ABOUT KFC

KFC Corporation, based in Louisville, Kentucky, is the world's most popular chicken restaurant
chain, specializing in Original Recipe®, Extra Crispy®, Kentucky Grilled Chicken™ and
Original Recipe Strips with home-style sides, Honey BBQ Wings, and freshly made chicken
sandwiches.

Every day, more than 12 million customers are served at KFC restaurants in 109 countries and
territories around the world. KFC operates more than 5,200 restaurants in the United States and
more than 15,000 units around the world. KFC is world famous for its Original Recipe® fried
chicken made with the same secret blend of 11 herbs and spices Colonel Harland Sanders
perfected more than a half-century ago. Customers around the globe also enjoy more than 300
other products from Kentucky Grilled Chicken in the United States to a salmon sandwich in
Japan.

KFC is part of Yum! Brands, Inc., the world's largest restaurant company in terms of system
restaurants, with more than 36,000 locations around the world. The company is ranked #239 on
the Fortune 500 List, with revenues in excess of $11 billion in 2008.

HISTORY 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, 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.

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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
Birth date 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.

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.

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Sanders sells 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.

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.

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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 proudly introduces a new recipe that keeps the Colonel's 11 herbs and spices and finger-
lickin' flavor, but contains Zero Grams of Trans Fat per serving thanks to new cooking oil.

2008
The Colonel has a new look! KFC updates one of the most recognized, respected and beloved
brand icons with a new logo. The new logo depicts Colonel Sanders with his signature string tie,
but for the first time, replaces his classic white, double-breasted suit with a red apron. The apron
symbolizes the home-style culinary heritage of the brand and reminds customers that KFC is
always in the kitchen cooking delicious, high-quality, freshly prepared chicken by hand, just the
way Colonel Sanders did 50 years ago.

2009
KFC introduces Kentucky Grilled Chicken™ - a better-for-you option for health conscious
consumers who love the flavor of KFC. Kentucky Grilled Chicken has less calories, fat and
sodium than KFC’s Original Recipe® chicken, without sacrificing the great taste of KFC.

MENU

 Chicken

 Plated Meals

 Flavors and Snacks

 KFC Famous Bowls

 Sandwiches

 Desserts

 Sides

 Kids

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  Salads

 Big Box Meals

SWOT ANALYSIS:
SWOT analysis is a tool which is used as a guide for auditing an organization and its
environment. It is a summary of the audit under the headings, Internal Strengths and Weaknesses
as they relate to External Opportunities and Threats. It is the first stage of planning that assists
marketers focus on key issues and for developing strategic summaries.

1. S - Strength
2. W -Weaknesses
3. O - Opportunities
4. T –Threats

STRENGTHS
 Market Leader: Kentucky Fried Chicken (KFC) was the world’s largest chicken
restaurant chain and third largest fast-food chain in 2000. KFC continued to dominate the
chicken segment with sales of $4.4 billion in 1999.

 Market Share: KFC has a 55 percent share of the U.S. chicken restaurant market in
terms of sales and operated more than 10,800 restaurants in 85 countries.

 Very Strong Internationally: KFC was one of the first fast-food chains to go
international in the late 1950s. KFC’s early international strategy was to grow its
company and franchise restaurant base throughout the world.

 Franchises: KFC planned to grow primarily through franchises in other international

markets, which were operated by local business people who understood the local market
better than KFC. Franchises enabled KFC to expand more rapidly into smaller countries
that could only support a small number of restaurants. By 1963, the number of KFC
franchises had risen to more than 300 and revenues topped $500 million. By 1971, KFC
had established 2,450 franchised restaurants and 600 company-owned restaurants in 48
countries.

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  Employee Loyalty: KFC’s culture was built largely on Colonel Sanders’s laid-back
approach to management. Employees enjoyed good job security and stability. A strong
loyalty had been created among KFC employees over the years as a result of the
Colonel’s efforts to provide for his employees’ benefits, pension, and other non-income
needs.

 Customer Loyalty: KFC’s customer base remained loyal to the KFC brand because of
its unique taste.

 Bargaining Power: Increased bargaining power also enabled KFC to negotiate lower
prices from suppliers. KFC was also better able to control product and service quality.

 Secret Recipe: The secret recipe of KFC has long been a source of advertising, and
allowed KFC to set itself apart. The "secret recipe" was the initial home replacement
strategy.

 Brand Equity: KFC has developed strong brand name recognition and a strong foothold
in the industry. The Colonel is KFC's original owner and a very recognizable figure, both
in the U.S. and internationally, in their new logo.

