Firm/Business: KFC (Kentucky Fried Chicken)

A.Explain the industry that the business belongs to, the founder / Managing Director /
CEO / President, the size of the firm either measured by physical size/ number of
staff/Asset/Profit/Loss and the goods and/or services that the firm is selling.

In the food and beverages industry, Kentucky Fried Chicken (KFC) is nowhere close to
uncommon. In fact, it is one of the world’s largest restaurant chains that specialized in selling
fried chicken. KFC was founded by Colonel Harland Sanders in year 1930. In year 1952, the
first ever KFC franchise opened in Utah. After this event, KFC had expanded globally to
nations such as Africa, Europe, North America, Middle East, and Oceania. The ownership of
the company went through a series of changes, beginning with Colonel Sanders, to John Y.
Brown Jr. and Jack C. Massey in year 1964, to R.J. Reynolds in the early 70s and eventually
to PepsiCo whose restaurant divisions were spun-off to Tricon Global Restaurants (TGR).
TGR was then renamed to Yum! Brands. In present, KFC is a subsidiary brand for Yum!
Brands which also owns several popular fast-food chains such as Pizza Hut and Taco Bell.
The first ever KFC branch in Malaysia was opened in year 1973 located in Jalan Tunku
Abdul Rahman. The mission statement of KFC is “To be the leading integrated food services
group in the Asia Pacific region based on pristine quality products and exceptional customer-
focused service”, and the vision statement is “To maximize profitability, improve shareholder
value and deliver consistent growth every year”. KFC also has a catchphrase, which is
“Finger Lickin’ Good”, which gives the impression that the food served by KFC is good. To
date, there are more than 18,000 outlets in over 100 countries and territories across the globe.
B1.Explain the production part for one or a set of or all chosen final goods & services
from the many types. In this part, the chosen item can be for one specific goods & services
alone or for a set of goods & services or for all goods & services in general.

KFC is best known for the fried chicken they provide. They also have set meals which consist
of fried chicken, fries, and a drink whereas some set meals also come with rice and coleslaw.
KFC Bucket meals is a bucket that can contain from 5 pieces to 15 pieces of chicken
depending on the set. Other than the original flavour, there is also another spicy flavour and
customers are given the option to mix these two flavoured fried chicken in one meal. Apart
from the chicken alone, KFC also comes up with new menus and specials occasionally to
avoid customers getting bored with chicken alone. One example of foods other than chicken
that is seen in KFC outlets is the infamous KFC Zinger Burger. KFC has never stopped
innovating their menus to keep it fresh and interesting for customers to enjoy. Moreover,
KFC also adapt its menus to the location of its restaurant chains. In Malaysia, a special
product called the Sambal Rice Bowl which incorporates with local Malaysian dishes, thus
giving food lovers of Malaysia an incentive to try the combination of local food with KFC
fried chicken.
B1(a). The Factors of Production for KFC

We all know that every business in existence is all dependant on the four factors of
production, KFC is an example. Other than the most important ingredient, which is high
quality chicken meat, they also need some other natural ingredients such as wheat flour for
their breading, of course there are also an additional 11 spices mixed into the wheat flour
which are also natural resources. Cooking oil is also need for the chicken to be cooked for
customers. These all fall in to the first category of the factors of production, Land. After
gathering the natural resources, the chicken needs to be prepared before serving it to
customers, this is where the second category of factors of production comes in, Labour. The
chicken needs to be coated in brine and the breading before cooking it, of course these
require the working of human resources such as, supervisors, the people who maintain the
smooth operation of business, cooks, the people who turn natural resources into finished
goods ready to be enjoyed, waiters or waitresses, the people who take orders and serve
customers their foods, and last but not least cleaners, the people who keep the location clean
and tidy so that customers can enjoy their food in a better environment. Besides that, with
enough human resources in hand, they also need equipment for the restaurant, this falls in the
third category of Capital. The machinery will greatly increase the efficiency of the
production of fried chicken and other foods provided by the KFC outlet. First is the breading
station, where the chicken gets breaded before the second step which is frying it. There are
two types of fryers found in KFC kitchens, which are pressure fryers and a chicken fryer with
built-in oil filtration. Both fryers produce the same product but the one with built-in oil
filtration can save costs for oil as the oil is filtered and can be hygienically reused. After the
chicken is finished frying, they are put in a hot food display cabinet usually found behind the
cash registers in the order station. Other than that, there are freezers and warming and holding
cabinets. The freezers are used to store foods such as mashed potatoes, coleslaw and whereas
the warming and holding cabinets are used to store the remaining fried chicken after closing
hours. Because the mashed potatoes, coleslaw, etc. are frozen, they also have a commercial
microwave to heat up the frozen foods. For the drinks, there is a soda fountain, it is a
dispenser connected to several barrels of soft drinks, each barrel contains different types of
soft drinks, like Pepsi and Fanta. After closing hours, the used kitchen utensils need to be
cleaned for reuse, a commercial sink is also found inside the kitchen of KFC for cleaning
purposes. One last factor of production is the root of all mentioned above, which is
Entrepreneurship, he or she is the franchisee of the KFC outlet, a businessperson who risks
money and time to open a KFC outlet and hoping to get profit in return.
B1(b): The variable and fixed costs that are involved in the production/operational process

