I.

ISSUES

In 1996, KFC remained the worlds largest chicken restaurant chain and third largest fast food chain. It held over 50 percent of the U.S market in terms of sales and ended 1995 with over 9000 restaurants worldwide. KFC opened 234 new restaurants in 1995 and operated in the 68 countries. One of the first fast food chains to international during the late 1960s, KFC had developed one of the worlds most recognizable brands.

Despite of the KFCs past success in the U.S market, much of the KFCs growth was driven by its international operations, which accounted for 94 percent of all KFC restaurants built in 1994 and for 100 percent of the increase in 1995. Domestically the restaurant count dropped by seven restaurants because of unit closures, intense competition among the largest fast food competitors resulted in a number of obstacles to further expansion in the U.S market. Expansion of free standing restaurants was particularly difficult. Fewer sites were available for new construction and those sites, because of their increase cost, were driving profit margins down.

However the most critical or major issue of this case in the future will be their ability to handle changes. Their system is older, in terms of facilities and product form, and their attitudes still dont reflect the realities of their changing business environment.

One on the great challenges at KFC is that there is a lot that needs fixing and the toughest challenge is that they have to stay focused. They also have a significant service problem in a service driven industry. And they have to figure out a way to meet their customer service expectations which they dont meet today.

In 1996, the major problem was how to transition the old KFC into a new KFC the appealed to consumer demands for more healthy food items ate lower price, greater variety in food selection, and a higher level of service and cleanliness in a greater variety of locations. In the effect, this entailed greater reflection over its entire business strategy its new offerings, pricing, advertising and promotions, point of distribution. Restaurant growth, and franchise relationship.

II- A. INDUSTRY ANALYSIS

A.

Demand for products and services of the industry

1. Long Run Growth/ Decline

Fast food franchising was still in its infancy in 1954 when Harland Sandlers begun his travels across the United States to speak with prospective franchises about his colonel sanders recipe Kentucky fried chicken. By 1960 colonel Sandlers had granted KFC franchise to over 200 take home retail outlets and restaurants across the unite states. They had also succeeded in establishing a number of franchises in Canada by 1963, the number of KFC franchises had risen to over 300 and revenues had reached $500,000 per unit, on average.

By 1964, the colonel had tired of running the day to day operations of the business and was eager to concentrate on public relations issue. He sold the business to two Louisville business people Jack Massey and John Young Brown, Jr. for $2 million. During the next five years, Massey and Brown concentrated on growing KFCs franchise system across the U.S. in 1966 they took KFC public, and the company was listed on the New York Stock Exchange. By late1960s a strong foothold had been established in the United States, and Massey and Brown turned their attention to international markets. In 1969, a joint venture was signed with Initsubishi shoji kaisha, Ltd., in Japan, and the right to operate 14 existing KFC franchises in England were acquired. Subsidiaries were also established in Hong Kong, South Africa, Australia, New Zealand, and Mexico. By 1971, KFC had 2,450 franchises and 600 company owned restaurants worldwide, and was operating in 48 countries.

2. Stability of Demand for Products

Many KFCs problems during the late 1980s surrounded its limited menu and its inability to quickly bring new products to market. As KFC entered 1996, it grappled with a number of important issues. 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 KFCs image as a fried-chicken chain, it change its logo from Kentucky Fried Chicken to KFC in 1991. It responded to consumer demands for greater variety by introducing a variety of new products. The increased popularity of healthier foods and consumers-increasing demand for better variety led to a number of changes in KFCs menu offerings.

3. Stage in Product Life Cycle

KFC is on its Maturity Stage; KFCs products have survived the earlier stages. KFCs early entry into the fast-food industry in 1954 had allowed it to strong brand name recognition and a strong foothold in the industry. During the 1990s and 1970s, KFC pursued an aggressive strategy of restaurant expansion quickly establishing itself as one of the largest fast-food restaurant chains in the United States. By 1990, restaurants located outside of the United States were generating over 50 percent of KFCs total profits. By 1995, KFC was one of the three largest fast-food restaurant chains operating outside of the United States.

A. SUPPLY OF PRODUCTS AND SERVICES 1. Capacity of the Industry

KFC, being the worlds largest chicken restaurant chain and third largest fastfood chain, with over 9,000 in both franchise and company-owned restaurants worldwide and was operating in 68 countries, simply shows that KFC has the capacity to address the needs of its customers no matter how old their facilities and product form was. However KFCs significant service problem will probably push their customers away from them, thus KFC must have to imply ways on how to meet there customers expectations. KFC ought to think that customer goes to their establishment not just because of their product but also their service, because nothing bits a quality service.