WEAKNESSES
 Acquisition: KFC had a number of acquisition made by other companies. That’s why it
faced problems like quality control in Heublein, Inc. and cultural conflicts in PepsiCo.

 Declining margins: The 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
KFC’s focus on expansion of their international markets.

 Market research inefficiency: Germans were not accustomed to buying takeout or

ordering over the counter. McDonalds performed better in this aspect as they made a
number of changes in its menu and operating procedures.

 New product introduction: New product introductions were slow.

 Limited menu: During the 1980s and 1990s KFC’s main problem was their limited
menu and inability to quickly bring new products to market.

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  Long term weaknesses:

i) PepsiCo/KFC poor relationship with franchisees.

ii) Increased competition from direct and indirect competitors.
iii) Reduction in market share in the US market.
iv) Fast food sales grew at a slower rate (5%) in comparison to other sectors in the
restaurant industry.
v) Shortage in staff.
vi) Higher costs and poor availability of prime real estate.
vii) Other chicken chain competitors differentiate their products. For example, Boston
Market introduces new restaurant chain that emphasized roasted chicken rather than
fried chicken.

OPPORTUNITIES
 Latin America and Mexico: KFC could invest in Latin America because of the size of
its markets, its common language and culture, and its geographical proximity to the
United States. Mexico being a member of the North American Free Trade Area (NAFTA)
can be of potential interest to KFC as it had created a free-trade zone between Canada,
the United States, and Mexico.

 Rising Incomes: During the last two decades, rising incomes, greater affluence among
greater percentage of American households, higher divorce rates, and the fact that people
married later in life contributed to the rising number of single households and the demand
for fast food. Double-income households contributed to rising household incomes and
increased the number of times families ate out. Less time to prepare meals inside home
added to this trend. So KFC could take advantage of such a trend.

 Expand Menu: KFC could include some non-fried items in its menu to appeal to a new
consumer group.

THREATS
 Competition: Nowadays the most common threat is competition. Mc Donald’s, Burger
King, and Wendy’s were KFC’s main competitors. They were rapidly expanding into
other countries in Latin America such as Venezuela, Brazil, Argentina, and Chile. Other

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 competitors like Boston Market and Chick-fil-A took away KFC’s customers and gained
market share.

 Substitute: Boston Market was a new restaurant chain that emphasized roasted rather
than fried chicken. It successfully created the image of an upscale deli offering healthy,
“home-style” alternatives to fried chicken and other fast food. To be distinguished it
established most of its units outside of shopping malls rather than at major city
intersections and refused to construct drive-throughs.

PORTER’S FIVE FORCES ANALYSIS

Michael Porter provided a framework that models an industry as being influenced by five forces.
The strategic business manager seeking to develop an edge over rival firms can use this model to
better understand the industry context in which the firm operates. Porter’s five forces—

THREAT OF NEW ENTRANTS

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The threat of entry barrier of the chicken fast-food chain industry is moderate. On one side, the
entry barrier is low because the entry capital investment is low. For example, Chick-Fil-A enters
the industry by opening many small units in the food courts of shopping malls. Instead of
investing millions in building restaurant houses, those units cost only US$2000-US$4000 per
month, which is a less costly strategy to enter the industry. On the other side, the barrier is high
because the industry is already filled with few big players such as KFC and Boston Market,
which accounts for 56% and 12.8% of the total number of restaurants in the chicken fast-food
market. Their large sizes enable them to achieve the absolute cost advantages and the economies
of scale by sharing the overhead cost, material costs, and technology know-how. As a result, the
long run costs for new entrants are high.

BARGAINING POWER OF BUYERS

The customers of KFC, especially as individual buyers, have almost no bargaining power
because if only one customer threatens to no longer eat at KFC, the store is not going to lower its
price because the cost of losing one customer is not very great.

BARGAINING POWER OF SUPPLIERS

The suppliers, like the buyers, have very little bargaining power. The threat of supplier is
moderate-to-low. The major suppliers of the fast-food industry are the food/raw material
suppliers. They impose less threat because their positions can be backwardly vertical integrated.
For example, many fast-food chains operate their own farms and develop their own technology.
The suppliers can be powerful if they have unique resources or capabilities to provide superior
quality at low cost.

