ILRID 1700 Final Group 5 Project

Kentucky Fried Chicken

Yashvi Gattani, Matthew Lam, Sophia Schertzer, Ryan Kim

(Group 5) ILRID 1700 Final Project

What we are trying to answer...

1. Will KFC will be more or less successful in the near future? Why or why not? a. Less successful

i. not adjusting fast enough to technological and sociocultural changesii. facing high threats from the 5 Forces: Bargaining Power of Buyers,

Competitive Rivalry, and Threat of Substitutes2. Would your KFC be better off as a stand-alone entity or as a unit within

the parent company? Why?a. Better off as a unit within Yum! Brands

i. Higher economies of scale --therefore low operating costsii. Yum! Brands’ extant global presenceiii. Yum! Brands’ resources to help KFC restore market share leadership

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

Introducing Kentucky Fried Chicken

● Global fast-food chains started in 1930

● “Finger Lickin’ Good” chicken products

● “To sell food in a fast, friendly environment that appeals to price conscious, health-minded consumers”

● Projected Growth to $210.22 billion in 2018

The Parent Behind: Yum! Brands

● KFC is the largest of the three brands at Yum!, amongst Pizza Hut and Taco Bell○ Responsible for $556.71 million of Yum! Brands’ $13.28

billion estimated annual sales/revenue (McLellan)● Pioneer of expanding Yum!’s business internationally

○ First quick-service restaurant chain to enter China in 1987■ Pizza Hut followed in 1990, and now Yum! is brooding

over opening the first Taco Bell in Shanghai ● Roger G. Eaton, CEO of KFC

○ Also, Yum! COO

Yum! Brands and KFC

● Struggling KFC means direct help from Yum! Brands○ Launched Super Chix, where menu bear “striking

resemblance” to those of KFC rival Chick-fil-A (Little)■ Conceptual model used to drive sales away from

KFC’s rival ■ Quietly launched to protect KFC’s historic reputation

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

Bigger Dreams than Kentucky● In 1930, Harland Sanders started selling

at a service station● Highway covered KFC sign, Sanders left● Sanders sold his secret recipe of chicken

to many franchises● In 2002, Yum! Brands acquired KFC from

PepsiCo. ● Today over 18,875 outlets in 118

countries

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

Organizational Structure - Yum! Brands Role of KFC’s leaders in the parent firm

○ Roger G. Eaton (CEO of KFC and COO of Yum! Brands) ● Stand alone companies within the conglomerate

○ Opportunity for strategies tailored for specific companies (ex: China)

● KFC largest of the three brands at Yum! (the others are Pizza Hut and Taco Bell)○ In 2014, KFC was responsible for $556.71 million of Yum! Brands’

$13.28 billion estimated annual sales/revenue (McLellan).○ KFC is the reason why Yum! became a dominant player in the

industry○ KFC franchises constitute a significant portion of Yum!’s profits

● Size and Age○ KFC: Est.1955, Sales: 514.36M; Pizza Hut: Est. 1979, Sales: 5.88

B, Taco Bell: Est. 1962,Sales: 4.09B (Sales in 2015, Hoovers)

Organizational Structure - KFCFunctional and Divisional Structure

Divisional● Specialized regional operations (for example Asia

FBU, and China/India/US divisions). ● KFC Corporation’s mixed organizational structure

promotes expertise and boosts its global expansion strategy.

Functional and Vertical● Departmentalization

by function : HR, Marketing, Development, Finance, Technology, Legal

● Leaders report to the CEO (Yum.com).

Figure 1: Operational Structure Figure 2: Divisional Structure

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

● Product specialization

● Franchising● Global expansion

Strategy Executive Leadership

● Roger Eaton● Jason Marker

Critical Tasks

People Culture

Formal Organization

● Restaurant GM● Assistant restaurant

manager● Shift supervisor

● Menu Development● Franchise operation

● Functional● Divisional

● Smile● Special experience

Congruence AnalysisKFC Congruence Model

Congruence Analysis (continued) Evaluating KFC Congruence● Executive Leadership: Abundant experience in restaurant industry● Strategy: Focus on chicken product specialization and rapid global expansion● Critical Tasks: Development of diverse menus and opening franchises worldwide● People: Recruits and trains employees adequate for performing critical tasks● Culture: Emphasis on customer satisfaction and people-oriented culture● Formal Organization: Mixed organizational structure promotes expertise and

boosts global expansion strategy

Assessment● Effective personnel and structure,

but lacking in an all-unifying culture

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

Strategy: Competitive Strategy

Differentiation

● KFC’s Original Recipe® of “11 herbs and spices” cannot be easily replaced, used as competitive advantage (Jurevicius)

● demonstrates KFC as stressing quality over lower prices (Bell and Shelman).