There are several costs in the operation a KFC restaurant. One possible fixed cost for a KFC
outlet is the rent, Let’s say a shop in Berjaya Times Square for example, the rent for one 861
square feet shop unit costs RM5,000 a month without utility costs. Another example of fixed
costs are salaries. The manager on the other hand is paid RM5,000/month as he is responsible
for the entire operation of the restaurant, the assistant manager is paid RM2,000/month as
he/she has less responsible than the actual manager. With all of this added up, A KFC in
Berjaya Times Square is looking at a total fixed costs ranging around RM12,000 excluding
government utilities such as electricity and water. One of the variable costs for a KFC
restaurant is the chicken, the cost for the chicken is roughly around RM6.8/piece to
RM7/piece according to information given by the KFC customer careline (1-300-22-2888).
Another variable cost is wages for normal workers, for example, normal workers are paid
RM6/hour to work in a KFC restaurant from 9am to 5pm every day, the normal workers
include approximately 4 to 5 cashiers in front taking orders of hungry customers, 6 to 7 cooks
in the kitchen preparing the meals ordered by the customers, and 5 to 6 waiters or waitresses
serving customers their food. Thus, if a KFC branch in Berjaya Times Square can sell 1500
pieces of chicken in a day, the business is looking at a total cost of RM342,300 to
RM356,160 a month.
B2(a). Demand, pricing, price elasticity of demand (PED), and Total Revenue (TR). [8-
Piece Bucket Meal]

Due to the lack relevant research showing the quantity demanded of the 8 pieces Bucket Meal
of KFC in every year, we use the Total Revenue formula (TR=price × quantity) to estimate
the quantity demanded of 8 pieces Bucket Meal.

Table 1 shows the TR and the prices of 8-Piece Bucket Meal from Year 2018-2020

Year Total Revenue ($, Billion) Price of 8-Piece Bucket Meal

2018 2.6 $21.99

2019 2.5 $27.61

2020 2.27 $33.95

Table 1

2018

The total revenue of KFC in 2018 is 2.6 billion dollars and the 8 pieces Bucket Meal is sold
in the price 21.99 dollars. There are all 68 sets or Ala Carte items in KFC menu 2018. 8-piece
Bucket Meal is one of the meals in the menu. The total revenue 2.6 billion is based on the 68
sets and Ala Carte meals. So, the 8 pieces Bucket Meal is just 1/68 of the menu.

To estimate how many percent does the 8-Piece Bucket Meal include in the total revenue,
using 1/68 which means one of the meals from the whole menu multiplied by 100%.

1
×100 %
68

From this, we know that the 8-piece Bucket Meal is approximately 1.47% of the total
revenue. Next, we need to estimate how much is 1.47% of the total revenue.

2600000000 ×1.47 %=3822000000

By using the total revenue (2.6 billion) and multiplying it with the percentage that the 8-piece
Bucket Meal take up in the total revenue (1.47%) then we will get the estimation of the total
sales of the 8 pieces Bucket Meal is 3.822 billion.
To estimate the quantity demanded of 8 pieces Bucket Meal in year 2018, we use the Total
Revenue formula (TR=price× quantity), which we use the total sales of the 8 pieces Bucket
Meal (3.822 billion) as the total revenue in the formula.

TR=price × quantity

3822000000=21.99× quantity

3822000000
=quantity
21.99

quantity =173806275.6

quantity ≈ 173 million

From this, we estimate that the quantity demanded of the set 8 pieces Bucket Meal is 173
million in 2018.

