation 40 million to open a new outlet. Similarly, for its close
competitors the costs are similar, as they are about equal in scale, size and
operations. High sales, however, help these firms to earn sustainable profits.
Storage costs are also high due to expiry and quality issues. This also places
pressure to increase sales hence increasing marketing efforts and cutting
prices which can drive profits low. Therefore, with the fixed and storage
costs being high, the firms compete against each other vigorously when
storage and expiry issues arise. In these cases they might even indulge in
severe advertising battles. Therefore, the rivalry increases. However, this is
only the case with small franchise businesses. The firms following quality
standardize do not usually face the problem of over capacity and hence do
not have to incur costs of wastage of storage materials. The rivalry overall
remains moderate.

Differentiation and switching costs

Product differentiation in the fast food industry exists but is not quite high
and generally the products are perceived as commodities so their choice
largely depends on price and service so the pressure to ensure competitive
price and service escalate. Also, switching costs are quite low, as customers
do not have to incur any cost for not buying from a firm. This industry’s
customers are characterized as highly price sensitive so they can easily
switch to a product that is like in quality and service but offered at lower
price. Therefore, rivalry can become high. Competitors have to enter into
price and advertising wars to attract customers. However, this usually
happens in small franchises who are unable to differentiate their products
either on price or quality or the by increasing the product line. Larger firms
including KFC, McDonalds, Hardees, do get influenced by each others
techniques to attract customers but always try to differentiate rather engage
into bitter rivalry for a higher share, but, since competition is there, rivalry
does exist. On the whole, the industry operates in conditions where rivalry is
moderate.

Increasing capacity in large increments

In the mentioned industry, there are expiry issues so raw material is not
purchased in bulk. KFC never purchases in large quantity that would result in
overcapacity, because it has set quality standards and KFC never
compromises on that. Overcapacity can result in huge wastage of raw
materials because most of the raw materials are perishable. Hence, KFC do
not face this issue so price cutting or chronic overcapacity is not a problem.
Small firms might increase capacity, but in the long run they may suffer due
to quality, health and accountability issues. Firms following strict quality
standards which the multinationals in particular do, usually do not face the
problem, thus the rivalry in the industry resulting from overcapacity remains
moderate to low.

Diverse competitors and high strategic stakes

There exist diverse competitors in the fast food industry as it consists of local
franchises to huge multinationals. However, they are operating for a primary
goal of making profits. So, no firm will make a move that might harm
profitability. And almost all firms operating in the industry are profitable and
no one would be willing to sacrifice high returns for some other reason.
Apparently, no one is operating for some other strategic stake. This makes
rivals to operate for single goal of profitability and hence their actions are
not destructive for existing rivals. Therefore, KFC can easily make profitable
decisions. KFC competes directly with companies like McDonalds on products
like burgers and chicken variants. The products are the same, both provide
fun meals and play place for children, both provide home delivery and both
occupy prominent locations throughout the country. Rivalry thus among
competitors is not bitter. However, both have differentiated these products
on the basis of quality, taste, efficiency etc to position themselves. The
strategies behind are different. Thus, the rivalry among them stays
moderate.

Exit barriers

Exit barriers are economic, strategic, and emotional factors that keep
companies competing even in times of low profits. The exit barriers for a firm
in the industry remain moderate and so does the rivalry. Exit barriers can be
explained as following:

Specialized assets & fixed cost of Exit

KFC does not have highly specialized assets and the nature of assets are
such that they can easily be sold in the market. Therefore, it can easily sell
its assets, as it purchases its fixed assets from Hanny Penny from outside
Pakistan, and a buyer will easily pay the price to get these. Same is the case
with other firms; assets usually do not create an exit barrier.

Strategic interrelationships

It has high strategic importance as apart from fulfilling commitment of

serving delicious, fresh and hygienic food and at the same time provides
customer with the ultimate entertainment; KFC also plays in the economics
development of Pakistan. Also, it has relationships with other companies like
K&Ns and Cupola. For K&Ns, as K&Ns claims, KFC makes its products more
acceptable to people because of KFC’s brand name and image. Cupola runs
KFC’s franchises in Pakistan. Therefore, these strategic relationships might
make it difficult for KFC to leave the industry. Firms in the franchise industry,
hence, do face an exit barrier as per strategic inter relationships are
concerned.

Emotional Barriers

KFC has high emotional barriers as presently it has provided employment to

6000 individuals who will lose jobs in the case of KFC’s exit from the
industry. So, management of KFC, or any other firm for that matter, might
show unwillingness to make economically justified decisions due to loyalty to
employees and fear for their own careers. KFC Pakistan is helping the people
suffering from impaired hearing. It is helping them accelerate their career
development, personal and professional growth. Cupola does it by
empowering the special persons creating role models for the rest. KFC is
providing a platform for the disabled youngsters of Pakistan. It strives to
give equal training and promotion opportunities to the disabled based on
merit and work performance. So, all these emotional ties can make it difficult
for KFC to leave.

Government and Social Restrictions

This is a foreign country so government can not impose any kind of exit
restrictions on KFC and most of the multi nationals in business. However,
economic effects will be negative and people will lose jobs. Moreover, the
Government of Pakistan receives over Rs.10 million per month from KFC
Pakistan as direct taxes, and 95% of all food and packing material used
in KFC Pakistan is procured locally, which sums up to a purchase of over
Rs.35 million per month. So, it might be discouraged to leave. However,
there are no restrictions as such for KFC or any other franchise to exit the
industry as far as it does not have any loans it needs to pay back.

THREAT OF ENTRY

New entrants will impose a threat to the existing players in the industry.
These entrants may be potential entrants of acquisitions and will bring new
capacity and resources and will lay foundations for enhanced competition for
market share. These threats to entry are determined by barriers to entry
along with expected reaction of the existing competitors. As the barriers set
by the existing players increase, the threat of new comers to enter the
market will decrease.

Barriers to entry

If the barriers to entry are high the threat of entry is low. Here, we will be
focusing on the barriers to entry in fast food industry to which KFC belongs.

Economies of Scale

Economies of scale refer to reduction in unit price due to large volumes

produced which can be a result of efficient production, marketing,
purchasing etc. Although, when food products are produced at large scale
economies of scale occur as fixed cost is spread over large volume of
products, however, due to the nature of the industry products these
economies are constrained by the volume of sales. Therefore, these
economies of scale are no incentive for existing firms to keep new entrants
away. Also, there are no by products that are produced to earn incremental
revenues that means new entrant would not have to face a cost
disadvantage on this account. However, patents and established brand
names provide large economies of scale as these can be shared across all
company products. That means that new entry will only have to face
disadvantage, if it wants to enter in direct competition with the established
firms which are quite few in Pakistan. There exists no vertical integration
across the industry but only few established firms like KFC itself. However,
this would not keep the entrants away as the industry allows a lot of
flexibility for size and scale with which new entries can set up business. In
conclusion, economies of scale in fast food industry for established franchise
business exists and may serve as an entry barrier, and so contribute towards
building a threat to potential entrants.

