KFC & Global Fast Food Industry

 

Kentucky Fried Chicken
Global Fast Food Industry
Submitted To:

&

Mr. Faeiz H Seyal
Submitted by: Group : C ( MBA-B3-A) Usman Atta Muhammad Shahid Sharif 082 068

COMSATS Institute of Information Technology Sahiwal

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Acknowledgement
In the name of Allah, the most beneficent & the Merciful.

Firstly, we all likely to thank mighty Allah who provides us knowledge, energy & skills to get opportunities & to increase our knowledge & experience by completing this project.

Secondly, we especially thank to our professor Mr. Faeiz H Seyal who guides us at every step & every aspect of this report, so that’s completed successfully.

Finally, thanking management of KFC, for providing us with helpful knowledge needed. After that we are able to complete this report with hard working & cooperation.

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TABLE OF CONTENTS
Title Page No

INTRODUCTION: ------------------------------------------------------------------------------------------- 1 GLOBAL FAST FOOD INDUSTRY FINANCIAL HIGHLIGHTS: ------------------------------ 2 INDUSTRY SEGMENTS: --------------------------------------------------------------------------------- 3 UNIQUE CHARACTERISTICS OF FAST FOOD: ------------------------------------------------- 6 THE FAST FOOD INDUSTRY IN PAKISTAN: ----------------------------------------------------- 7 KFC AT-A-GLANCE --------------------------------------------------------------------------------------- 9 KEY ECONOMIC, BUSINESS AND SOCIAL CHARACTERISTICS OF FAST FOOD INDUSTRY:--------------------------------------------------------------------------------------------------12 KEY SUCCESS FACTORS -----------------------------------------------------------------------------15 KEY DRIVING FORCES OF CHANGE --------------------------------------------------------------16 FIVE FORCES ANALYSIS OF THE FAST-FOOD INDUSTRY: ------------------------------19 ATTRACTIVENESS OF THE INDUSTRY:----------------------------------------------------------21 UNATTRACTIVENESS OF THE INDUSTRY: -----------------------------------------------------23 SWOT ANALYSIS -----------------------------------------------------------------------------------------23 CORPORATE LEVEL STRATEGIES: ---------------------------------------------------------------29 LATIN AMERICA EXPERIENCED 4 YEARS OF ABOVE-AVERAGE GROWTH AND LOW INFLATION ------------------------------------------------------------------------------------------35 RECOMMENDATIONS-----------------------------------------------------------------------------------43

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Introduction:
Fast food (also known as Quick Service Restaurant or QSR within the industry itself) is the term given to food that can be prepared and served very quickly. While any meal with low preparation time can be considered to be fast food, typically the term refers to food sold in a restaurant or store with preheated or precooked ingredients, and served to the customer in a packaged form for take-out/take-away. The fast food market is defined as the sale of food and drinks for immediate consumption either on the premises or in designated eating areas shared with other foodservice operators, or for consumption elsewhere. The market is broken down in to four types of outlets: Quick Service Restaurants (QSR), Takeaways, Mobile & Street Vendors and Leisure Locations. QSR's are defined as: locations where the primary function is to provide full meals but where table service is not offered. Takeaways are defined as: establishments that provide freshly prepared food for immediate consumption and where typically 80% or more of revenues come from consumers who take the food off the premises to consume. Mobile & street vendors are defined as: Either individual mobile stalls or vans that offer a limited range of freshly prepared food as well as beverages. Leisure locations are defined as: locations serving food and drinks for immediate consumption on premises within leisure outlets (such as Cinemas, Theatres, Racecourses etc.) that the Leisure operator owns and operates itself. With today's hectic lifestyles, time-saving products are increasingly in demand. Perhaps one of the most obvious examples is fast food. The rate of growth in consumer expenditures on fast food has led most other segments of the food-away-from-home market for much of the last two decades. Since 1982, the amount consumers spent at fast food outlets grew at an annual rate of 6.8 percent (through 1997), compared with 4.7 percent growth in table service restaurant expenditures. The proportion of away-from-home food expenditures on fast food increased from 29.3 to 34.2 percent between 1982 and 1997, while the restaurant proportion decreased from 41 to 35.7 percent.

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Global fast food industry financial highlights:
The global fast food market grew by 6.6% in 2008 to reach a value of $154.7 billion. In 2013, the global fast food market is forecast to have a value of $200 billion, an increase of 29.3% since 2008. The global fast food market grew by 3% in 2008 to reach a volume of 85.8 billion transactions. In 2013, the global fast food market is forecast to have a volume of 94.7 billion transactions, an increase of 10.4% since 2008. QRS segment leads the global fast food market, accounting for 66.3% of the market's overall value. Americas leads the global fast food market, accounting for 52.4% of the market's overall value.

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Industry segments:
In fast food industry segments are grouped by menu format. Important segments of fast food industry are:

Burger segment:
Burger segment made up the largest segment of fast food. Major participants and their sales are given in the following table.

Fiscal year 2008 sales
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 QSR 50 1 3 5 10 12 16 18 21 24 28 30 32 37 47 48 Chain McDonald's Burger King (US & Canadian) Wendy's Sonic Jack In The Box Dairy Queen Hardee's Carl's Jr. Whataburger Steak n Shake Checkers/Rally's Culvers White Castle Krystal In-N-Out Burger Sales ($Mil) $30,025.00 $9,348.00 $8,013.40 $3,811.20 $3,080.00 $2,519.00 $1,680.00 $1,405.00 $1,173.00 $700.00 $658.00 $643.50 $567.90 $428.80 $420.00

Total segment sales were $64,472.70MM. Percent Change in sales is 3.9% in 2008, 4.6% in 2007 and 4.1% in 2006.

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Sandwiches segment:
Major participants of sandwiches segment and their sales are given in the following table.

Fiscal year 2008 Sales
Rank 1 2 3 4 5 6 7 QSR 50 2 11 15 19 41 43 49 Chain Subway Arby's Panera Bread Quiznos Subs Jimmy John's Jason's Deli Einstein/Noah's Bagels Sales ($Mil) $9,600.00 $3,371.80 $2,648.00 $1,660.00 $496.60 $467.10 $392.80

Total segment sales were $18,636.30MM. Percent Change in sales is 11% in 2008, 7.7% in 2007 and 8.3% in 2006.