● recipe (competitive advantage) expanded to new menu items to compete with other fast-food chain offerings

- 29 menu items in the U.S.- 50 menu items in China

Strategy: Five Forces Analysis

Threat of New Entrants -- Moderate

● Low barriers to entry○ Low capital to open new restaurant○ Industry concentration is “low to moderate” (Alvarez).

● High barriers to entry○ High incumbency advantage

■ Established brand recognition■ Resources to aggressively retaliate, e.g.

sales, promotions○ High supply-side economies of scale

■ Developed over time, low production costs

Strategy: Five Forces Analysis (cont.)Bargaining Power of Suppliers -- Moderate

● Fast-food chains purchase large volumes from large amounts of suppliers- “17,500 British and Irish farms that provide us with top-quality ingredients.”

(McDonald’s – UK, 2012)

BUT…

● Need to create partnerships for a reliable and flexible supply chain- Dean McKenna, McD head of supply: “McDonald's cannot delist Big Macs or

change the price of a Happy Meal every week just because the price of flour or beef has gone up” (Watson).

Strategy: Five Forces Analysis (cont.)Bargaining Power of Buyers: High!

● Price sensitive customers and low switching costs (Alvarez)

Threat of Substitutes: High!

● Cultural trends on healthy eating is beginning to overshadow convenience element of fast-food chain

● Emergence of fast-casual dining

Strategy: Five Forces Analysis (cont.)Competitive Rivalry: High!

● Intense amongst a few large chains: McDonald’s, Yum! Brands, Burger King○ “likely intensify over the next five years” (Alvarez)○ “significant price-based competition and a growing emphasis on the

regular introduction of new products” (Alvarez)

Threat of New Entrants Moderate

Bargain Power - Supplier Moderate

Bargain Power - Buyer High

Threat of Substitutes High

Competitive Rivalry High

Strategy: Environmental Analysis● Legal Conditions: Taxes, security, food safety, union

activities, licensing, corruption● Economic Conditions: Unemployment, disposable income,

discretionary spending● Sociocultural Trends: Health, ethnic market growth,

increase in fast casual dining● Technology: Social media, mobile ordering, training through

technology ● Global Environment: Political instability, social unrest,

economic conditions, regulatory environment

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

Shareholders and StakeholdersYum! Brands Shareholder Breakdown

● Institutional Ownership (09/30/15)○ Total Institutions: 1,206○ Total shares Held: 385,313,637○ % of Shares Held: 74.06%○ Vanguard Group, Inc.: 6.17%

● Insider Ownership (09/30/15)○ Total Insiders: 40○ Total Direct Shares: 2,645,667○ Total Indirect Shares: 21,577,373○ % Held by Insiders: 0.61%

Yum! Brands and KFC Stakeholders

● Employees● Franchisees● Suppliers● Investors● Customers● Local communities

Interests

● Interests of shareholders and stakeholders do not necessarily converge

Company Description

Company History

Organizational Structure

Congruence

Stakeholders and Shareholders

Industrial Trends

Strategy

Fast Food Industry Trends● Consumers searching for more natural, less

processed alternatives ○ “Artificial: Public Enemy No. 1” - 2016 Key Trend (Mintel)

● Consumers are becoming more concerned with sourcing

○ Natural/Locally Grown, Sustainable Ingredients, Animal Welfare, etc.

○ Pressure on suppliers (Chipotle and Carl Jr’s)

Fast Food Industry Trends (cont.)● Fast Food Market Growth (3%)● Market share: Competitors , KFC ● Consumers are willing to pay more for responsibility

claims, not just valuing the price● Growth in particular categories

○ Ethnic Fast Food (Examples: Taco Bell, Chipotle, Wok to Wok)

○ Fast Casual (Examples: Panera, Jimmy John’s)

References● Alvarez, Andrew. Fast Food Restaurants in the US. Rep. no. 72221a. IBISWorld Inc, Nov. 2015. Web.● Bell, David, and Mary L. Shelman. “KFC’s Radical Approach to China.” Harvard Business. Harvard Business Publishing, Nov. 2011. Web.

22 Nov. 2015.● Euromonitor. “Fast Food in the US: Category Briefing.” Passport, 13 Oct. 2015. Web. 19 Nov 2015.Food Navigator (2015). Food Navigator.

"Sustainable Sourcing." Latest News on Sustainability, Sustainable Palm Oil, RSPO, Carbon Foot Prints - 1. Food Navigator. Web. 9 Dec. 2015.

● Food Navigator. "Consumers Seek out 'natural', 'locally Grown' on Product Labels: Survey."FoodNavigator-USA.com. Food Navigator. Web. 9 Dec. 2015.