Product Differentiation
Product differentiation means that established firms have brand
identification and customer loyalty. In Pakistan’s fast-food franchise industry,
product differentiation does play a role in the growth of a business. Potential
entrants will have to differentiate slightly to capture the attention of the
customers. It is hence not very easy to enter and operate profitably. KFC has
differentiated its products on the basis of “Food, fun & Festivity”, providing
numerous variants of its special recipe in the form of chicken meals. It also
offers various deals to differentiate its products from its competitors. Apart
from the products it offers, KFC differentiates itself on the basis of the
experience it provides: the right chicken, the right place and the right
celebration! Hence the emphasis on ‘we do chicken right’. Seasonal
discounts (Ramadan deals), sales promotions (Ufone, Standard Chartered,
Bareeze), birthday parties, chicky area and events organized for social
responsibility (donations for SOS and FARYAD) are all ways of differentiating
what it offers. KFC also differentiates service in the form of the dine-in
experience, take away and KFC on Wheels. Thus product differentiation is a
tool utilized by most businesses but not to an extent to enter a blue ocean.
The core products offered by all remain more or less the same; hence do not
pose a high barrier to entry. Therefore, there is not a high threat to entry
into the industry. Firms come in, differentiate slightly and run businesses
without competing on product differentiation.

Capital Requirements

Capital requirements are the financial resources needed for investment to

set-up the business and to compete. It may also include R&D, human
resource and marketing costs to differentiate and overcome brand loyalty of
competitors. In this industry, capital requirements for entry are high because
franchises usually require a lot of set up cost, specially the royalty they have
to pay on land. Furthermore, for penetration in the market, it might have to
incur some amount on marketing and advertisement for not only awareness
but differentiation. Thus, the capital requirements are huge: setup, plant and
equipment, management and employees, suppliers, production, marketing
and promotion etc. Therefore, the capital for entering the industry is a
barrier to entry and poses a threat to new comers.

Access to distribution channels

Distribution channels include retail and wholesale firms that would help
distribute products to end users. In the franchise industry finding an
appropriate place for the restaurant, sometimes becomes an issue, but
mostly it remains at a low scale. All new entrants if they have the required
capital and resources do find a place to set their business up. So, access to
distribution channels cost for new entrants is low, however, established firms
go to an extent of building their strategy on their distribution network. To
come and grow as large as them is surely impossible, but to find a place in
the market as a newcomer is not very hard. Hence, the barrier remains low
ad the threat high.

Cost disadvantages independent of Scale

Competitors might have cost advantage based on several other factors
independent of their size and economies of scale.

• Proprietary product technology: On the whole, the industry has

got no product technology that would make a real difference in
products offered or the way they offer. However, there exist some
established firms that have patents for some recipes. For instance, KFC
has a secret recipe.

• Favorable Access to raw materials: Raw materials for this industry

include buns, bread, chicken, oil, flour, spices, vegetables etc. These
materials are easily available locally. Their procurement is not a hard
task.

• Favorable Locations: Fast food franchise market in Pakistan is still

much unsaturated and room for finding favorable locations is high. A
glance at urban areas of Pakistan and fast food restaurants located
there shows that a lot of markets are still not served. In other words
there are enough people in urban Pakistan for any restaurant to
survive. New entrants can easily secure for them a favorable location
as shopping malls and markets continue to expand. Therefore, this
barrier does not necessarily serve as shield against new entrants.
Entrants can easily enter the market and find a favorable location for
them.

• Learning or Experience Curve: Because this is food-based industry,

the more you cook the more you master it. Moreover, those who are
serving in the industry for so long have more experience about
customers taste, buying behavior, switching options etc. than new
entrants. For them, efficient production is easy; hence, unit cost also
decreases. KFC has experience of 13 years of serving in Pakistan and
more than seven decades in business. Moreover, it is the most
 experienced firm in chicken production. Therefore, experience curve
might provide some barrier to entry and decrease threat of entrants.

Government Policy

There are certain government regulations pertaining to the fast food

franchise industry in Pakistan. Some of the requirements include Halal food
production and selling, Corporate Social Responsibility, standardization
checks, a test to prove quality before entering the market, renovation after
every 8 to 10 years as mentioned per contract, tax duty and numerous other
certifications, especially if operating on a large scale. In general, this barrier
is moderate, since nearly all the companies in Pakistan produce Halal food
and contribute to some extent to the local sales, they also fulfill other
requirements since entering the franchise industry. Therefore, entry is not
highly difficult, and new firms can enter the industry making the competition
fierce and increasing the threat of entry. KFC complies with both of the
requirements and provides Halal food and contributes to the local sales up to
95%. Food and packing material used in KFC Pakistan is procured locally,
which sums up to a purchase of over Rs.35 million per month.

Expected retaliation

In past, retaliation shown by established firm has been quite low. For
instance, recent entries like JFC, AFC, Subway and Hardees show the ease
with which they entered. Also, no major moves against them have been
observed from existing firms, because they are already well established or
reaping profits. No doubt, all firms will compete against each other to grab
the better share in the market, but sever retaliation has not been usually
observed. Hence, expected retaliation is low and threat of entry is high.

Entry-deterring price

The prevailing price structure of huge companies like KFC is a balance of the
value provided with the associated cost. Entrants will either have to come up
with a similar structure, which suggests providing quality product for a high
price. However, most products already exist in the market and so anything
provided by the entrant would have to be well differentiated to motivate
customers to pay the high price. Since KFC had in house baking facility and
an efficient value chain network, it can afford to offer products at a
reasonable price; now targeting the middle class as well. In contrast a
developing business can not afford to offer similar prices for equally good
products, hence will suffer a loss. The entry deterring price is thus high and
imposes a major barrier to entry. The threat of entry hence becomes low.

BARGAINING POWER OF BUYERS

KFC as a buyer or the customers of KFC can compete in the industry by

forcing down prices or demanding higher quality and more incentives. The
following factors determine the bargaining power housed by the buyers.

Concentration of buyers

KFC has a large customer base. Its revenues are not dependent upon the
buying power of a single customer. Hence, the customer buying power is low
unless a major action of the company causes distress to a group of buyers
like the incident of opera coupons, where the customers got upset by the
non-functioning of the coupons and KFC has to reimburse them along with a
public apology. Buyers always hold sufficient power to bargain with the firm.
However, if the customer base in large, the sales and profitability is not
affected by retaliation by a small group. If the group is large however, the
bargaining power increases.

Price sensitivity

The population in Pakistan is price sensitive; people would rather go for

similar product selling for fewer prices than buying an expensive one. Also,
there are lots of alternatives to within and outside the fast food industry as a
whole. While a brand loyal customer may pay whatever price KFC asks for a
customer looking for just good fast food would go to a place where his need
is satisfied with the least amount of cost incurred. Hence, price sensitivity
gives a lot of power in the hands of the buyers.

Products are undifferentiated

Products in the fast food remain undifferentiated, as discussed before.