Mexican segment:
Major participants of sandwiches segment and their sales are given in the following table:

Rank 1 2 3 4

QSR 50 6 22 38 44

Chain Taco Bell Chipotle Del Taco Qdoba

Sales ($Mil) $6,700.00 $1,330.00 $563.20 $447.50

Total segment sales were $9040.7MM. Percent Change in sales is 11.5% in 2008, 2.3% in 2007 and 4.7% in 2006.

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Pizza/Pasta segment:
Pizza Hut leading the segment with sales of $5500.00MM. Major participants of sandwiches segment and their sales are given in the following table:

Fiscal year 2008 Sales
Rank 1 2 3 4 5 6 7 QSR 50 7 13 17 26 35 36 40 Chain Pizza Hut Domino's Papa John's Little Caesars Papa Murphy's CiCi's Pizza Sbarro Sales ($Mil) $5,500.00 $3,054.60 $2,034.00 $1,055.00 $585.00 $579.90 $500.00

Total segment sales were $13308.50MM. Percent Change in sales is 1.08% in 2008, 3.2% in 2007 and 0.9% in 2006.

Chicken segment:
KFC continued to dominate the chicken segment, with sales of $5200.00MM in fiscal year 2008. Its nearest competitor Chick-fil-A, ran the distant second, with sale of $2962.30MM. At 3rd position Popeyes with $1593.00MM sales. Other major participants of chicken segment and their sales are given in the following table:

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Fiscal year 2008 Sales
Rank 1 2 3 4 5 6 7 8 QSR 50 9 14 20 25 29 31 33 34 Chain KFC Chick-fil-A Popeyes Church's Chicken Zaxby's Boston Market El Pollo Loco Bojangles' Sales ($Mil) $5,200.00 $2,962.30 $1,593.00 $1,150.00 $664.00 $648.30 $626.90 $607.90

Total segment sales were $13452.40MM. Percent Change in sales is 3.3% in 2008, 5% in 2007 and 7% in 2006.

Unique Characteristics of Fast Food:
Rising incomes, longer workdays, and a growing tendency for both spouses to hold full-time jobs are widely credited for the rise in away-from-home expenditures of all types, but fast food especially benefits from these trends. The fast food industry focuses heavily on rapid consumer turnover, speed of service, and take-out sales. Aside from obvious menu differences, fast food is less expensive than table service restaurant meals, has a larger lunchtime clientele, and is sold by firms that are predominantly franchised-which provides consistency in terms of product quality and menu offerings. Dollar sales per fast food outlet nearly match sales per full-service restaurant, despite higher meal prices and greater seating capacity at restaurants. The dominant form of offpremise dining in the foodservice industry is carryout, but the drive-thru, a concept that Wendy's introduced in 1974, is especially important in fast food. Company records show that about 60 percent of the sales at Burger King and 54 percent at McDonald's are made at the drive-thru. In the fast food pizza

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segment, delivery dominates, with firms like Dominos, Papa Johns, and many independents focusing almost exclusively on delivery sales. Pizza Hut began delivery service in 1986, and today 34 percent of the units are devoted exclusively to delivery (offering no on-premise dining capacity).

Demographic trends:
In 1970, Americans spent about $6 billion on fast food; in 2000, they spent more than $110 billion. Americans now spend more money on fast food than on higher education, personal computers, computer software, or new cars. They spend more on fast food than on movies, books, magazines, newspapers, videos, and recorded music — combined. The extraordinary growth of the fast food industry has been driven by fundamental changes in American society. Adjusted for inflation, the hourly wage of the average U.S. worker peaked in 1973 and then steadily declined for the next twenty-five years. During that period, women entered the workforce in record numbers, often motivated less by a feminist perspective than by a need to pay the bills. In 1975, about one-third of American mothers with young children worked outside the home; today almost two-thirds of such mothers are employed. The entry of so many women into the workforce has greatly increased demand for the types of services that housewives traditionally perform: cooking, cleaning, and child care. A generation ago, three-quarters of the money used to buy food in the United States was spent to prepare meals at home. Today about half of the money used to buy food is spent at restaurants, mainly at fast food restaurants.

The Fast Food Industry in Pakistan:
The fast-food industry is popular in Pakistan, the source of most of its innovation, and many major international chains are based there. The presence of multinational fast food chains like McDonalds, KFC, Pizza Express, Pizza Hut, Subway etc. have somewhat catered to the high income segment therefore developing a niche as upscale fast-food restaurants. Multinational corporations such as these typically modify their menus to cater to local Pakistan tastes and

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most overseas outlets are owned by native franchisees to ensure that cultural, ethnic, and community values are taken care of. Additionally, multinational fast-food chains are not the only or even the primary source of fast food in most cities of Pakistan. Many regional and local chains have developed around the main cities of Pakistan (for example Khan Broast in Karachi) to compete with international chains and provide menu items that appeal to the unique regional tastes and habits at comparatively low costs. In Pakistan, multinational chains are considerably more expensive; they usually are frequented because they are considered chic and somewhat glamorous and because they usually are much cleaner than local eateries. However much of the middle-income segment (which forms a major chunk of fast-food goers) prefers visiting local outlets that offer low cost fast food, hence more frequent visits.