THREAT OF SUBSTITUTES
There are a few major competitors in the fast-food industry for KFC, namely McDonald’s, Pizza
Hut. The substitute products, in this case, would be burgers, pizza, and sandwiches. Though they
are competitors, their primary products differ greatly from each other, in that they sell, chicken,
burgers and fries, pizzas, and sandwiches, respectively. Home-cooked meals and grocery stores
with ready-to-eat foods are also substitutes, as families could choose any one of these over fast
food for a meal. These substitutes are definitely considered healthy as compared to the fast food
chains. Even foods from street vendors count as substitute goods. With so many firms in the
quick service industry, low switching costs, similar products, and healthier options, the threat of
substitutes is high.

RIVALRY
Rivalry is not very intense. If KFC raised its price for chicken by a small amount, chicken lovers
who may not be as accepting to pizzas are not going to switch to Pizza Hut just because the price

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for KFC increased. In addition to that, these restaurants have such different target customers that
the fluctuation of price for one restaurant is not going to affect the others.

CORPORATE LEVEL STRATEGIES

 Switched from franchise to company owned in their larger markets
 Interest in local community
 Changed name
 Introduced different menu items to keep up with local competitors
 Switched to highly performance based management strategies
 More responsibility assigned to franchises and marketing managers
The possible raise in other countries encouraged KFC to build a leading position and have more
popularity. The practice of achievements saved a lot through 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 kept them competing on price.

BUSINESS LEVEL STRATEGIES

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 through style options.
KFC wanted to meet the needs of the local markets, they not only introduced neighborhood
programs but they also hired locally. KFC put massive emphasis on having sanitary and updated
restaurants. They knew if their products were not reliable, customers would find other chicken
providers. KFC aid close attention to service and dedicated time to maintain the reliability of
their product provided to their customers. The business level strategy included:

 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

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  Reestablish and maintain an emphasis on clean and updated restaurants paying close
attention to service while maintaining product consistency

PROBLEMS AND ISSUES

 The PepsiCo, Inc.: There were conflicts between the corporate cultured of PepsiCo and
KFC management. It created a morale problem. Arrogance of PepsiCo executives led to
loss of employee loyalty, high employee turnover, PepsiCo’s poor relationship with KFC
franchises. The first contract change in 13 years gave greater power to PepsiCo to take
over weak franchises, relocate restaurants, and make changes to existing restaurants.
Royalty fees were raised when existing restaurants contacts came up for renewal.
Operating margins in the fast food restaurant division (KFC, Pizza Hut, and Taco Bell) of
PepsiCo fell due to intense competition on the fast food sector.

 KFC had fewer opportunities to expand in the U.S. market as its leadership in the U.S.
market was extensive.

 KFC was losing market share to competitors like Chick-Fil-A and Boston Market

 Shortage of employees in the 16-to-24 age category

 Poor availability of prime location

 Market saturation decreased per store sales

 KFC had trouble breaking into the German market.

 Limited menu

 Quality Control Issues and cleanliness

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RECOMMENDATIONS
Short term:

According to the analysis we can conclude that they should at first try to resolve the problems by
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. It is 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, and superior service. KFC should
always try to please their customers and try to keep them updated in order to keep customers
content. Otherwise competitors will satisfy them and will eventually outshine KFC as Boston did
with its grilled chicken.

KFC must meet the customers need and enrich their menu. Boston Market has attracted more
customers because they made what the customers wanted by providing healthy snacks. KFC
should shut down some of the unsuccessful stores in the U.S. which are sucking money from
them. This will save some money to do business in new markets which can lead to possible
growth. KFC should find countries which can return above average profits. It should try to
untangle the international issues, be backed financially to lead and compete globally before
making any business expansion.

• Offer pleasant working surrounding

• Provide a menu with variety and healthy food

• Save by closing unprofitable restaurants

• Choose attractive countries for doing business

Long term:

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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, keeping 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
McDonalds did by purchasing Boston Market. If only KFC was faster in acquiring Boston
Market, it would avoid great loss and competition. They also have to keep working on their low-
cost/differentiation strategy by better taking advantage of their competitive forces such as
economies of scales, bargaining power, image/brand, worldwide recognition. They should be
trained to use technology effectively to produce more and stay in the competitions which will
urge them to be continually challenging.

• Focus on their task, quality food, best service restaurant and 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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BIBLIOGRAPHY
• Jr. Thompson,A.Arthur & III Strickland,A.J.(2003).Strategic Management(13th ed.),Tata
McGraw-Hill Publishing Company Limited

• Kentucky Fried Chicken (2011). Available http://www.kfc.com

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