Marketing efforts help differentiate the products a bit and build brand
awareness; it does not help customers lock up with the firm as they can find
similar products elsewhere. There are some firms offering a different range
of products, like Subway, who have managed to differentiate their products
from the rest of the industry, targeting the health conscious people.
However, if we talk only about KFC and other chicken specialists, the
products remain more or less the same. Taste, in the Pakistani market does
matter, but the prospect is not strong enough to stop people from switching.
Everyone is willing to go and try food from a new comer. Therefore, as the
differentiation itself, the bargaining power also remains moderate.

Switching costs or substitution costs

There is no monetary cost associated with switching from KFC. As discussed

earlier, switching costs depend upon buyer behavior: their extent of price
sensitivity or inclination towards preferred taste etc. Those emotionally
connected with it might suffer switching cost of psychological nature
concerning their emotional attachment with the brand. However, that does
not necessarily decrease their bargaining power as they still can switch to
other brand at their discretion.

Therefore, the bargaining power of a single buyer is not much, but on the
whole they have got bargaining power based on their buying behavior, price
sensitivity and low switching cost.

PRESSURE FROM SUBSTITUTES

Substitutes are the products that can perform the same function as the
industry product. For fast food the substitutes are home-made-meals, ready-
to -cook meals offered by Knorr, Mon Salwa, K & N’s Chicken and local
vendors, other restaurants as they could choose anyone of these foods over
fast-food. Moreover, increased health consciousness has lead people to
switch from fast food to health oriented food as offered by Subway or made
at home.

Switching costs

When a customer switches from a product to its substitute, then he has to

bear a switching cost. If the cost is high then the probability of customer to
switch will be low. In the industry, there is low switching cost as customers
do not have to incur any additional cost to switch from a product. Therefore,
there is increased pressure of substitutes because customers can easily
switch from products on the basis of low prices. In the market there are
numerous substitutes available for fast food. Firms like K&N’s and Menu offer
Ready-to-Cook meals. The long range of products offered by these firms
provides best substitutes for KFC. In price sensitive market like Pakistan,
products of comparable quality with low price attract customers. Same is the
case with KFC; the substitutes available have low price, comparable quality
and long expiry life than the products of KFC. Moreover, local restaurants
and cafés also deal as substitutes of KFC. Health and obesity issues keep
rising which again push people towards healthy eating and fast food is not
considered to be one. On the whole, the switching cost remains low and
pressure from substitutes high.

Buyer inclination to substitutes

Buyers have greater inclination towards substitutes because they are

considered healthier and more health conscious people would rather move to
other substitutes. KFC faces this threat, because it can lose its loyal
customers as health consciousness and obesity issues increase. It has made
efforts by advertising and launching its trans-fat meals which have low fat
content. Nevertheless, fast food remains as such and people refrain from
eating it especially if advised by a doctor. The buyer inclination towards
substitutes thus increases, increasing the pressure from substitutes too.

Substitute’s price-quality trade-off

Analysis of substitutes shows that most of the products have attractive price-
quality combination. Also, range of products at different prices is available.
Hence, price-quality combinations offered by substitutes may tend to
motivate customers to shift, especially with increasing health concerns. So,
KFC has to face the pressure from the substitutes available in the industry it
belongs to. Although, KFC claims that it provides quality chicken based on
secret recipe that no else has it, has already been replicated to an extent, by
its competitors. So, it can increasingly lose its customers due to above
mentioned factors. The pressure from substitutes hence rises.

BARGAINING POWER OF SUPPLIERS

Suppliers of KFC include K & Ns, Pepsi Co, Hilal, Nescafe and bread and buns
are produced internally. Marination is imported from California, India and
Dubai. The suppliers within Pakistan can compete in the industry by raising
prices or reducing quality of produced goods or services.

Supplier concentration

In Fast food industry there are lots of suppliers available as the raw materials
needed for the end products are widely available across Pakistan. Firms can
easily switch suppliers. Overall, supplier concentration of chicken in Pakistan
is low, but drinks suppliers are concentrated. So, the bargaining power
differs across different vendor industry. However, KFC produce bakery
products in-house. However, Suppliers of KFC chicken is K&N’s and drinks
are supplied by Pepsi, in Pakistan. As for chicken other alternatives such as
Zenith and Menu are there. KFC has to rely solely on Pepsi for drinks because
there is no other quality supplier except Coca-cola that is the major supplier
to McDonalds. Hence, the bargaining power of Pepsi is high. It is difficult for
KFC to find an equivalent supplier. However, both being multinationals
benefit from each other. K & N’s too, being certified for quality and Halal
food possesses some bargaining power but options are available and in the
case K & N’s is the beneficiary; to be associated with a huge company like
KFC. Amongst all the suppliers, maximum bargaining power is with Pepsi,
also it is strongest multinational. K n Ns comes second. Recently, a firm is
said to launch which will provide chicken to the restaurants at a much
convenient price than K n Ns, and at the same quality. If the firm is
successful, it might hurt the bargaining power which K n Ns possesses.

Size of suppliers

In industry there are suppliers of different sizes. Smaller the size of certain
supplier lowers the bargaining power of the supplier. Pepsi is huge and won’t
be affected if KFC stopped buying. KFC on the other hand cannot afford to
let go of Pepsi, especially when Coke is already serving McDonalds and
various other competitors. Not that Coke will refuse to supply to KFC, the
firm itself will prefer to be different from its major competition. KFC is major
buyer of K&Ns which would not want to lose partnership with KFC, especially
when new chains like Zenith and Menu are coming up. Also, affiliation with
KFC makes it more acceptable to people. On the other hand, KFC does not
have an option to buy from a well known and certified chicken supplier.
Zenith is new and Menu is also not as large and popular as K n Ns. Thus,
suppliers overall do possess bargaining power.

Uniqueness of service/Product

The products and services offered by the suppliers are alike as the products
they supply are naturally produced that they do not produce artificially. So,
the uniqueness of the products and services is not there. However , KFC
have choice to buy from big chicken suppliers like Zenith, Menu and Knorr,
they are not perfect alternatives for KFC suppliers, because K&Ns have
better standard and it is HACCP, it helps build KFC’s image as Halal, and it
also got brand of the year award in 2009. All these factors make it best for
KFC’s brand image. These factors can make K&Ns stand apart and give it
some bargaining power. Pepsi too, of course, is unique in what it offers. Halal
on the other hand has no uniqueness in service. KFC could easily shift it for
Knorr or National. Hence, the suppliers providing some uniqueness have
more right to bargain than the others.

Switching costs to KFC

KFC faced the issue of not providing halal chicken some years back, which
deteriorated its image. But due to its present supplier, K & N’s, which is
largest Pakistan-based company and known for best practices for
slaughtering but also follow stringent quality standards has regained the
trust of public. Indirectly KFC has based its halal chicken on K & N’s brand
name. So, switching cost for KFC can be higher if it switches from K&Ns and
even Pepsi, for both brands compliment each other. These factors raise
bargaining power of its suppliers.
Threat of forward integration

Forward integration by suppliers can pose a major threat to the company to

which it is supplying, especially when not many alternatives are available. K
& Ns can start their own restaurant and fast food chain. This may pose a
threat to KFC’s supply of chicken in Pakistan and thus gives some bargaining
power to the supplier.