The continuous opening of new restaurants in 1995, approximately two restaurants in every three days is one way of proving their competence when it comes to business expansion, thereby providing a wide market segment not just local but worldwide.

2. Availability of Needed Resources

KFC has several problems when it comes to its resources, specially on the needed materials, because there system is older when it comes to their facilities and product forms and its one thing that needs an attention, since this is the key to success in terms of production and it would be there competitive edge in the wide array of fast food chain industry. KFC

Despite of the rivalries of employees and managers, KFC had surpassed this incident. KFCs culture was built largely as the employees enjoyed relatively good employment stability and security. Over the years, a strong loyalty had been created among KFC employees, because of the benefits and pensions and other non-income needs. Thereby, KFC has the ability to retain and manage its manpower.

As to the companys money, KFC has the enough profit on its recent operations as of 1994, worldwide on both company-owned and franchised restaurants. Whereby it reaches $1.7 million in this regard KFC has the capacity to innovate their old system or how to transform the old KFC into new one.

3. Volatility of Technology

Basically KFCs past technologies still existed at present, which means that their families were durable enough because it works for years. However the main issue now is how they could transform the existing facilities for them to be more competitive.

4. Social Constraints

KFC encountered several factors constraining KFCs international expansion plans such as the social unrest, increasing trade and current account deficits and the uncertainty surrounding the economic policy. Some incidents were directly attack of nationalist against KFC and closure of the first restaurant in India by local authorities are to protest of local

farmers group allied with a campaign across India against foreign investment which was occurring as part of the countries four year old program of economic liberalization.

5. Inflation Vulnerability

As KFC entered business in Mexico. High tariff and other trades barriers restricted imports in to Mexico, and foreign ownership of assets in Mexico was largely prohibited or heavily restricted. After 1982, the Mexican government battled high inflation, high interest rates, labor unrest, and lost consumers power. When Carlos Salinas de Gortari seated as President, Mexico improved, top marginal tax rates were lowered, and the new legislation eliminated many restriction for foreign investment.

President Salinas institutes a policy of allowing the peso to depreciate against the dollar by one peso per day, it result a grossly overvalued peso, and this lowered price of imports & led to an increase in imports of over 23 percent in 1989.

KFCs primary concern was the stability of Mexico labor markets. Labor was really cheap in Mexico. While KFC benefits from lower labor costs, labor unrest, low job absenteeism, & punctuality continued to be significant problems. These problems with worker retention and labor unrest were mainly the result of workers frustration over the loss of their purchasing power. Due to inflation & to past government controls on wages increases. A slowdown in business activity brought about by higher interest rates & lower government spending, lead many businesses to lay-off workers.

C.

COMPETITIVE CONDITIONS IN THE INDUSTRY

1. Structure of the Industry

KFC remained the largest chicken restaurant chain and third largest fast-food chain. It held over 50 percent of U.S. market in terms in sales and ended 1995 with over 9,000 restaurants worldwide. In 1995 KFC opened 234 new restaurants and operated in 68 countries. One of the first fast-food chains to go international during the late 1960s, KFC had developed one of the worlds most recognizable brands.

2. Government Support and Regulation

The food industry does not get much support from government. However there are laws regarding its operation on food sanitation and hygiene.

D.CONCLUSIONS

1. Prospects to Volume and Prospects

1960-1970 KFC pursued an aggressive strategy of restaurant expansion, quickly establishing itself as one of the largest fast-food restaurant chains in the world. 1990 Restaurants located outside of the United States were generating 50 percent of KFCs total profits. 1995 KFC was one of the three largest fast-food restaurants chains operating outside of the United States. 1971 KFC was sold to Hueblien, Inc was in the business of producing vodka, mixed cocktails, and other alcoholic beverages. 1982 R. J. Reynolds Industries, INC. Merged Hueblein into subsidiary. 1986 PepsiCo acquired Kentucky Fried Chicken from RJR-Nabisco. KFC held 49 percent of the &7.7 billion U.S. chicken segment.