Increasing Market for Fast Food – The Population Boom:
Pakistan, currently ranked as 6th in terms of total population, is characterized by a high population growth rate of 1.9% (Pakistan Economic Survey 2005) and is set to take the top three positions in terms of total population with already 153.4 Million people registered in 2005. With this, the per capita income has increased to US$ 736 while the productive age group (15 to 64) years is said to take the major chunk of population (67% of total population) by 2020. The growth rate in food consumption is also augmented by the rapid increase in the employment rate for males / female population aging between 20 to 29 years hence the greater income contribution to the overall income generated is expected to be higher

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KFC At-A-Glance
9/9/1890 Harland Sanders is born just outside Henryville, Indiana. 1900-1924 Harland Sanders holds a variety of jobs including: farm hand, streetcar conductor, and army private in Cuba, blacksmith's helper, railyard fireman, insurance salesman, tire salesman and service station operator for Standard Oil. 1930 In the midst of the depression, Harland Sanders opens his first restaurant in the small front room of a gas station in Corbin, Kentucky. Sanders serves as station operator, chief cook and cashier and names the dining area "Sanders Court & Café." 1936 Kentucky Governor Ruby Laffoon makes Harland Sanders an honorary Kentucky Colonel in recognition of his contributions to the state's cuisine. 1937 The Sanders Court & Café adds a motel and expands the restaurant to 142 seats. 1939 The Sanders Court & Café is first listed in Duncan Hines' "Adventures in Good Eating.” Fire destroys The Sanders Court & Café, but it is rebuilt and reopened. The pressure cooker is introduced. Soon thereafter Colonel Sanders begins using it to fry his chicken to give customers fresh chicken, faster. 1940 Birthdates of the Original Recipe 1949 Sanders marries Claudia Price. 1952 The Colonel begins actively franchising his chicken business by traveling from town to town and cooking batches of chicken for restaurant owners and employees. The Colonel awards Pete Harman of Salt Lake City with the first KFC franchise. A handshake agreement stipulates a payment of a nickel to Sanders for each chicken sold.

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1955 An interstate highway is built to bypass Corbin, Kentucky. Sanders sells the service station on the same day that he receives his first social security check for $105. After paying debts owed, he is virtually broke. He decides to go on the road to sell his Secret Recipe to restaurants. 1957 Kentucky Fried Chicken first sold in buckets 1960 The Colonel's hard work on the road begins to pay off and there are 190 KFC franchisees and 400 franchise units in the U.S. and Canada. 1964 Kentucky Fried Chicken has more than 600 franchised outlets in the United States, Canada and the first overseas outlet, in England. Sanders sell his interest in the U.S. Company for $2 million to a group of investors headed by John Y. Brown Jr., future governor of Kentucky. The Colonel remains a public spokesman for the company. 1965 Colonel Sanders receives the Horatio Alger Award from the American Schools and Colleges Association. 1966 The Kentucky Fried Chicken Corporation goes public. 1969 The Kentucky Fried Chicken Corporation is listed on the New York Stock Exchange. 1971 More than 3,500 franchised and company-owned restaurants are in worldwide operation when Heublein Inc. acquires KFC Corporation. 1976 An independent survey ranks the Colonel as the world's second most recognizable celebrity. 1977 Colonel Sanders speaks before a U.S. Congressional Committee on Aging.

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1979 KFC cooks up 2.7 billion pieces of chicken. There are approximately 6,000 KFC restaurants worldwide with sales of more than $2 billion. 12/16/1980 Colonel Harland Sanders, who came to symbolize quality in the food industry, dies after being stricken with leukemia. Flags on all Kentucky state buildings fly at half-staff for four days. 1982 Kentucky Fried Chicken becomes a subsidiary of R.J. Reynolds Industries, Inc. (now RJR Nabisco, Inc.) when Heublein, Inc. is acquired by Reynolds. 1986 PepsiCo, Inc. acquires KFC from RJR Nabisco, Inc. 1997 PepsiCo, Inc. announces the spin-off of its quick service restaurants - KFC, Taco Bell and Pizza Hut - into Tricon Global Restaurants, Inc. 2002 Tricon Global Restaurants, Inc., the world's largest restaurant company, changes its corporate name to YUM! Brands, Inc. In addition to KFC, the company owns A&W® All-American Food® Restaurants, Long John Silvers®, Pizza Hut® and Taco Bell® restaurants. 2006 More than a billion of the Colonel's "finger lickin' good" chicken dinners are served annually in more than 80 countries and territories around the world. 2007:
KFC goes Trans Fat Free.

2008: June, Asset Optimization completed. Vision building: Per contract agreements, franchisees given until June 1, 2008 to complete a facilities “renewal upgrade” based on the Vision design and Gift Card program launched.

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Key Economic, Business and Social Characteristics of Fast Food Industry:
Industries differ significantly on such factors as market size and growth rate, the scope of competitive rivalry, the number and relative sizes of both buyers and sellers, ease of entry and exit, whether sellers are vertically integrated, how fast basic technology is changing, the extent of scale economies and experience curve effects, whether the products of rival sellers are standardized or differentiated, and overall profitability. An industry's economic characteristics are important because of the implications they have for crafting strategy. Market size: The global fast food market grew by 6.6% in 2008 to reach a value of $154.7 billion. And grew by 3% in 2008 to reach a volume of 85.8 billion transactions. QRS segment leads the global fast food market, accounting for 66.3% of the market's overall value. Americas leads the global fast food market, accounting for 52.4% of the market's overall value Growth rate: In 2013, the global fast food market is forecast to have a value of $200 billion, an increase of 29.3% since 2008. And is forecast to have a volume of 94.7 billion transactions, an increase of 10.4% since 2008. Stage in life cycle: Increased competition in the industry and declining margins in fast food chains is reflecting increased maturity in the global fast food industry. Scope competitive rivalry: Now the competition in fast food industry is purely global. Major competitors are expanding their operations in order to increase market share. Provide more market to serve the customers to increase the revenue. For example, McDonald's operates over 31,000 restaurants in 119 countries. Subway is an American fast food franchise with more than 32000 restaurants worldwide. There are more than 90 international fast food payers and more than 210 in USA

Profit margins: The fast food industry's growth has been slowed by soaring food and energy prices. The high prices of commodities, combined with the housing slump and a weakening job market are taking a toll on restaurant spending in the

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U.S. (the world's largest fast food market, by far). The same food and energy inflation that is corroding consumer spending is also taking a bite out of company margins. Standardized products: in fast food industry products are consider high substitutes of each other. That results in low switching cost for the buyer to one chain to another. Product innovation: The companies in fast food industry tend to distinguish by providing its customers with a unique fast food experience and offering value menu items in their foods. With the introduction of new menus and product which is designed to gain competitive advantage on its competitors, Continuous innovation is important in order to maintain sustainable competitive advantage in the industry. % of working women and young population: The extraordinary growth of the fast food industry has been driven by fundamental changes in society. . In 1975, about one-third of American mothers with young children worked outside the home; today almost two-thirds of such mothers are employed. The entry of so many women into the workforce has greatly increased demand for the types of services that housewives traditionally perform: cooking, cleaning, and child care. Quick Stats on Women Workers of US, 2008: In 2008, Of the 121 million women age 16 years and over in the U.S., 72 million, or 59.5 percent, were labor force participants—working or looking for work. Women comprised 46.5 percent of the total U.S. labor force and are projected to account for 47 percent of the labor force in 2016. Women are projected to account for 49 percent of the increase in total labor force growth between 2006 and 2016. The growth rate in food consumption is also augmented by the rapid increase in the employment rate for males / female population aging between 20 to 29 years hence the greater income contribution to the overall income generated is expected to be higher.

