Kentucky Fried Chicken and the Global Fast-Food IndustryEssay Preview: Kentucky Fried Chicken and the Global Fast-Food IndustryReport this essayKentucky Fried Chicken and the Global Fast-Food IndustryCase AnalysisSource ProblemThe change in demographic trends in the past two decades has seen an overall increase in costs for KFC and other fast food chains. Due to immense price competition and saturation of the US market, KFC is unable to raise its prices to cover the increased costs. The slower US population growth rate, oversupply of fast food chains and the minuscule 1% growth in the US restaurant industry per year has resulted in KFCÐŽ¦s focus on expansion of their international markets.
KFC is continuing to face numerous challenges with its increasing size, and the cost of operation, as it must operate in more areas and compete with other fast food chains because of larger and more rapidly growing markets. Furthermore, the increasing role of fast food has led to the creation of a global market for KFC with China, Asia, Latin America, Europe, North America and Australia. However, as demand for fast foods has diminished over the years, KFC has had to choose between increasing its food production and expanding its international and foreign markets in order to grow its business to meet increased demand for fast food. The increasing dominance of the fast food world has led to many more KFCs in various countries and places of the world being born, growing, and selling KFC products to more consumers and increasing the number of KFC restaurants in the world.In this essay the current global fast food situation is presented as a new business opportunity. An industry dominated by fast food which is not only competitive in new markets, but whose prices are too high by the standards of a highly competitive world for the average consumer, especially young, young and elderly consumers, has brought about changes in the way KFC’s markets are organized. The new business competition in each region is a product of the changing lifestyles, the way new generations approach eating and living with new consumers.In KFC’s case the current competitive environment and limited access in the markets to fast food restaurants to many consumers create a problem which only serves to drive down costs, fuel the growth and the growth of the fast food chains.As a result of this competition and increasing competition caused by the growing popularity of fast food, many business leaders today believe that the current market for KFC is too small to keep up with fast food competitors. One can imagine the challenges the fast food industry will face in adapting to this new business environment and changing the way the market for KFC operates. For the first time in twenty years more and more KFC restaurants are opening in the US than in China. The increase in new restaurant locations, which are rapidly increasing because they are more affordable, increasing the number of fast food restaurants, is leading to a reduction in KFC’s budget as a result of increased competition. KFC is in an unsustainable position in this rapidly growing world, and the rapid growth of KFC restaurants is leading to the stagnation in its business and the lack of growth opportunities for the KFC companies by customers and customers and customers by fast food chain executives. The number of fast food chains in the USA has increased from 20 to 39 globally. When all fast food chains are looking at the same thing, they need to look at their own competitors to see if they are able to retain their competitive position and to see how to attract
Secondary ProblemsShort TermNew product introductions are slow.Market research inefficiency. Eg. Germans were not accustomed to buying takeout or ordering over the counter. McDonalds performed better in this aspect.
Crispy strips and chicken sandwiches cannibalized the fried chicken sales.Long TermDifferences between the PepsiCo and KFC corporate strategy and culture.PepsiCo/KFC poor relationship with franchisees.Increased competition from direct and indirect competitors.Reduction in market share in the US market.Risks involved in international operations: long distances made it difficult to control quality and service, increased transportation and other resource costs, and time, culture and language differences increased communication and operational problems.
Fast food sales grew at a slower rate (5%) in comparison to other sectors in the restaurant industry.Shortage in staff.Higher costs and poor availability of prime real estate.Increased labor costs. Intense competition made it difficult to increase prices to cover these increases in cost.Other chicken chain competitors differentiate their products. For example Boston Market introduces new restaurant chain that emphasized roasted chicken rather than fried chicken.
AnalysisThe Five Forces ModelThe five forces model of competition expands the arena for competitive analysis.Industry rivalry – HighRivalry is the main force or threat to current and future profitability.When outsiders can acquire weak firms in the industry and launch aggressive, well-funded moves to transform themselves into major industry players. Eg. McDonalds buying Boston Market.
As competitors become more diverse in terms of their visions, strategic intents, objectives, strategies, resources and countries of origin. Eg. WendyÐŽ¦s and other firms gaining momentum in the Latin American market.
Customer switching costs are low. Exit barriers are high.The number of competitors has increased in recent decades, and competitors become more equal in size and capability. McDonalds, WendyÐŽ¦s, Burger King etc. are the major players in the fast food industry with similar capabilities.
Threat of new entrants ÐŽV LowEvidence suggests that KFC have always found it difficult to identify new competitors. This is unfortunate, in that new entrants often have the potential to be quite threatening to incumbents. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing which it is not in the fast-food industry, additional capacity holds consumersÐŽ¦ costs down, resulting in less revenue and lower returns for industry firms. Often, new entrants have substantial resources and a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions
Direct competitors such as Boston Market, Popeye and Chick-fil-A pose significant threat to KFCÐŽ¦s dominance in the near future. In the case of Boston Market, it differentiates it self from KFC by focusing on roast chicken meals, and gaining customers who do no frequent KFC.
Bargaining power of suppliers ÐŽV MediumIncreasing prices and reducing the quality of products sold are potential means through which suppliers can exert power over firms competing within an industry. If a firm is unable to recover cost increases through its pricing structure, its profitability is reduced by its suppliersÐŽ¦ actions. A supplier group is powerful when:
It is dominated by a few large companies and is more concentrated than the industry to which it sells. Tyson Foods in Mexico.Satisfactory substitute products are not available to industry firms;Industry firms are not a significant customer for the supplier group;SuppliersÐŽ¦ goods are critical to buyersÐŽ¦ marketplace success;The effectiveness of suppliersÐŽ¦ products has created high switching costs for industry firmsKFC being a major player in the industry, it has some bargaining power. Increase bargaining power enables KFC to negotiate lower prices from suppliers.
Tyson Foods is the primary chicken supplier in Mexico, however, it also supplies KFCÐŽ¦s competitors including McDonalds and Burger King in Mexico.Bargaining power of buyers ÐŽV MediumFirms seek to maximize the return on their invested capital. Buyers (KFC customers of an industry or firm) want to buy products at the lowest possible price, at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers/customer bargain for higher quality, greater levels of service and lower prices. These