2019

The total revenue of KFC in 2019 is 2.5 billion dollars and the 8 pieces Bucket Meal is sold
in the price 27.61 dollars. There are all 70 sets or Ala Carte items in KFC menu 2019. 8-piece
Bucket Meal is one of the meals in the menu. The total revenue 2.5 billion is based on the 70
sets and Ala Carte items. So, the 8 pieces Bucket Meal is just 1/70 of the menu

To estimate how many percent does the 8-Piece Bucket Meal include in the total revenue,
using 1/70 which means one of the meals from the whole menu multiplied by 100%.

1
×100 %
70

From this, we know that the 8-piece Bucket Meal is approximately 1.43% of the total
revenue. Next, we need to estimate how much is 1.43% of the total revenue.

2500000000 ×1.43 %=¿35750000

By using the total revenue (2.5 billion) and multiplying it with the percentage that the 8-piece
Bucket Meal take up in the total revenue (1.43%) then we will get the estimation of the total
sales of the 8 pieces Bucket Meal is 35.75 million.
To estimate the quantity demanded of 8 pieces Bucket Meal in year 2019, we use the Total
Revenue formula (TR=price× quantity), which we use the total sales of the 8 pieces Bucket
Meal (35.75 million) as the total revenue in the formula.

TR=price × quantity

35750000=27.61× quantity

35750000
=quantity
27.61

quantity =1294820.72

quantity ≈ 129 million

From this, we estimate that the quantity demanded of the set 8 pieces Bucket Meal is 129
million in 2019.

2020

The total revenue of KFC in 2020 is 2.27 billion dollars and the 8 pieces Bucket Meal is sold
in the price 33.95 dollars. There are all 74 sets or Ala Carte items in KFC menu 2020. 8-piece
Bucket Meal is one of the meals in the menu. The total revenue 2.27 billion is based on the
74 sets and Ala Carte items. So, the 8 pieces Bucket Meal is just 1/74 of the menu

To estimate how many percent does the 8-Piece Bucket Meal include in the total revenue,
using 1/74 which means one of the meals from the whole menu multiplied by 100%.

1
× 100 %
74

From this, we know that the 8-piece Bucket Meal is approximately 1.35% of the total
revenue. Next, we need to estimate how much is 1.35% of the total revenue.

2270000000 ×1.35 %=¿30645000

By using the total revenue (2.27 billion) and multiplying it with the percentage that the 8-
piece Bucket Meal take up in the total revenue (1.35%) then we will get the estimation of the
total sales of the 8 pieces Bucket Meal is 30.65 million.
To estimate the quantity demanded of 8 pieces Bucket Meal in year 2019, we use the Total
Revenue formula (TR=price× quantity), which we use the total sales of the 8 pieces Bucket
Meal (30.65illion) as the total revenue in the formula.

TR=price × quantity

30645000=33.95× quantity

30645000
=quantity
33.95

quantity =¿902650.96

quantity ≈ 90 million

From this, we estimate that the quantity demanded of the set 8 pieces Bucket Meal is 90
million in 2020.
 Table 2 shows the Price and Quantity Demanded of 8-Piece Bucket Meal.

Year Price of 8-Piece Bucket Meal Quantity Demanded (Millions)

2018 $21.99 173

2019 $27.61 129

2020 $33.95 90

Table 2

Demand Curve of 8-Piece Bucket Meal From 2018 to 2020

Price ($)

33.95

21.99

D
Qd(millions)
90 173

Over the 3 years (2018 to 2020), the price of the 8-Piece Bucket Meal increased from $21.99
to $33.95, causing the quantity demanded to drop from 173 million to 90 million. A negative
relationship exists in the graph as when price increases, quantity demanded decreases.

Main Factors Affecting PED

Price isn’t the only thing that affects the PED for the 8-Piece bucket meal of KFC. In this
case, one major factor is the number of substitutes, this refers to the competitors within the
fast-food industry. If consumers can substitute KFC for other available fast-foods that

consumers regard as similar, then the price elasticity of demand would be elastic.

Another factor that affects PED is the proportion of income of consumers spent in KFC. If
the consumers spend only a small proportion of their income to buy KFC, then the price
elasticity would be mostly inelastic, but with the increase of prices throughout 3 years, the
amount of money which the consumers are spending is gradually increasing, then this will
make the PED Inelastic. From an article in “The Economic Times Industry”, when GST is
increased by the government from 5% to 8%, KFC increased in their prices with the saying of
“our menu prices are updated with the increase of GST, and going forward our customers will
pay exactly what they see on the menu board”. The increase in GST will cause the increase of
input costs for KFC, so if consumers think that the increase in price is spending more of ones’
income, then they will switch to cheaper alternatives.