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Population Pyramid 1998 & 2020 (projected) for Pakistan:

Economies of Scale: Giants like McDonalds and KFC are able to achieve economies of scale by high volume of production and many outlets but smaller chains are unable to achieve it due to low volume production. Economies of scale is a factor in fast food industry. The Number of Buyers and Increase: New research from The Natural Marketing Institute (NMI) released in 2008 reveals that consumers are increasingly incorporating organic into their lifestyles. The research also showed that the number of core users has increased from 16 percent in 2006 to 18 percent in 2007 Degree of Vertical Integration: Mixed: most major and largest companies are integrated backward into raw material operations (farming) and also forward in distribution of products through their outlets. Almost all companies are forwardly integrated. As we know this industry is very quality and speed conscious so it is very necessary to success.

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Most food chains began to expand their business into alternative distribution channels in hospitals, airports, colleges, highways rest areas, gas stations, shopping mall food courts, and large retail stores or by dual branding with other fast-food concepts.

Key Success Factors
Speed of service and consistency The basic concept of fast food is the food that can be prepared and served quickly and has low preparation time. It is the style of busier people who requires speed. So the speed of food is very matter and if any player wants to take advantage over others it should improve their speed of meals. More importantly this speed is not one time. There should be consistency. Localization of taste Localization of taste means to provide food items in their menu according to local taste and cultural. It is very critical success factor for global and international players who operate more than one country. There are many countries which have very unique food and taste such as china and India. For instance KFC recognized this factor and provide the local along with global food items to their customer and it is very successful in these countries. Location Location is very critical factor to take advantage over others in fast food industry. A good location of the outlet in terms of area, population, roads and parking is very important because this contributes to the convience of customer. Otherwise a wrong location is just wastage of resources. Environment Inner environment of the fast food outlet is very matter. A good environment in the terms of cleanness, coolness, contributes to the satisfaction of the customer. Environment also includes the interaction between customer and outlet employees. The behavior and attitude of the management plays very important

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role in creating a good environment. In today competitive world companies pay more attention on environment by providing different types of facilities such as music, TV and good atmosphere where people can interact with each other in good manners. Product presentation and innovation Product presentation and innovation are very critical success factor for any fast food player because these factors attract the customers. It is very important how a company present their product to the customer and through which channel it communicates is also equally important because it creates the perception of the product and helps to occupy a position in the mind of customer. Product innovation in the terns of new product and taste or modification in the existing product line increasing the value of the menu.

Key Driving forces of Change
Working Women The increasing concept of working women is a major force which becomes the cause of change in fast food industry and the nature of competition face by the companies in fast food sector.

Quick Stats on Women Workers in USA, 2008:
Of the 121 million women age 16 years and over in the U.S., 72 million, or 59.5 percent, were labor force participants—working or looking for work. Women comprised 46.5 percent of the total U.S. labor force and are projected to account for 47 percent of the labor force in 2016. Women are projected to account for 49 percent of the increase in total labor force growth between 2006 and 2016. 68 million women were employed in the U.S.—75 percent of employed women worked on full-time jobs, while 25 percent worked on a part-time basis.

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The largest percentage of employed women (39 percent) worked in management, professional, and related occupations; 33 percent worked in sales and office occupations; 21 percent in service occupations; 6 percent in production, transportation, and material moving occupations; and 1 percent in natural resources, construction, and maintenance occupations Life style changes Change in the life style of demographics is very important forces which becomes the cause of change in fast food industry near in future. In the life style of U.S.A fast food is considered as junk food while in mostly developing countries it consider as a status symbol. So companies set their prices and other marketing mix tools accordingly but now the life style of developing is going to change. So fast food chains in developing countries considered their policies and ways of doing business. Target Market Target market of fast food is normally considered within the age of 15 to 50. As we know the percentage of this age group is increasing very rapidly. So fast food players change their policies and products to attract this so much large sector of population. When population increases than there is also an increase in preferences because of large personality differences.

Globalization Where one or more globally franchise ambitious companies are pushing hard to gain significant competitive position in many attractive markets by expanding

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globally in more than 119 countries. Increasing competition and major competitors were expanding their operations in order to increase market share. Provide more market to serve the customers to increase the revenue Growing preferences for differentiated products As the fast food industry has mature which change the consumer preference and consumers are going for new menu and differentiated products. Consumer’s preferences began to change due to technological advances. Companies try to differentiate their product lines in order to survive and to retain its customers. At some extent through differentiated products they also try to create switching cost for consumer. Changing societal concerns and health concerns As consumers are becoming health conscious demanding healthier menu and the lifestyles of people changing and they started visiting fast food shops, Income higher level enables customers to dine out more often. Items ranging chicken sandwiches and core fired chicken products. People like to eat the food which can be prepared instantly. New research from The Natural Marketing Institute (NMI) released in 2008 reveals that consumers are increasingly incorporating organic into their lifestyles. People like to eat the food which is healthy and quick served as income level increases more and more people are becoming customers of fast food industry Cultural Change Any major change in cultural also become the cause of change in any industry. In Muslims countries these fast food chains enter by changing their cultural values and traditional foods. But there is equal chance these countries turn back to their values which can be easily seen. Now customers in Muslims counties demand Halal products they also require these products must be prepared in halal ingredients. Growing nuclear families: Nowadays it is said to be the age of fast food. Parents and kids especially prefer fast food due to it’s quick service and for it’s satisfying appetite at affordable

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prices. This is a growing opportunity for the industry because families nowadays prefer eating out, rather than cooking at home. Growing urban lifestyle: The growth is not limited to metro cities. Now it has also found it’s way into some rural areas and some semi – urban cities. Fast food joints are not a thing of big cities now. People in cities and towns are now having additional incomes in their pockets. Eating out now is a normal thing for the homely people in the semi urban areas.