2. Key Factors for Success in the Industry

-Quality -Service -Cleanliness -Satisfying the customers needs -choose new location that will adopt the product of KFC

II- B. POSITION OF THE COMPANY IN THE INDUSTRY

A. MARKET POSITION OF THE COMPANY

1. Relation of the company Sales to total industry and to leading competitor

KFC was the first fast-food chains to conquer international market they developed one of the worlds most recognizable brands. When PepsiCo acquired KFC from RJR-Nabisco in 1986 for $841 million, KFC gave the leading market share in the three of the four largest and fastest growing segments within the U.S quick-service industry, and it held 49 percent of the $7.7 billion U.S chicken segment.

KFC continued to dominate the chicken segment, with 1995 sales of $3.7 billion. It held market shares of 12.3 and 10.2 percent. Between the year 1990 and 1995, KFC sales grew at 13.1 percent. KFC facing the world of competition, it also contributed a market share of 58 percent in the chicken segment while its competitor Boston Market (formerly Boston Chicken) which KFCs nearest competitors and Popeyes held market share of 12.3 and 10.2 percent respectively. Other competitors with in the chicken segment included Bojangles, El Pollo, Grandys and Pudgies, also Mcdonalds begun to introduce its chicken.

2. Relative Appeal of the Company Products

KFCs early entry into the fast-food industry in 1954 and it allowed to developed strong brand-name recognition in the industry. They begun to introduce chicken in the chicken segment, and they were trying to come-up with the products designed to the tastes of their customers. Because of the intense competition when it comes in producing products, KFC introduced $14.99 MEGA-MEAL it is designed to compete with the Boston Market as a home replacement alternatives. They also come-up with the COLONELs KITCHEN in Dallas and was testing a full menu home-meal replacement items. The company had introduced many products but Rotisserie Gold did not maintain an initial high sales. KFC had the capacity to innovate new products to fight other fast-food chains. As KFC entered 1980s, they faced some issues especially on fried foods because consumers begun to demand healthier foods so

they limit on fried foods. KFC responded to consumer demands for greater variety by introducing a variety of new products. New products introduction were never an important part of KFC strategy. However, the introduction of chicken sandwiches and fried chicken by hamburger chains had changes the make-up of KFCs competitors. In addition an increased popularity of healthier foods and consumers increasing demand for better variety led to a number of changes in KFCs menu offering.

3. Strength of the Company in Major Markets

KFC was the worlds largest chicken restaurant chain and the third largest fastfood chain. It is one of the first fast-food chains to go international. KFC come-up with the worlds most recognizable brands.

KFCs growth was driven by its international operations, which accounted for 94 percent of all KFC restaurants built in 1994 and for 100 percent of the increase in 1995. KFC had long dominated the fast food industry outside of U.S. the company remained the most internationalized of all fast-food chains, operating almost 47 percent of its total units outside of the states. In Latin-America, KFC was operating 205 company owned restaurants in Mexico, Puerto Rico, The Virgin Island and Trinidad as of 1996. Additionally KFC had 173 franchisees in 21 countries throughout LatinAmerica, have the total number of 378 KFC restaurants in operation in Latin-America .

B. Supply Position of the Company

1. Comparative Access to Resources

KFC is known to its main product which is chicken; they offer varieties of chicken products to their customer as we all know chicken is widely available at any time. Thereby the raw materials needed by this company can easily be acquired.

2. Unique Productivity Advantage

KFC has been unique on marketing its product by means of combining PepsiCo product which is the beverage and the products of KFC itself, with these they are both generating profits and it is KFCs advantage since they no longer purchase beverages from outside company, unlike other fast-food industry whereby they have this kind of source.

3. R & D Strength

KFC has been operating for several years now, however the weakness of these company is that they didnt give importance to the research and development.

KFC must invest forcefully in research and developments for them to be at edge on technology know- how. This could help the company transform technological advances into innovative new products, and to remain close on the heels of whatever advances and features are established by rivals, specially that we are now in the industry whereby technology is the prime driver of change.

It is a necessity to have focus on the research and development especially in the critical areas not only to avoid stretching the companys resources too thin but also to intensify the firms proficiency and to master the technology for them to become the leader in a certain technology or product category.

R & D is important in a company so whatever so whatever advances and features will be pioneered by rivals you can come up with a better idea on how to defeat whatever features or product they will make in case of KFC, KFC focused on expanding their branches not studying first the culture of the country where they are going to build their new branch.