CONCLUSION

High economies of
scale
Moderate product
High
differentiation
concentration
High capital
Large to small size
requirements
Uniqueness of
High access to
product high to
distribution
low
Moderate
High switching

Low
concentration
High price
Low switching sensitivity
costs Moderate
High buyer
inclination
High
sensitivity
towards price

Analyzing KFC on the five competitive forces given by porter certainly makes
its competitive position more clear. KFC is a well established multi-national
with no equally big direct competitor in business. However, it operates in the
industry that has moderate barriers to entry, hence; it faces a threat by new
firms: both local and multi-nationals

Rivalry, in the fast food franchise industry we analyze is not bitter. Large
scale companies like KFC do not indulge into price wars and intense rivalry.
Instead they focus on differentiating their product and animate selling efforts
to compete in the market. Exit barriers for KFC and similar companies are
not very high although they might get some restrain due to high capital
expenditure, contracts and relationships with suppliers, employees and
customers. In addition, due to emotional and ethical reasons, companies like
KFC would rather accept their mistake and take it from the scratch then wind
up and run away. Exiting business usually involves high stakes and tradeoffs.

KFC faces a lot of threat from its substitutes, especially with growing health
concerns among its customers. Health and obesity issues associated with
KFC food have diluted the trust people once had in them. Hence, the reason,
substitute pressure is there. KFC has tried launching salads and promoted
production using vegetable oil in the past.

Customers do have a say in the working of the brand they are so loyal to. No
company can afford to lose its customers. Although, the customer base is
huge and one single customer does not have much bargaining power, KFC
tries to listen to each and every buyer via feedback and opinion cards. Mass
customization is what KFC is trying to do to make all customers happy thus it
makes it a point to do whatever is possible to cater to the needs of the
customers.

Suppliers on the other hand do possess some bargaining power, especially

when talking about K n Ns and Pepsi. Although, none of the two wants to lose
association with KFC since it benefits the suppliers brand’s name too, they do
possess some power unless an equally powerful supplier enters the market.
The company and its suppliers however, remain each other’s beneficiary and
do what they can to benefit each other.

In conclusion, KFC occupies a strategic position in the market. It is in a

profitable business with maximum returns. However, the entire positioning is
based upon one single secret recipe which if eluded by one of the
competitors can cause serious damage to the brand. Therefore, the business
though profitable is risky. KFC should try and differentiate its products on
other lines than only chicken to capture other segments in the fast food
industry.

KFC IN THE CONTEXT OF ‘BLUE OCEAN STRATEGY’

AND ‘COMPETING ON RESOUCES’
RED OCEAN

Kentucky Fried Chicken is one of the most famous fast food restaurant
started in the early 1930’s by Kernel Sanders in southern USA. It is known
since then for providing the best meals for chicken lovers throughout the
world. It is part of the YUM Brand Inc. and focuses on providing quality
products and services to the customer. It came to Pakistan in 1997 with its
first branch in Gulsha-e-Iqbal, Karachi. It currently has 60 branches operating
in 18 major cities. It is operated by a Dubai based company, Cupola, which
took it over in 1999 with 4 major outlets. KFC specializes in chicken products,
including chicken pieces, burgers, sandwiches, nuggets, hot shots, chicken
wings etc. They also have salad variants, rice, rolls, ice cream, soups, tea,
coffee and drinks in their product line. Major competitors include AFC (Al-baik
fried chicken), Fri chicks, Go chicks, Nandos, Dixy Chicks, McDonalds, Pizza
Hut, Geno’s, Hardees, Cock n Bull, Subway etc.

KFC entered the red ocean when it came in Pakistan in 1997. The industry
was already occupied by major players in the fast food industry like salt and
pepper, various burger points and other local fast food providers. However,
KFC’s resource of being a multinational and carrying a successful brand
name made it a unique proposition to the new market: Pakistan. Its specialty
chicken and a comfortable environment for food and celebration appealed to
the local population, but these resources were not unique and McDonalds
followed suite in 1998. Although these supreme brand names become
inimitable for the local market, the competition does exist as mentioned
earlier. Today, the industry has numerous players all competing with each
other for a better market share.

KFC takes the structuralistic view of building up strategy. Its strategy

although remains the same: providing the best chicken to the people and
celebrating with them their achievements, the tactics do change with the
context, which is purely a red ocean strategy, however, beneficial for a
company to survive. Ramazan and eid deals are an example. These are
given by almost all the fast food chains in Pakistan and by KFC too. Hence,
most of the times competitors’ strategies are taken as a bench mark to
implement their own. Also, there is a trade-off between product
differentiation and price. People usually have to pay a higher price for a new
or enhanced product, however, that is not the case with the companies in a
blue ocean. These companies usually offer differentiation at a low cost.
Furthermore, KFC’s proposition of fun, food and festivity is similar to what
McDonalds or Hardees offer. Even the taglines like ‘finger-lickn good’ for KFC
and ‘im loving it’ for McDonalds offer a similar experience. Even the specialty
chicken KFC claims to provide is now being offered by chains like Nando’s
and AFC. Hence, the fact that KFC consecutively focuses on being better
than the competitors than eliminating the competitors completely.
KFC can work towards the blue ocean by taking a restructuralistic
perspective and as an incumbent grow into an industry where there are few
or no competitors. One of the suggestions can be building into a chain which
is a combination of amusement and food. KFC is, no doubt, already providing
that, but it is not different from what the current industry is practicing to
provide amusement. It can, for instance, build an amusement park. It already
has a brand figure: Colonel. It can build the amusement park around that
figure and combine food with it. It can also grow into animations on the same
theme. Although this requires a huge investment, but it will also provide
huge barriers to entry with no competition to battle with and thus make
resources durable for a longer period of time.

COMPETING ON RESOURCES

Since KFC continuously competes in the industry, it builds its strategy on

some important resources it owns and which are valuable for it based on
three factors: scarcity, demand and appropriability. Some of these resources
include both tangible and intangible resources.

Tangible resources include various patents like ‘the original recipe’ and
‘kentucky grilled chicken’ and the network of a strong distribution chain with
60 outlets adding up to physical uniqueness. Patents are not imitable while
the network is also not easy to be copied by local players. Intangible
resources include the brand name itself build by some successful path
dependency which is also hard to copy. KFC also uses the resource of being
the best in chicken business due to its secret recipe of 11 herbs and spices.
This resource is also inimitable since it is said to be well protected as the
colonel’s original recipe for Kentucky fried chicken. It has been secret so far
and is thus durable. Competitors like AFC and Dixy chicks have come up with
similar chicken but the recipe is not the same hence is the taste and quality.
Therefore, this is one resource KFC proudly boosts off and builds its entire
strategy on it. Its strategy also talks about fun and festivity; celebrating
achievements of not only its customers but also its employees but this
resource is not something that cannot be imitated. McDonalds, Hardees and
some local chains have positioned themselves on providing the same
experience for its customers and employees.