Five forces analysis of the fast-food industry:
The fast-food industry includes group of companies that are offering different products and services, which satisfy customers’ needs. These products and services might be considered as close substitutes for each other. Therefore, the critical task of managers is to analyze the competitive forces in the industry’s environment in order to identify the threats and opportunities that the firm can protect or get benefit from.

1) Rivalry among Competing Sellers: Usually the most powerful of the five forces. If the rivalry is weak, companies have an opportunity to increase prices and gain more profits. if there is a strong competition, companies would compete in prices, which might result in a price war. This would reduce or limit profitability due to the reduction in the sales margins. The limited-service industry defines a red ocean industry. Firms compete for market share in a saturated market. Growth is very slow, so the

customer base is not growing as fast as the industry. This leads to high rivalry among firms. For instance, there is a huge competition between KFC and McDonald’s as each on of them is competing to improve its customer services such as introducing new items in its menu and home delivery service.

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2) Threat of New Entrants: Economies of Scale Giants are able to achieve economies of scale by high volume of production and many outlets but smaller chains are unable to achieve it due to low volume production. Brand Loyalty Brand loyalty is high. Capital Required Requirement of capital is not that much. Government Regulation: Government regulation is more intense for the larger firms which have to deal with franchising regulations. Smaller establishments are subject to the standard array of government regulations including: health, safety, sanitation, and building. These are standard for almost any new business and thus do not pose large threat to new comers. 3) Threat of substitute products: With so many firms in the quick service industry, low switching costs, similar products, and healthier options, the threat of substitutes is very high. 4) Bargaining power of suppliers: Large fast food chains thousands of suppliers to choose from and select theirs through a competitive bid process. They can switch suppliers easily and tend to make up a large portion of the supplier’s revenue. This severely limits the bargaining power of suppliers.

5) Bargaining Power of Customers: Even though customer switching costs are nearly zero, the fast food industry does not worry about loyalty because “On average, one-fifth of the population of the USA eats in a fast-food restaurant each day” (Oxford University Press). It is this volume that keeps customer bargaining power low by diluting the effect of a few picky customers.

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Conclusion

Threat of New Entrants Bargaining Power of Customers Bargaining Power of Suppliers Threat of Substitutes Rivalry Among Firms

Medium Low Low High High

Attractiveness of the industry:
Rising incomes, greater affluence among a greater percentage of American households, higher divorce rates and rising number of single households, increased the demand in fast-food restaurants.

Growth Rate
In the market growth rate the expected food sales is predicted to increase by $208 billion by 2020 with us already being at $800 billion by 2001. RNCOS has recently released a new research report "US Fast Food Market Outlook 2010" which says - despite the gloomy economic conditions, the US fast food industry is witnessing robust growth. The overall fast food market is expected to grow in coming years and will cross the US$ 170 Billion mark by 2010.

Reason for emergence
Gender roles: Gender roles are now changing. Females have started working outside. So, they have no time for their home and cooking food. Fast food is an easy way out because these can be prepared easily. Workingwomen have no time for cooking.

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Customer sophistication and confidence: Consumers are becoming more sophisticated now. They don’t want to prepare food and spend their time and energy in household works. They are building their confidence more on ‘ready to eat and easy to serve’ kind of foods.

Paucity of time: People have no time for cooking. Because of emergence of working women and also number of other entertainment items. Most of the time either people work or want to enjoy with their family.

Double Income Group: Emergence of double income group leads to increase in disposable income. Now people have more disposable income so they can spend easily in fast food and other activities.

Generation Y
How Often Do You Eat Fast Food? Percent who say they eat at a meal from a fast food restaurant at least weekly

Notes: Question wording: About how often in an average week do you eat a meal from a fast food restaurant like
McDonald's or Burger King? (open end)

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Unattractiveness of the industry:
Health related issues (obesity): Studies have shown that a typical fast food has very high density and food with high density causes people to eat more then they usually need. Low calories food: Emphasis is now more on low calories food. In this line, McDonald has a plan to introduce all white meat chicken Mc nugget with less fat and fewer calories. Environmental friendly products cost high: Government is legislating laws in order to keep check on the fast food industry and it is emphasizing more on the usage of bio-degradable and environment friendly products. But associated with this issue is the problem that fast food player faces - the cost associated with the environment friendly products. They cost much higher than the normal products that companies use for packaging or wrapping their products High Competition There are hundreds and thousands of companies in fast food sector and mostly have substitute products and services. The Fast food industry is consists on many small players but dominated by some large players such as McDonalds, KFC, Burger King etc. So the competition is cutthroat in this industry. No doubt the growth

SWOT Analysis

Strengths:
Strengths can be found internally in a company and can be used to the company’s advantage. The strengths identified are as follows: 1. Brand Equity KFC. # Brand Brand Value Brand $M Contribution 1 McDonald’s 66,575 4 2 SUBWAY 10,997 4 Brand Momentum 6 10 Brand Value Change 34% 6%

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3 KFC

6,721

3

7

10%

KFC, third-ranking in brand value, expanded its signature chicken menu to include fish and beef. In the Best global brands KFC ranking position 61 with 3% growth and sales 5,722 $m in 2009. 2. KFC secret recipe of 11 herbs and species. The Colonel's secret flavor recipe of 11 herbs and spices that creates the famous "finger lickin' good" chicken remains a trade secret. Portions of the secret spice mix are made at different locations in the United States, and the only complete, handwritten copy of the recipe is kept in a vault in corporate headquarters. That is recipe is a big strength of KFC success and also use with customization according to customer choice of chicken foods. 3. Multi-branding Strategy (Yum! Brands). The maturing of the fast-food industry has forced the key players to rethink their strategies and reinvent their operations. The KFC strategy calls for combining two or more of its five chain concepts in one restaurant and that added 30 percent to sales compared to single-brand unit. Most typical of the cobranding approach is to pair KFC with Taco Bell or Pizza Hut with Taco Bell. 4. 2nd Only to McDonald’s in Foreign Sales $17,800.0M with 15,580 units (2008).
Rank 1 2 Previous Rank 1 2 Chain McDonald's KFC 2008 sales ($ millions) 70,693.0 17,800.0