C. Special Competitive Considerations

1. Relative Financial Strength

Kentucky Fried Chicken was sold for $2 million to two Louisville business people Jack Massey and John Young Brown until PepsiCo acquired Kentucky Fried Chicken from RJR- Nabisco in 1986 for $841 million. The sale of the company in 1987 is $4.1 billion which reached up to $7.1 billion in a span of 8 years and that is in 1995. Together with the fast-food industry, that sale exceeded on 289.7 billion for the approximately 500,000 restaurants and other food outlets in the year 1995.

2. Community and Government Relationship

Kentucky Fried Chicken was created for a family who dine-out and those who are also fund of chickens. Old KFC was transcend to new KFC that appealed to the body conscious costumers wants for food items at lower prices, greater variety in food selection, and higher level of service and cleanliness in a greater variety of locations. These new chains focused on higher-income customers by offering a healthy diet food items without the presence of chicken.

They also offer a unique opportunity because of the size of its markets, its common language and culture, and its geographic proximity to the United States. Costumers want more outlets of fast-food chains most likely the KFC.

KFC invests to Mexico by introducing to the Mexico people the new fast-food chain which has the main product of chicken but the entry of KFC to Mexico made the country increased the number of competing investors like the ones from Asia, Europe and United States. When the North American Free Trade Agreement enters Mexico, the American people had the broke down the gap and this made them the largest trading partner of Mexico.

3. Ability and Values of Company Managers

Harland Sanders sold the business to two Louisville businesspeople Jack Massey and John Young Brown. The Colonel stayed on as a public relations man and goodwill ambassador for the company. Massey and Brown concentrated on growing KFCs franchise system across the United States.

Arguments promptly exploded between Colonel Sanders and Heublins management. Sanders become increasingly troubled over quality control issues and restaurant cleanliness.

Joining with Heublin represented part of RJRs overall corporate strategy of diversifying into unrelated businesses to reduce its independence on the tobacco industry. RJR had no more experience in the restaurant business than did Heublin.

They have the ability to compete into other restaurant by restaurant segment; PepsiCo acquired Kentucky Fried Chicken from RJR- Nabisco. The acquisition of KFC gave PepsiCo the leading market share in three of the four largest and fastest growing segments within the U.S. quick-service industry.

The corporate culture at KFC in 1986 contrasted sharply with that at PepsiCo. KFCs culture was built largely on Colonel Sanderss laid-back approach to management. When PepsiCo acquired KFC, it began to restructure the KFC organization, replacing most of KFCs top managers with its own.

D. CONCLUSION S Competent in key areas of operation Company reinvest by opening new branches Well thought of loyal customers They established a strong brand-name Most internationalized fast-food chain

Lack of research and development Strategic direction is not clear Plagued with internal operating problems Poor relationship with franchisees

Earn big profits as the population grows Big demands for foods Ability to increase the number of franchise to other countries

Entry of new competitors On going changes in taste preferences and dietary needs No support from government agencies

III.ACAs (ALTERNATIVE COURSES OF ACTIONS)

One of the challenges of KFC Company was how they can handle changes. When PepsiCo acquired Kentucky Fried Chicken, were how to join two distinct corporate cultures and whether it had it had the management skills required to successful operate KFC using PepsiCo managers. PepsiCo had already acquired an experience in managing fast food business through its Pizza Hut and Taco Bell operations. However, replacing KFC with PepsiCos managers could easily cause conflicts between managers in both companies, who were accustomed to different operating procedures and working conditions.

The old managers must remain in the business because they are the one who have the knowledge to operate the business. Since they acquire (50%) of market sales in the United States and they are ranked as the third largest fast-food chain worldwide. Other challenges were on how they can transform to Old KFC to New KFC like transforming the old strategy in term of service, facilities and the menu that they offer. They should adopt todays trends in the company operations by using modernized facilities in the services.

IV. RECOMENDATIONS We therefor, conclude that KFC should work on the management issue to build good atmosphere for their employees to work in. They also make sure that they offer quality food and excellent service.

Todays generations, most of the people are becoming health conscious especially the people in the United States. They are prone to hypertension, which is caused by bad cholesterol not only Americans but all people around the world, most especially this 21st century.

Nowadays, at early age, younger people are prone to hypertension. According to the latest data, the youngest person who died was at the age of 16. Due to the fact that most of the foods right now are ready-to-eat, most are processed foods.

What if KFC will offer and/or add fresh produced products such as fruits and vegetables in their menu. In this case, they can increase their sales. Even vegetarians can enter to their establishments.

They must also provide training to their employees and generate goods that are in a low price.