The secret recipe is also KFC’s distinctive competency. It strongly promotes

it to compete in the industry and gain competitive edge. The brand name
also is a very valuable resource KFC has. However, durability issues rose in
the local market when obesity and halal perceptions began to upset
customers in the local market. This is also where substitutability issues rise.
People start to turn towards healthy and secure food. Hence, the brand
image does have its negative points along with creating a lot of popularity
and acceptance for the company.
KFC considers its distribution channel as one of the major resources I own. It
has the largest number of outlets reaching out in areas where none of the
other fast food franchises are present. The channels of distribution also are
more in number than other fast food chains. It provides dine-in, take away
and KFC van (a mobile KFC van) facilities to customers.

Investing and leveraging valuable resources remains the key to all the
companies competing on resources, because all resources tend to become
less valuable with time and expansion of industry. KFC has used its secret
recipe and patents to continuously differentiate its products from
competitors. It has used one recipe to come up with a whole range of
products and it continues to increase the line. Apart from that KFC also tends
to differentiate both product line and operations according to the
environmental context. It has differentiated its product line including rice and
currys as per local demands. It also takes part in various local activities to
build public relations and good will. Supporting deaf and dumb people,
providing education to under privileged children, sponsoring various arts
events and sports are some of the activities KFC is involved in. It also
celebrates local events and festivals like Ramadan, Eid and Independence
Day by offering various deals and organizing events. It has also invested to
build its distribution to open a number of outlets in the country the resource
being a strong successful value chain. KFC also plans to reach a target of
100 outlets in 35 major cities by the end of 2010. It wants to grow on its
strength of the largest distribution in the country and tap unidentified
markets.

In conclusion, KFC can invest and leverage its current resources to enter into
a blue ocean by adopting a strategy of doing something completely different
which will build a completely new industry. One of the suggestions is
combining the idea of amusement and food. KFC already has a strong supply
network and the funds of expanding into such a market. Other ideas can be
investing into markets like targeting health conscious people and launching a
line of products specifically for them or giving the customers the option to
get their food customized and charge accordingly.

USING GAME THEORY TO SHAPE STRATEGY AT KFC

VALUE NET

‘The game of business is all about value: creating it and capturing it’- a
phenomenon most businesses successfully implement and work at. Without
creating and capturing value, there is nothing a business has to offer a
customer. It is the major strategy which drives any enterprise. KFC also
continuously tries to create value and then capture some in return. Creating
value involves numerous players which participate in the working of the
enterprise. To describe these players a value net is used. This value net
describes the various players a company coordinates with to create. It
consists of customers and suppliers interacting with the company in the
vertical direction and complementors and substitutors interacting with the
company in the horizontal direction.

Suppliers are the companies providing resources such as raw material. KFC’s
suppliers are primarily Pepsi, K n Ns and Halal. Customers are the people
who utilize the final product. KFC targets both the upper and middle classes
for the product line and experience they offer.

Substitutors are alternate players from whom customers may purchase

products or to whom suppliers may sell their resources. KFC has a number of
substitutors namely McDonalds, Hardees, Fri-chicks, Nandos, Subway, ready-
to-cook meals, continental food available at restaurants and even home-
made food. Complementors are players from whom customers buy
complementary products from or to whom suppliers sell complementary
resources. Complimentors for KFC include the companies providing
beverages (Pepsi) and various sauces (Halal). McDonalds, Fri-chicks and all
those companies which buy chicken from K n Ns now become
complimentors, since they help to offset the price set by K n Ns.

CHANGING THE GAME

Understanding the symmetries existing in the value net is the manager’s job
along which strategies are shaped and executed. These symmetries also
help managers to change the game by changing strategies. Managers
usually find these symmetries along the vertical dimension. They understand
that suppliers and the customers work together to benefit the company and
can also compete to capture a better share in the market. However,
managers usually fail to find this symmetry when it comes to the horizontal
dimension of the value net. Substitutors are always taken as enemies and
complimentors as friends. However, the relationship can change causing
both win-win situations or loose-loose. Managers need to find these
interdependencies to change the game. The game can be changed by
changing the players in the game as defined by the value net; increasing
your value added to the game or decreasing the value added by other
players; changing the rules of the game, that it through which the business
and the players operate; changing tactics to play or by changing the scope of
the business by expanding or shrinking. KFC too can change the game to its
benefit by changing one or more of these options.
Changing the players

As per the value net, the players of KFC are all its competitors, suppliers,
substitutors and complimentors.KFC can change its suppliers, by backward
integration or by shifting to another supplier like Zenith or Menu for chicken.
It already produces its own buns; it can back integrate to get its own supply
of chicken too. These practices will reduce the bargaining power of suppliers
and give KFC the power to bargain on various factors primarily price. KFC can
also move into a new target market, like introducing a new line of products
targeting health conscious people or target beef and fish lovers by producing
a product line for them. This practice will increase the customer base and
also decrease customer bargaining power. Power of the substitutors can also
be lowered by entering into a new market, may that be food to target a
different segment or product differentiation to keep offering something new
to the customers. Price differentiation without indulging in price war can also
be effective. This can be done by offering various deals not only on occasions
and events but otherwise too. The complimentors’ power can be reduced by
in-house production of the complimentary products. This step will not just
decrease the power of complimentors but eliminate them completely.

Changing added value

KFC practices numerous ways to add value to its product. KFC has been
highly active in public relations. It has been involved in numerous social
events to build a good corporate image. In its tangible products it tries to
add value by offering various deals. Also, it continuously comes up with new,
enhanced variants of the existing products. In its experience, KFC tries to
incorporate what it claims to stand for. Celebrations for various events are
organized and promoted. Teacher workshops, student appreciation programs
and earning facility for the impaired have helped KFC to stand out and
promote itself as a socially responsible organization. In addition,
sponsorships of various events also help it to add to its brand image. KFC
can continue adding value to its company by adding tangible value, like
increasing the product line or entering a new market. It can also add value to
the KFC experience by working on the dine-in facility which is not rated too
well by customers. KFC can also provide more convenience to customers by
going electronic; the idea of launching an e restaurant that is, facilitating
customers with online ordering and meal customization. KFC can also add
value by investing in and leveraging its current resources to enter a blue
ocean. However, this will change the industry and completely eliminate some
players. Another way of adding value to the company is by changing the
players in order to capture greater value, for instance, suppliers. Although, K
n Ns brand value is way higher than Zenith or Menu, KFC can change to
Zenith for reasons like introducing beef and fish products. In the categories
mentioned Zenith is a major player and has a significant value over others.