Change from '07, 2008 units, Change from '07, Average unit volume McDonald's KFC 11.2% A 31,967 15,580 1.9% 4.6% $2,400,000** $967,000

5. Strong Cash Flows Yum! Brands Inc. Announces 11% Increase in Quarterly Dividend and Authorization for $300 Million announced that its Board of Directors approved an 11% increase in the Company’s quarterly dividend and authorized $300 million in share repurchases.
12/26/09 12/27/08

Cash and Cash Equivalents - Beginning of Year $ 216m Cash and Cash Equivalents - End of Year 24 $ 353m

$ 789m $ 216m

KFC & Global Fast Food Industry

 

6. Very strong internationally. Following countries the countries that KFC have a big market, Saudi Arabia, Russia, Korea, Philippines, Mexico, Indonesia, Malaysia, South Africa, Great Britain, Canada and Japan. 7. Interactive relationship marketing KFC Interactive Marketing that Targeting Adolescents in the Digital Age. Six key features of interactive media—ubiquitous connectivity,

personalization, peer-to-peer networking, engagement, immersion, and content creation—are emblematic of the ways in which young people are both shaping and being shaped by this new digital culture. Kentucky Fried Chicken (KFC), have incorporated these elements into their interactive marketing strategies, posing particular risks to adolescents, who are not being addressed in the current U.S. policy and self-regulatory regimens. 8. Employee Loyalty: Employee Loyalty is one of the major strengths of KFC. The turnover rate in the company is amongst the lowest in the industry. KFC also provide stock option, medical treatments, life and disability insurance, incentives, scholarships, and employees discount programs. Internal career

opportunities make people have high commitment. 9. Customer Loyalty: Despite gain by Boston Market and Chick-fill A, KFC customer base remained loyal to the KFC brand because of its unique taste. KFC has continued to dominate the dinner and take out segment of the Industry. 10. Ranks highest among all chicken restaurant chains. 2009 Rank QSR 50 Chain Sales ($Mil) 1 9 KFC 5,200.00 2 14 Chick-fil-A 2,962.30

Weakness:
Weaknesses are also found internally like strengths. Weaknesses, however, can limit a company’s potential. The weaknesses for KFC are identified as follows: 1. Relying on local franchisees. That gains the following weaknesses. • Franchising means less control over stores.

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• •

Not much control over local franchisees. Control is difficult to maintain.

2. Lack of customization: Fast food is usually pre-made and pre-packed and not fresh from the oven. So once the dish is made it cannot be altered according to the customer’s choice or preference. For e.g. a McDonalds burger is prepared much before the customer purchases it and he has to buy it as it is. 3. Unhygienic and unhealthy: Most of the times though being tasty the oil content in fast food is very high. Hence people are now moving away from fast food to healthy food. The fast food prepared is also unhygienic especially at the road side joints. Hence these are considered weaknesses to the fast food industry.

Opportunities:
Opportunities represent external finding which can enhance a company’s performance. Opportunities that KFC can take advantage of are as follows: 1. Growing nuclear families: Nowadays it is said to be the age of fast food. Parents and kids especially prefer fast food due to it’s quick service and for it’s satisfying appetite at affordable prices. This is a growing opportunity for the industry because families nowadays prefer eating out, rather than cooking at home. 2. Growing urban lifestyle: The growth story of Pakistan is not limited to metro cities. Now it has also found it’s way into some rural areas and some semi – urban cities. Fast food joints are not a thing of big cities now. People in cities and towns are now having additional incomes in their pockets. Eating out now, is a normal thing for the homely people in the semi urban areas. 3. Opportunity against. Confused over “mad cow” and foot-and-mouth disease? Destruction of cattle, first to stop mad cow disease and then to stop footand-mouth disease, dominated news stories from Great Britain for nearly three years. The proximity of the diseases, both in place and time, has caused a lot of confusion. So people hesitate to buy beef food due to fear 26

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of diseases. Due to this confusion KFC has opportunity compete in the market for targeting of Macdonald’s customer and provide better chicken food against beef etc.

4. "Dual branding" helps to appeal to the wider customer base and also provide higher profit. This strategy helps to "improve economies of scale within its restaurant operations." For many companies that own more than one fast-food chain, "dual branding" is an ideal way to expand quickly and increase profit. By adding a brand to the existing fast-food store, the companies are able to expand quickly and for less money. The companies are also capitalizing on the increased customer base due to the increased menu offering. Increased profit is another benefit of "dual branding." The companies are enjoying higher profit due to the low cost in expanding and the reduced advertising dollar spent by advertising the two chains together. 5. Australian Indian market opportunity. Growths in international profits were highest in Australia, which is now KFC’s largest international market has a big opportunity for KFC. A young Canadian named Bob Lapointe started the fast food revolution in Australia in 1968 when he opened the first KFC restaurant at Guildford in Sydney's western suburbs. KFC now has more than 600 stores in Australia and New Zealand, which are company owned or franchised. Indian GDP 1217 billion US$ with 7.20% growth population in 2010, 1171 million an expected in 2050 is 1748 million expected. The countries have a big opportunity to expand fast food net work. Also Indian not like beef as a food. 6. New distribution channels offer a significant growth opportunity. Especially in the last few years, consumers are demanding fast food in non-traditional locations, such as shopping malls, universities, hospitals, and other high-traffic areas. Consumers are demanding greater convenience when purchasing. The locations listed above are some of the

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most popular non-traditional locations that could be exploited by a fastfood chain. The fast-food chains are recording high sales in those areas due to high-traffic. Consequently, the companies are constantly looking and testing for new high-traffic locations to expand.