Overall PED for KFC (8-Piece Bucket Meal)

90−173
(90+173)/ 2
PED = |Ed| =
33.95−21.99
(33.95+21.99)/2

|Ed| = 1.476092679
With the calculations above, the PED for the 8-Piece Bucket meal is 1.48, which is price
elastic of demand. Hence, showing us that the consumers are sensitive for the change in price
of the 8-Piece Bucket Meal shown from change in quantity demanded.

B2(b). The major/main non-price determinants of demand for 8-Piece Bucket Meal
There are several non-price determinants of demand. One example is the changes in number
of consumers, this means where consumers from other fast-food restaurants switch to KFC
for various reasons, with the increase of the number of consumers, the demand will increase
causing a rightward shift on the demand curve.

Other than that, a change in taste of consumers also affect the demand for 8-piece bucket
meals, this may happen when KFC comes out with a new flavoured chicken and consumers
enjoy the new taste of the chicken, increasing the demand for KFC 8-piece bucket meals.
Hence causing the demand curve to shift rightward.

Last but not least, the change in price of other goods, which are substitute goods, this refers to
the price of other fast foods. If KFC increases the price of 8-piece bucket meals, consumers
will switch to other substitute goods such as Wendy’s. This causes a leftward shift in the
demand curve.
B2(c). With B2(a & b), explain how these might affect the total revenue of KFC.

With the information from B2(a), we can see that the total revenue of KFC is decreasing
every year for three years from $2.6 billion to $2.27 billion, and the quantity demanded of 8-
piece bucket meals decreased from 173 million to 90 million. This shows that the opportunity
cost for an increase of price of $11.96 is 83 million sets of the 8-piece bucket meal, KFC lost
almost 50% (47.98%) of their sales in the 8-piece bucket meals, this amount is enough to
affect the total revenue.

Besides that, with the major factors of non-price determinants from B2(b), if KFC improves
innovation and productivity by coming out with a new flavour or new sets of chicken or
setting up discounts/events, there might be a chance of increasing the number of consumers,
hence increasing total revenue. Moving on, KFC needs to be mindful for the prices they put
up on their menus, if the prices they put are higher compared to other competitors, consumers
will switch to other fast-food restaurants, causing the decrease in the total revenue since there
the consumers are spending money on other restaurants rather than KFC.
B3(a). Market Structure

KFC is one of the biggest fast-food chains in the industry, but there are other fast-food
companies competing with KFC. McDonalds is perhaps a more powerful competitor in the
industry as it is often ranked number one in most of the aspects within the fast-food industry.
This includes sales volume, number of outlets globally as well as the revenue. Because of the
strong market share, McDonalds is probably the strongest competitor for KFC in the industry.
Other than McDonalds, there is Burger King (BK). Burger King’s main specialty in serving
burgers gave it a spot in the industry since it was able to specialize and provide the best
quality possible. BK gives stiff competition in the industry and has become one of the major
fast-food chains in the industry. Moreover, Subway has also expanded throughout the years
both locally and globally, because of the trademark of serving marine sandwiches enables it
to find locations to operate in.

The Market Share of Fast-Foods Industry Of 2019 (%)

McDonalds 21.4% Starbucks 7.52% KFC 2.82% Subway 2.8%

Domino's Pizza 1.57% Pizza Hut 1.24% Burger King 1.16%

According to the market share in 2019 (information is in reference list), McDonalds had an
astonishing share of 21.4% almost have the power of the entire market, coming in is
Starbucks with 7.52%, KFC with 2.82%, Subway with 2.8%, Domino’s Pizza with 1.57%,
Pizza Hut with 1.24%, and Burger King with 1.16%. Hence, KFC is ranked third the
strongest fast-food chain in 2019.
B3(b). Market Structure

With the information given in B3(a), KFC belongs to a rather more monopolistic competition
market as most of the major players in the industry sells similar products, they all sell fast-
food. Because of the similarities in goods and services provided by the players in the fast-
food industry, the players use differentiation to sell its products and most of the have
relatively same pricing, but if one of the fast-food chains increase their prices, the customers
will switch to other restaurants to enjoy their meals. For example, If McDonalds increases
their prices of fried chicken, the customers will switch to KFC as an alternative because of
the cheaper prices.
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