Changing the rules

There are no universal rules for a business to follow and same is the case
with KFC. Some set of rules which play a role in the Pakistani market include
laws pertaining to ‘halal’ food, Government regulation towards the
contribution of a multinational in the local growth and other agreements as
per work ethics, culture and contracts. KFC utilizes a ‘one price to all’ rule as
well. It usually does not copy prices as far as small new comers are
concerned. Also, in such a diverse industry where prices are highly versatile,
KFC only cares about the major players in the market and offers a price
which acceptable to customers as compared to competitors. The rules can
be changed if KFC tries a new approach like customizing the products as per
individual need. Prices then can be charged respectively too. In the industry
most players are freewheelers. In the fast food industry companies usually
charge according to the value they offer and hence each company gets a
share for the value, and which ever companies increases this value tends to
charge higher than the rest and most of there is a readiness to pay for a
higher value among the audience. KFC too plays the same way. It charges a
price relative to what it offers. An enhanced product usually costs more.
Disparities, however, do exist when people do not find value for the money
they pay, and the perception is significant enough when talking about KFC.

Changing the tactics

This is connected to the rules too. If a rule like the provision of halal food is
broken, which did actually bruise the reputation of KFC at a time, the
perceptions towards the brand will change, especially in a country like
Pakistan. Hence, after that violent issue, KFC’s tactic was to change the
perception people had suddenly acquired. It indulged into major marketing
campaigns to convince the target audience and was very successful too.
Furthermore, the KFC has changed tactics when it comes to obesity
concerns. Instead of advertising cream and topping, which definitely raise
obesity concerns, it advertises the usage of low-fat vegetable oil, availability,
convenience, taste, experience and the image associated with acquiring the
brand. Hence, changing the tactics usually means getting customers to buy
your product and changing their perceptions. KFC can also change tactics
like supporting causes, starting a healthy food line to suggest concern for
obese customers, agreeing to the fact that fast food causes obesity and then
suggesting ways to overcome it like exercise help-books to effectively
compete in the industry.

Changing the scope

Currently KFC’s scope is the provision of the best chicken and fast food
experience in the country. This is the scope claimed by many other fast food
providers of Pakistan. KFC can change the game by changing the scope of its
company. Some options could be entering new segments as mentioned
earlier. These may include an increase in the current product line: breakfast,
salads, beef, fish and desserts. It can also increase the scope by adding to its
portfolio: launch a television cooking show; start cooking competitions; build
an amusement park etc.

TRAPS OF CHANGING THE GAME

There are numerous traps while trying to change the game. Most fast food
restaurants are already in the first trap. They have accepted the game as it
is and made a place for themselves in it. They consider finding a place to
earn profits the only reason to survive. KFC too is one of them. It has
constantly positioned itself on one single recipe which many even claim to
have copied. It is time that it moved out of that shell and position itself on
more significant factors by changing the entire game to its benefit.

Secondly, KFC does not go into the beef business in fear of loosing focus on
its chicken. This is because it does not consider coopetition strategies. It
should look for win-win opportunities. On the same note, KFC should not look
forward to increasing business by harming others. It should look for win-win
opportunities rather than win-loose ones. When KFC came to Pakistan, no
other fast food chain had a play area. It was the first to come in and target
children and families in such a manner. Soon, McDonalds came in with a
similar experience and many local restaurants followed suite. Hence, the
strategy, along with KFC, benefited many and on the whole increased the
demand for fast food. This is one example of a win-win strategy in the
Pakistan industry.
On the same lines, if finally accomplished something, thinking that its final is
the third trap. KFC probably knew that McDonalds will come with play place
for kids once in Pakistan but it bore in mind that as many people came up
with the play place, the more benefit it will provide o the industry as a whole.
Hence thinking, that others will not imitate the change is another trap.
Imitation, sooner or later, comes. Companies should look forward to
strategies whose imitation will create win-win situations as in the GM
example the case.

Unless the entire value net is clearly seen, change cannot be made. Simply
put, nothing that cannot be seen can be changed. KFC is always in
competition with McDonalds, however, it fails to see that McDonalds can also
be a complementor since both are supplied by K n Ns. Both together can
offset prices of K n Ns, but as per the conventional thinking, competitors are
only enemies. Hence, identifying each player in the value chain and the role
played by it becomes crucial.

To change the game, a set of steps cannot be followed. KFC will need to be
allocentric and put its perspective on all theories to successfully achieve
change. KFC produces its own chicken abroad. The idea in Pakistan failed
miserably and bruised the reputation of the chain. KFC however, was smart
enough to change tactics immediately and to some extent, gain it back.

Finally, change is the only constant. If the organization thinks that by

accomplishing one successful change it has achieved its ultimate goal, it is
seriously mistaken. Organizations have to keep on changing. During the
process, some changes will fail, and the organization will have to change
them. Most of the ideas suggested above may not work. KFC has to carefully
measure each and then introduce them. It may still fail but it will have to
change them. Product line extensions are a good example. KFC recently
launched hot wings as a product line extension for chicken. After a post
launch survey it realized, it wasn’t doing too well and quickly changed it for
its benefit: increased the quantity and also attached it to a combo.

CONCLUSION

In conclusion all organizations should look ahead, assess past and then bring
change for not only there benefit but to create win-win situations. Win-lose
situations do create high entry barriers and create distinctive competencies,
but win-win situations, though imitable are usually more appealing to the
audience and beneficial for the industry. The fast food franchise industry
usually ends up in profitability but a step taken by one player. But, along
with win-win situations there have been cases of price wars amongst small
scale firms resulting in loose-loose situation. The firms in the industry usually
play for a win-loose situation, but since the market is not well differentiated,
the situation mostly ends up as win-win when most ideas are easily imitable
and executed effectively.

KFC – COMPETING ON THE EDGE?

PLAYING THE IMPROVISATIONAL EDGE

The first KFC restaurant opened its door in January 1997, drawing thousand
of the eager customers to enjoy quality food and friendly service in clean
surrounding. Boosted by the huge success of the first restaurant, new outlets
mushroomed at prime location in both Karachi and Lahore that continue to
attract a record number of quality food lovers. KFC is considered to be the
number one brand among fast food restaurants in Asia.

In Pakistan, there are large amount of chicken lovers. In a highly competitive

market, restaurants have to keep coming up with unique products so that
customers do not switch to other brands. To do so, companies have to play
around with their strategies on the improvisational edge. Is KFC doing so? To
answer this question the culture, structure and communication channel of
KFC will be analyzed.

KFC commits to provide delicious, fresh and hygienic food to its customers;
and to fulfill its commitment KFC follow specific rules. All processes, from
inventory level of products to finished goods, are well defined. It is the
responsibility of quality management department to ensure quality at each
and every level. At business level change is always expected. KFC culture is
big on diversity in workplace that promotes differences in background and
focuses on teaching everybody something new, they encourage new and
innovative ideas because they consider it their key to competitive growth
,focuses on building relationships, creating diversity and commitment with in
company, among employees and customer.