Threats:
Threats to a company are those business characteristics that endanger the company’s position within its industry as well as jeopardize its profits. The threats that KFC faced with include the following: 1. Supermarkets and new competitors. KFC also have big threats due to his competitors. McDonald’s introduced its McChicken sandwich in the US market in 1989. Jack in the Box has introduced chicken and teriyaki with rice. Domino’s has introduced chicken wings to its menu. Pizza Hut has tried marinated, rotisserie-cooked chicken. McDonald's is going to take on KFC at their own game and the head of Restaurant Brands replies to the war cry of MD of McDonald's Mark Hawthorne:Chief operating officer Rod De Vries said sales had increased 9 per cent in the past year - an outstanding result in a highly competitive market. 2. KFC Fears Bird Flu Will Pluck Its Sales The daily headlines about bird flu are sending a shockwave through the fast food industry. KFC have survived in chicken that may face threat of bird flu. Parent company Yum Brands told the trade publication it's bracing for a 20 percent drop in sales if infected birds, wild or domestic, are found in the U.S. The demand for chicken has already plunged as much as 40 percent in Europe and Asia in past few years. 3. Health Concerns: Due to the low quality ingredients used in the majority of local fast food joints, the sanitation and the hygiene factors which are mostly not maintained, have given cause to various medical and other health related organizations and certain NGO’s who have taken it up to voice these issues and bring it to the attention of the general public. Thus directing the

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attention of the public to change the tastes to foods that are more hygienic and safe. Here canned foodstuffs stand to gain advantage. 4. Regulations, customs and Industry standards. All food products imported into Pakistan must have a 'halal' certificate. Items are restricted for religious reasons or to protect local industries. The date of manufacture and expiry date stamped on each pack. Food products must be free from haram (forbidden by Islamic law) animal products, eg. pork. Meat products must have halal certification. 5. Saturation of the US market. According to the National Restaurant Association (NRA), food-service sales in 1995 will hit $289.7 billion for the U.S. restaurant industry. The NRA estimates the sales in the fast-food segment of the food industry will grow 7.2% to approximately $93 billion in the United States in 1995, up from $87 million in 1994 6. Changing preferences of consumers. During the 1980s, consumers began to demand healthier foods and KFC was faced with a limited menu consisting mainly of fried foods. In order to reduce KFC’s image as a fried chicken chain, it changed its logo from Kentucky Fried Chicken to KFC in 1991. In 1992, KFC introduced Oriental Wings, Popcorn Chicken, and Honey BBQ Chicken as alternatives to its Original Recipe fried chicken. In 1993, KFC rolled out its Rotisserie Chicken and began to promote its lunch and dinner buffet.

Corporate Level Strategies:
Switched from franchise to company owned in their larger markets. Interest in local community (Neighborhood). Combing the two concepts in the same unit. Changed name. Introduced different menu items to keep up with local competitors. Switched to highly performance based management strategies More responsibility assigned to franchisees and marketing managers

Pay closely aligned with customer service and restaurant performance 29

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So the possible raise in other countries encouraged KFC to build a leading position and have more popularity. The practice of achievements saved a lot though R&D, creating and involving technology in developing work. These strategies are the gate to decrease costs and double profits in the business. KFC follows a blended low cost/changing leadership, because it depended mainly on its brand name and original taste and recipes to be superior while at the same time benefits of cost savings from economies of scale keep them competing on price.

Business Level Strategy
A business level strategy that KFC utilized effectively was, once a decrease in profit occurred the restaurant was closed down. A horizontal differential was implemented thru style options. KFC wanted to meet the needs of local markets, they not only introduce neighborhood programs but they also hired locally. KFC also helped the cut out marginal products. KFC put massive emphasis on having sanitary and updated restaurants. They also knew if their products were not reliable, customers would find other chicken providers. KFC paid close attention to service and dedicated time to maintaining the reliability of their product provided to their customers. The business level strategy is including: Horizontal differential through different style options. Closed unprofitable restaurants. Strive to fill the needs of local markets by hiring locally and offering menu items that reflect the culture. Reestablish and maintain an emphasis on clean and updated restaurants paying close attention to service while maintaining product consistency. Cutting out marginal products. When PepsiCo rotated employees regularly based on their performance and experience. Promotions were made quickly which put more emphasis on employee responsibility, with expectations nothing higher than perfect. PepsiCo’s manager stated “You may have performed well last year, but if you don’t perform well this year, you’re gone and there are 100 ambitious guys with Ivy League

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MBA’S at PepsiCo who would love to take your position” (Mattson 63). This just goes to show PepsiCo’s dedication to perfecting performance in the overall KFC franchisees. Over the past years, KFC’S stock has grown nationwide. KFC is extremely popular in China and Japan. In fact, they are so well liked that during the Christmas holiday, customers had to call in advance to order KFC. KFC has gone thru several changes since their opening. They have offered diverse products in order to appeal to public demand and to stand out amongst competitors. KFC has lowered prices, improved customer service, united with other fast food restaurants and established new restaurants in non-traditional places such as Wal-Mart. Since the first day of operations, KFC has learned countless lessons. KFC realized the importance of focusing on the global market due to KFC popularity in Asia. The purchase of KFC by PepsiCo taught them that a change in an organizations management could be both effective and/or harmful to employees. In the beginning, KFC learned that it was dismal for PepsiCo to come in, lay off KFC managers, and replace them with PepsiCo managers. This caused an increase employee turn-over and decreased employee loyalty. KFC also learned that maintaining a restaurants environment is prudent to maintaining their public image. KFC learned early on how to adapt to changes and to adjust in order to supply the requests of the public, which makes KFC a powerful presence in the fast food industry. We two methods to evaluate the strategy of he company qualities method and quantitative method, we say that if the objectives of the company are achieving it means that its strategy is working properly so the quantitative data shows that the KFC sales are growing year by year so it working well.