● IBISWorld. "Revenue of The United States Fast Food Restaurant Industry from 2002 to 2018 (in Billion U.S. Dollars)*." Statista - The Statistics Portal. Statista. 22 Nov 2015.

● "INDUSTRY DESCRIPTION." Hoovers.com. Hoover's, Inc., n.d. Web. 22 Nov. 2015. ● Jennings, Lisa. “Taco Bell, KFC, Pizza Hut to focus on delivery” (2015). Nation’s Restaurant News. Web. Nov. 20, 2015.● Jennings, Lisa. "Supply Chain Catches up with Changing Consumer Tastes."Nation's Restaurant News 18 Sept. 2015: n. pag. Web. 22 Nov.

2015.● Jurevicius, Ovidijus. “SWOT Analysis of KFC.” Strategic Management Insight. Strategic Management Insight, 16 Feb. 2013. Web. 22 Nov.

2015.● Jourdan, Adam, and Lisa Baertlein. "Yum, McDonald's Apologize as New China Food Scandal Hits." Reuters. Thomson Reuters, 21 July

2014. Web. 22 Nov. 2015.● "KFC: Finger Lickin' Good." KFC®: Finger Lickin’ Good®. Web. 23 Nov. 2015.● McGrath, Maggie. “How Millennials Will Dictate The Future Of Fast Food.” Forbes Investing. Forbes Magazine, 18 Apr. 2014. Web. 17

Nov 2015.● McLellan, Michael. "“KFC Corporation – Company Overview." Hoovers.com. Hoover's, Inc., n.d. Web. 29 Oct. 2015.● Mintel. "Mintel predicts 12 food, drink trends for 2016." Institute of Food Technologists. IFT Knowledge Center, 26 Oct. 2015. Web. 20

Nov 2015.

References● Gensler, Lauren. “Yum Still Scorned in China, But Taco Bell and KFC Lift Sales.” Forbes.com. Forbes, 4 Feb. 2015. Web. 22 Nov. 2015.● “Sales at Taco Bell, KFC, Help Yum Top 1Q Profit Forecast.” Yahoo! Finance.com. Yahoo! Finance. 21 Apr. 2015. Web. 22 Nov. 2015.● "KFC." Yum.com. Yum! Brands, n.d. Web. 22 Nov. 2015. ● New, Steven. "McDonald's and the Challenges of a Modern Supply Chain."Harvard Business Review. Harvard Business Publishing, 04 Feb.

2015. Web. 22 Nov. 2015.● Ries, Brian. "First 'KFC' to Open in Iran Shut down after 24 Hours for Being Too American." Mashable. Mashable, 5 Nov. 2015. Web. 10 Dec.

2015.● "Our Role." Rscs.com. Restaurant Supply Chain Solutions, LLC,, n.d. Web. 22 Nov. 2015.● Roger M., et al. "Prescriptions for compliance with the Foreign Corrupt Practices Act: identifying bribery risks and implementing anti-bribery

controls in pharmaceutical and life sciences companies." Business● Tice, Carol. “How Restaurants Are Using Technology to Deliver Better Customer Service.” Forbes Entrepreneurs. Forbes Magazine, 7 Dec.

2012. Web. 18 Nov, 2015.● Tristano, Darren. "The Strategy That Could Turn Around McDonald's, KFC And Subway." Forbes.com. Forbes, Inc, 8 July 2015. Web. 1 Nov.

2015.● Solomon, Brian. “KFC, Yum! Dragged Down By Chinese Food Safety Scandal.” Forbes Investing. Forbes Magazine, 7 Oct. 2014. Web. Nov.

21, 2015.● U.S. Department of Commerce. “National Income and Product Accounts● Gross Domestic Product: Third Quarter 2015 (Advance Estimate)” Bureau of Economic Analysis. Web. 17 Nov. 2015.● U.S. Department of Labor. “Economy at a Glance: United States” Bureau of Labor Statistics. Web. 19 Nov. 2015.● Watson, Elaine. "I'm Lovin' It." FoodManufacture.co.uk. William Reed Business Media SAS, 26 May 2009. Web. 22 Nov. 2015.● Yum! Brands, Inc. (2014). Form 10-K 2014. Retrieved from SEC EDGAR website http://www.sec.gov/edgar.shtml● Yum! Brands, Inc. Mergent Online. Cornell University, 30 Sept. 2015. Web. 09 Dec. 2015.● “Yum! Brands, Inc.” Yahoo! Finance.com. Yahoo! Finance. 30 Sept. 2015. Web. 09 Dec. 2015● “Stakeholders.”Yumcsr.com. Yum! Brands 2014 Corporate Social Responsibility Report. n.d. Web. 09 Dec. 2015.