Change in work culture of KFC is evident from the example of shifting from
mechanical slaughtering of chicken to collaborating with K n Ns on the
arousal of the Halal/Haram issue in Muslim countries. Marketing department
is responsible to carry out proper marketing research before and after the
launch of any product, recommendations are made and respective steps are
taken.

KFC is a well structured organization. It has five departments, Finance,

Marketing (and R&D), Human Resource Management, Operations and Quality
Control Department. Marketing and R&D are combined departments. At
product level, marketing department is responsible to advertise its products
in the market. Day to day demand forecasting and schedules are
responsibility of Operations Management Department. Strict priorities like
keeping the food hygienic and delicious every time, it is served to customers
are communicated by the same department. At business level,
responsibilities are distributed too. The Marketing department has teams
that collaborate to form marketing strategies. The basic purpose of this
department is to keep an eye on the competitors that what they are doing.
Similarly finance department is responsible to maintain accounts, quarterly
analysis of business results and to deal with all other financial issues. KFC
has also created some handful of targeted measures of real time operations
like day to day demand forecasting, administration of restaurants, training of
employees etc is responsibility of operations manager. Operational efficiency
is important for any business especially in restaurants. Timely delivery of
food cannot be achieved without following standard set of procedures.
Processes are defined at every stage. Quality control department check
quality at each and every step till the final product. Quarterly meetings are
scheduled to review the performance of each department. Moreover in
annual meeting all departments are invited in which the performance of the
organization is reviewed and goals are set for the year. Managers set their
priorities according to these goals. Management team meets on weekly basis
in order to review their activities and priorities list. Resources are allocated
according to priorities. For example a new deal is launched in the market
with agreement of all the heads of department. Deadlines are clearly defined
for some tasks like offering a new deal in the market. The marketing
department does pre-launch research, because of highly changing market
minimum tenure of launching the new deal is 30 days. Post launch surveys
are also made by marketing teams. In organization hierarchy heads of all
departments are accountable to the Chief Executive Officer. CEO has the
responsibility for the performance of whole organization. Performance
reviews of the whole are taken under the supervision of CEO on daily basis,
moreover extensive reviews are taken weekly.

Although structure is important but equally important is to understand what

is unstructured. A few, major responsibilities, priorities, operating measures
and deadlines are structured. There are few lock steps and checkpoints when
it comes to the quality and cleanliness of food but in actual departments are
not burdened with set of strict rules. The culture of KFC encourages team
based activities and the performance of the department is evaluated at
collective level on the basis of team performance. This shows that teams
have flexibility to work in their own way but the end result should the best of
their team can do.

Communication is a self described way of life in a company. Communication

begins with groups. KFC has teams with in the department and there are
cross functional teams. Much of the communication among teams is
occurred in formal meetings for example there are regional meetings. These
meetings provide opportunities to share ideas among each other and also
provide an insight what others are doing. In order to keep a close eye on the
competitors, real time communication plays an important role otherwise the
organization will lag behind in the race of competition. Communication
channel with in the organization defines the culture of that organization. KFC
focuses on teaching its employees something new that shows the learning
aspect of this culture, they believe on building relationships, creating
diversity and commitment with in the organization and amongst employees
and customers. For this purpose the Human Resource department provides
training that includes workbooks, quizzes and on the job competency training
for the employees. KFC also spends a lot of time communicating with
general public by organizing different social events, for example, it organizes
“Teachers’ convention” every year since 2004. It also organizes different
welfare programs like education enhancement, care for special children,
scholarships as they consider it their social responsibility

Summarizing, KFC is the divisional part of the divisional structure of Yum!

Brands Inc. KFC is a part of divisional structure in which departments are
grouped together according to the output of organization and each separate
division is responsible for one single item or product. The managers and
employees focus more on the end products/ outcomes and results for the
customer or location. Because of highly changing consumers KFC is
responsive to change and the organization is quite flexible. KFC’s structure
with in the individual companies is both mechanistic and organic; they are
very structured as far as rules are concerned but have a team environment
where everyone works together.

Survey of KFC
There are: no rules………………………………//……………many rules

Rules are created: followed……//………………………………………ignored

Processes are: undefined……………………………//

……………..lockstep

Change is: expected………//……………………………………

problematic

Responsibility is: targeted…………………………//

…………………..widely

Distributed

Everyone’s focus is on: end products………//

……………………………….processes

Priorities are: Clear……//

………………………………………….Ambiguous

Priorities drive resources: Always………//……………………………………...Never

Communication is: Constant………//

……………………………………..Infrequent

Communication is: Channeled…………//………………………………..

Chaotic

Conclusion

In KFC there are rules and they are created to be followed because KFC
commits to provide delicious food with hygiene, without standard operating
procedures it will be difficult for KFC to keep up to its commitment.
Responsibility both at product and business level is distributed from
inventory level till end product. Focus is more on the end product so that
customers get more value out of KFC. Priorities list is reviewed weekly and
priorities are aligned towards the long term goals. Moreover communication
is channeled as mostly departments communicate in formal meetings. The
survey concludes that KFC is standing at improvisational edge.

CAPTURING CROSS BUSINESS SYNERGIES

KFC’s core business is the processing and provision of fast food. It

collaborates with different outlets that operate in Pakistan, with suppliers
and other stake holders including companies with which it carries out public
relation activities and ventures for various deals and promotions.

They collaborate to order delivery system. There is call center that, once
received the order, place it with the restaurant with is nearest to the place of
order delivery. Establishing a common system helps them keep their costs
low by locating the nearest outlet that saves time, cost of transport, and the
customer receives fresh and hot food. Also, they coordinate when there is
some shortage of raw materials. For instance, if they fall short of chicken
they would contact other outlets and ask them for it. Moreover, different
chains can also transfer the manpower among each other if they fall short of
some or if they have excess people working at a restaurant. They can
transfer in and out the human resources, as they call it. Also, KFC has
centralized logistics so they all have to collaborate with the central
warehouse. However, this is not random it is the rule.

KFC also collaborates with PSO and Turkish airlines. Recently, it initiated a
joint marketing promotion with Turkish Airlines for their customers across the
country, which will help them synergize their efforts in marketing of
companies. KFC entered in strategic alliance with PSO towards the
introduction of fast food restaurants at PSO stations that would help both
firms to take advantage of counterparty’s customers and brand image.

Primary decision makers about collaboration are Unit Business Managers;

they are General Manager of a restaurant. They carry out regional meetings
every month where managers from all the outlets in that specific region
meet to discuss the performance of outlets. Here, they discuss various
loopholes, prospects and how they can collaborate effectively. However, the
main collaboration decisions about alliances with other companies rest with
high level management.

All the units are the same as each is there with same product, service and
brand. They all have same goals. Individual and collaborative win of each
restaurant is important for KFC success, so there are short term (monthly to
quarterly) financial goals for each restaurant that are discussed at the
monthly meeting. Also the quality standards are the same. All the individual
efforts are then translated into success of KFC. Employee incentive and
award programs are carried out to appreciate individual and team efforts.