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Contrast

between

McDonald’s

and

KFC

Analysis

1)

Organizational Goals At first glance there are no posters on the wall that

state the goals that McDonald’s are trying to each. A customer can find a list of

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the McDonald’s goals in what look to be children’s flyers round the restaurant. The flyers stated that McDonald’s goal is “100% total customer satisfaction.” Also if you weren’t completely happy with your meal that the restaurant would do whatever it took to make it right. This is not a very realistic goal for a fast food restaurant because with the amount of food that is served everyday there is no way that every customer will be satisfied. When I got to KFC there were no pamphlets for the customer to read. There was nothing that let the consumer know what the company was all about. There was a large sign, which read the slogan “Working for you.” This was what appeared to be the organization goal and it was interesting to see that the slogan was in improper English. Although this goal is much more realistic than the McDonald’s counterpart. 2) Organizational Structure although the structures of the two organizations

are basically the same there was two differences that I noticed. One difference is in the specific tasks of the employees working the front. In McDonald’s there is one person who takes your order and gets your food. Only one person is helped at a time because the cashier has to wait for the food and then serve you. In KFC there are two separate stations to order and then pick up your food. At the beginning of the line the customer orders and pays in exchange for a number. Then you move down the line to where the customer picks up the food in accordance with the number. This greatly speeds up the lines and reduces the waiting time. The other difference is in the management. At both restaurants there is one manager that handles all the employees working at the time. In McDonald’s the manager was no where to be found but in KFC the manager was at the front letting himself be seen and talking with the customers. He also wore a different colored uniform to signify his position in the organization.

3)

Technology The production level of the two restaurants is the main

difference in their technology. McDonald’s makes their food in mass production. The burgers are already made and waiting under a heat lamp for you when you order. They are separated into rows depending on what type of burger you order. In KFC the burgers aren’t already put together. The burger is cooking in the back

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but the toppings aren’t added till the individual orders come. This gives the customer a better chance of getting a fresh meal. 4) Communication there wasn’t much communication going on in

McDonald’s when we were there. The cashiers didn’t smile and weren’t that polite when taking my order. The communication between the cashiers and the cooks consisted of the cashiers screaming into the kitchen. The manager wasn’t around so I wasn’t able to see the manager’s interactions with the staff. At KFC I was welcomed by a smile. The cashiers were nice and even held a conversation with me. The manager was out in front conversing with the staff and the employees. The staff appeared to treat the manager as a friend instead of a superior. 4) Environment McDonald’s environment was neither customer nor

employee friendly. Everything in the restaurant is colored brown which just isn’t inviting to customers. The staff has pinstriped uniforms that resemble prison uniforms. The restaurant was also badly lighted which didn’t help the color. In KFC there were windows everywhere and the restaurant was extremely bright. The staff wore bright colored uniforms and there was music playing which was enjoyable for the customers as well as the staff.

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Overview of Economic Conditions in Latin AmericaOverview
Latin America experienced 4 years of above-average growth and low inflation

Inflation
• • Consumer inflation declined considerably in Latin America. Exception: Venezuela and Argentina,Inflationary pressures increased in 2007, in part due to rapidly rising food prices-

Gross Domestic Product (GDP)

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Real GDP grew 5.1% in 2007—5thconsecutive year of growth & significantly above the 2.2% historical average. • Latin America’s growth depends on global demand for its exports-

Exports
• • Latin America’s export earnings increased 12.3% in 2007 More than half of that increase came from higher export prices

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Current Account
• • Strong export growth resulted in current account surpluses every year since 2003 Current account surplus is expected to turn into deficit as export growth moderates while imports remain high-

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Current account surpluses allowed countries to accumulate foreign exchange reserves & reduce vulnerability to external shocks

• •

The level of external debt has fallen to below 25% of GDP Structure of public debt has improved: • Longer maturities • Fixed rates • Less foreign-currency denominated debt

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Financial Markets
• • • Stock markets in many Latin American countries rose to record levels in 2007 Global financial markets have deteriorated considerably in the past few months Improved economic fundamentals should help Latin America to weather increasing volatility in financial markets80901001101201301401501601/

Employment
• • Unemployment rate has declined and wage growth has picked up 50% of labor force in informal sector

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Consumer Spending: main growth engine
• • • • • Improved terms of trade Growing remittances Higher public spending Rising personal incomes due to higher employment & real wages Strong household credit growth

Consumer spending is forecast to remain the key driver of growth, while trade balance will subtract from real GDP

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Recommendations
Short-term:
According to the analysis, we can conclude that they shouldn’t think of expanding before finding solutions for internal issues such as management and restaurant menu. They should work on the management issues to create a good surrounding where employees can be relaxed and happy. It's not advisable to treat employees poorly. They also have to be certain that their restaurants provide variety choices in the menu, give their customers quality food, superior service and restaurant hygiene. KFC should always please their customers and try to keep updating in order to keep consumers content. Otherwise, competitors will satisfy them and will eventually outshine you as Boston did with its grilled chicken. Having the original recipe can slow KFC's sales; they should vary and create new

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products to maintain success and escalate their profits. Boston and Popeye's have attracted more customers because they making what they customers want by providing healthy snacks. So KFC must meet the customers need and enrich their menu. The first step in expansion plan is by shutting some of the unsuccessful stores in US which are sucking money from KFC. This will save some money to do business I new markets which can lead to possible growth. As it is shown, there are some problems facing KFC like unattractive US markets, saturated market, and competition so the company should find countries which can return above- average profits. Main factor is to have a clear vision, untangle the international issues, be backed financially to lead and compete globally before starting in any expansion. • • • • Offer pleasant working surroundings. Provide the menu with healthy food Save by closing unprofitable restaurants. Choose attractive countries for the business.

Long Term
They are in demand of observing and keeping an eye on their task (offer consumers the best food, royal service and restaurant cleanliness) and be aware of the ways to accomplish their long term goals. Keep in mind that customers love to try new products. They also have to race to keep up with the rapid changing needs and new trends of the customers in order to satisfy them. They wish to maintain the best image by treating employees fairly and putting strict regulation over franchise to firmly follow the company's procedures. By observing the American market, they must challenge the competitors by keeping an eye on mergers and owning new stores as did McDonald's by purchasing Boston. If only KFC was faster in acquiring Boston, it would avoid great loss and competition. They have to continue working on the strategy of low cost / changing by investing on their best powers like economies scales , negotiating for good deals and popular famous image/ brand all over the world. They should be trained to use technology effectively to produce more and stay in 44

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the competitions which will urge them to be non stop challenge. Focus on their task, quality food – best service restaurant hygiene. Have regulation over franchises. Create new products continuously. Be aware of mergers and acquisitions. Learn and be updated in technology to remain efficient and competitive.

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