In conclusion, KFC succeed in providing the ultimate chicken meals for a

chicken loving nation, and achieves the mission of growing by successfully
collaborating with all its stakeholders and also within the business.
Survey of KFC

Cross business collaboration is :

Frequently ……………………………………………………………//…………. Rare

Cross business collaboration decisions are made by

Corporate Managers ……………//……………………………………………Middle

Roles for different businesses are clear.

Does not apply

The culture rewards

Team play……………//……………………………………………………….
Individual win

Reinventing the wheel is:

Common……………………………………………………//……………… Rare

Conclusion

Hence, cross business collaboration does not exist, but KFC collaborates with
various stakeholders and its numerous branches. The decision making
powers lie with the upper management. Team play is there, but appreciation
awards usually go out to individuals. However department and regional
wards also take place.

GAINING THE ADVANTAGE OF THE PAST

Exploiting the old and exploring the new is a strategy carried out by
companies that are competing on the edge. These companies build on their
past concepts and utilize new opportunities which not only makes it easier
for them to adapt to change but also to capture the opportunity at a greater
speed than competitors.
KFC is one of those companies. Most of KFC’s product lines utilize past
concepts and strategies. The colonel’s recipe of eleven herbs and spices is
widely used internationally. However, it is modified slightly according to the
local taste or demand. Hence, the company uses past concepts
approximately 80 percent of the times it has to launch a new product or take
advantage of an opportunity. This practice has been so tedious that the
customers now according to a survey carried out by the company seek the
zinger or the chicken taste in all the products attached to the brand KFC.

On the other hand, the company evolves as per the demands of the new and
changing world. The multinational is quick to adopt new technology for
efficient production and processing. However, it believes in training its
employees to get familiar with the new machinery rather than completely
hiring a new team. Of course, the trainer and the specialist will be hired.
Thus although constantly adapting to the change, KFC focuses on building on
the old, rather than eliminating it. Hence, the amount of blending of the new
and the experienced, KFC seeks in its employee base is 60 percent. It trusts
its experienced employees but believes in employees fresh people for new
ideas and concepts. It then blends both and comes up with what is called
‘KFC’.

New products like Zinger extreme, hot wings, subs, are all build on and
around the chicken recipe of the colonel. It refreshes the old products like
the zinger and the chicken itself, with almost the same taste but a different
experience. Although KFC did try to go beyond its concept of finger lickn
good chicken, and tried products like brownies which failed badly. KFC was
trying to achieve success in a completely different business: confectionary.
However, that is not as easy as it seems. There are established players in the
confectionary industry in addition to KFC’s own concept which is all about
chicken and fast food. The twister salsa, vegetable roll and zinger max also
failed consumer tests for not ‘being KFC’. The twister salsa and vegetable roll
were rejected because of their lack of taste because the chicken people
came to KFC for was missing. The zinger max was said to be too spicy to be
adapted by the normal public. Hence, the name zinger was there, but the
lack of zinger taste made it unacceptable.

Technological advances too have to be taken care of with the core concept
of providing quality food. One wrong move of buying machines to slaughter
chicken resulted in huge losses. KFC was sued for not keeping customer
interests in mind and sales were lost not only in Pakistan but UK and
Malaysia too. KFC was called Haram in most Muslim countries. Although the
issue was resolved later on, the technological advance without considering
local interests and the company’s values, it suffered.

Therefore, KFC focuses on its past but not to an extent that it becomes
trapped in it. It does not show too much novelty, and has failed when novelty
was tried not based on the core concept, for example, when they launched
brownies. It neither lays trapped in the past, for example adapting to the
taste of the people: launching rice in some countries, fish in others. It tries
and blends the past with something new, which helps them refresh the past
and speed up the present and future. Past experience helps them back up
while new helps them pace up with the changing market. It becomes easier,
hence, to grab opportunities and enter the market. They carry a critical mass
of experienced employees forward who are trained for any new
opportunities. Also, the team working culture of the new and the experienced
helps both gain advantage from each other. Risk is backed up by experience
and hence made less volatile. Usually, teams are made for new projects
which consist of new and experienced people from each department. The
performance of all the team members is measured and accounted so no one
is free rider. The experienced learn and the new adapt and vice versa.

Survey of KFC

To what extent do new businesses, products, or services reuse past

concepts?

0%.................................................................................................
(KFC)80%......................................100%

How old are your principal business, service, or product concept?

Less than 1 year 1 to 3 years 3 to 5 years More than 5 years

To what extent do your business, product or service teams blend

experienced and new members?

Extensively…………………………………………………//……………………………Not
at all

To what extent have your new businesses, products or services refreshed

your established ones?

Extensively………//……………………………………………………… Not at all.

Conclusion

KFC builds on past concepts. One of the most important and oldest resources
“The secret recipe” of 11 herbs is still used in meals, with modifications
according to the taste of local market. Most of the new meals offered are
based on the old product concept of providing quality chicken. KFC has the
culture of team. Teams are blend of old and new employees but KFC more on
old employees. The firm believes in learning of old employees rather than
recruiting new employees. Moreover new products highly refresh the old
ones as recipe is modified according to the culture.
REFERENCES

• http://www.planetfeedback.com/kentucky+fried+chicken/menu+choic
es/infuriated+by+communication+problems+at+kfc/316329
• http://www.foxnews.com/story/0,2933,199734,00.html
• http://www.dooyoo.co.uk/restaurants-cafes-national/kentucky-fried-
chicken-kfc/1407833/
• http://www.time.com/time/magazine/article/0,9171,1205379,00.html
• http://www.gardere.com/Content/hubbard/tbl_s31Publications/FileUploa
d137/1210/taber-eddings%20fast%20food.pdf
• http://www.cspinet.org/new/200606121.html
• http://www.cspinet.org/new/200606121.html
• http://www.cspinet.org/new/200606121.html
• http://www.cspinet.org/new/200606121.html
• http://www.austrade.gov.au/Food-to-Pakistan/default.aspx
• http://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx
?NewsId=92048
• http://paknet.net/expending-in-pakistani-food-sector/
• http://www.kfc.com/menu/salads.asp
• http://www.kfcpakistan.com/
• THE RIGHT GAME: Use Game theory to shape strategy by Adam M.
Brandenburger and Barry J. Nalebuff
• http://www.kfcpakistan.com/
• http://www.jang.com.pk/thenews/investors/feb2003/if.htm
• http://www.psopk.com/media/news_detail.php?nid=96
• http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-
Convention.html
• http://www.totalparco.com.pk/lub/lubpakistanparco.nsf/VS_OPM/C1257
26500351BAAC12573F000412091?OpenDocument
• http://www.sidathyder.com.pk/restaurant.html
• http://www.hibamagazine.com/index.php?
option=com_content&task=view&id=663&Itemid=151
• http://www.watercareservices.org/services.php
• Competing on the Edge, Strategy as the Structured Chaos by Shona L.
Brown and Kathleen M. Eisenhardt
• Interview with the Assistant Marketing Manager North: Shabbir
Muhammad
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