Kfc proj docu

Final Project KFC (Kentucky Fried Chicken)

Submitted To :

Muhammad Asim Awaan

Develop ed By:

Madiha khalid (07108118)Hijab Ashraf (07108124)Rizwan Khalil (07108125)

Sami Ullah (07108140)

BBA Fall – 2007Section “B”

Date of Submission:

15 – 06 – 2011


1.


Dedication

“We dedicate our project to AL-Mighty ALLAH without whose guidance

we were unable to do so and also to our parents who support and

helped us to complete this uphill task in a better and perfect way”

GIFT Business School Page 1


Acknowledgement

We firstly thank ALLAH Almighty the most Beneficent and the Merciful, and the

Master of the Day of Judgment, who bestowed upon us the endurance to bring this

work to an end.

We deem it our utmost pleasure to avail this opportunity to express gratitude and

keep sense of obligation of our Sir Muhammad Afzaal for her valuable guidance,

scholarly criticism, untiring help, compassionate attitude and enlightened

supervision during the whole project and making of the report.

Last but not the least, we feel highly obliged and earnestly pay humble and

heartfelt thanks to most affectionate fathers and mothers for their moral and

financial support and encouragement and specially our mothers because they

always remember us in their prayers.



Table of Contents

1. Introduction of Company........................................................................................................1

1.1 KFC in Pakistan..................................................................................................................2

1.2 Nature of the Business........................................................................................................2

1.3 Current Products.................................................................................................................3



2. Introduction of Company

KFC is the world largest and most well known chicken restaurant. 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.

John Y Brown and Jerry Messy purchased KFC for USA for $2 million in 1964 that time KFC

become a corporation. After five years, Colonel buys first 100 shares of KFC. In 1986, Pepsi

Company purchased KFC. Pepsi company changed the logo from Kentucky fried chicken to

KFC in 1991 and then in 1992 KFC 1000th restaurant opened in Japan and in 1994 9000th

restaurant in china. KFC is the part of Tricon global restaurant. Tricon global restaurant is the

world largest restaurant group, with in nearly 100 countries around the world, which in turn was

spun off in 1997, and has now been renamed to Yum! Brands.



1.1 KFC in Pakistan

In 1997, KFC franchised with Gray Mecanza International and started work in Pakistan with its

first branch in Gulsha-e-Iqbal, Karachi, Rawalpindi branch started work in 1999 and in

Islamabad in August 2002 and now in Pakistan it currently has 69 branches operating in 19

major cities. It is operated by a Dubai based company, Cupola, which took it over in 1999 with 4

major outlets. Major competitors include McDonalds, Nandos, Hardees, AFC, HFC, Fri chicks,

Go chicks and Dixy Chicks when talking about similar products. As in industry, however, KFC’s

competitors will include all fast food chains: McDonalds, Pizza Hut, Geno’s, Hardees, Cock n

Bull, and Subway etc.

KFC occupies a major position in the fast food industry, being the largest seller of chicken

products in Pakistan. It captures 50 percent of the total fast food market in the country. KFC

wore the title of being the market leader in its industry. Serving delicious and hygienic food in a

relaxing environment made KFC everyone’s favorite. Since then, KFC has been constantly

introducing new products and opening new restaurants for its customers. In Pakistan totally

Chicken buy from Pakistani Poultry Forms, and also this Chicken is 100% Halal.

1.2 Nature of the Business

Kentucky Fried Chicken (KFC) - one of the most known fast food chains in the world. Quality

and cleanliness (QSC) represents the most critical success factors to KFC's global success. It is

the fast food franchise so its nature of business is providing the fast food services.

Its business type is “Business to Consumers”.

KFC has large chain of consumers. According to KFC, “We are growing only with our

customer.” KFC has great environment for their consumers and families. They are concerned

about the comfort and satisfaction of their customers. That is why 40 million is need to open a

single outlet. KFC is multinational company. They have outlets, almost in every country. So they

have international customers all over the world.



1.3 Current Products

Mighty Zinger

Zinger burger

Fish zinger burger

Col. Fillet burger

Salsa twister

Macho’s burger

Chicken burger

Cheese

Sub 60

twister

Nuggets

Hot wings

Fries Milo

Frothe

Corn on the cob

Arabian spice

Chicken mania

Dinner rolls

Crispy chicken chunks

Hot and crispy soup

Soft Drink

Cola slaw

Scope of wall

Fruit salad

Mineral /water

Espresso

Cappuccino





KFC stands on “the Champs Program”

The CHAMPS Program

Champs stands for our belief that the most important thing each of us can do is to focus on the

customer. It stands for our commitment to provide the best food and best experience for the best

value.

CHAMPS stand for the six universal areas of customer expectation common to all cultures and

all restaurants concepts. These are:

Cleanliness

Hospitality

Accuracy

Maintenance of Facilities

Product Quality

Speed of Service

CHAMPS is the philosophy to ensure that the customer has the consistent quality experience in

every restaurant, everyday, on every occasions and you will be playing role in delivering

CHAMPS to our customers.

1.4 Size

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. KFC specializes in Chicken Based

Products.

In Pakistan, It currently has 69 branches operating in 19 major cities. It has high sales volume as

they have great turnover. New outlets are being opened because they have greater sales volume

(as per day worth 4.5 million is being consumed). Presently KFC has provided employment to

over approximately 1200 Pakistanis, which adds up to 6000 individuals directly dependent on

KFC Pakistan.

1. Strategic IssuesThrough an analysis of the strengths, weaknesses, opportunities, and threats of KFC, the

following strategic issues are identified:

1. How would KFC maintain a market leadership in the Pakistan fast food industry?

Pakistan’s fast food franchise industry is still unsaturated and is in its growth phase.

There is a lot of room for firms to enter and be profitable. As barriers to entry to the

industry as a whole are low, more and more firms as well individuals are entering in this

business. For past few years the industry is growing at the rate of 10% annually. For

Instance, Subway successfully entered the industry a few years ago and now Hardees has

also followed suit. Although KFC enjoys a market leader position in the country but the

issue now is that how can it maintain its market leadership and how can it gain a

sustainable competitive advantage.

2. Consumer Health food trend

KFC faces a lot of threat from its substitutes, especially with growing health concerns

among its customers. Health and obesity issues associated with KFC food have diluted

the trust people once had in them. It now faces an issue of catering to the changing needs

of customer demands.



3. Occupies a Strategic Position

KFC occupies a strategic position in the market. It is in a profitable business with

maximum returns. However, the entire positioning is based upon one single secret recipe

which if eluded by one of the competitors can cause serious damage to the brand.

Therefore, the business though profitable is risky.

4. Limited variety of menu items

KFC tries to project an image of “chicken expert” in the fast food industry for

differentiating its products with other competitors. As one of KFC’s key competitors,

McDonald’s also introduce chicken products. It is obvious that the competitive advantage

of KFC may not be sustainable. The limited menu may be one of the main issues for

KFC. Lack of variety of menu items, customers may not be attracted for consumption.

Customers may go to other fast food restaurant which with more choices and

combination. It may affect the competitiveness of KFC in the fast food industry.

5. Lack of communication between marketing and operation

According to some of the KFC staff, they mentioned that there is lack of communication

between marketing department and operation of KFC. Marketing departments may not

give the details of new promotion and new products to the KFC operation or not clearly

explain about the campaign. This leads to many problems for the operation. Operation

team may be confused about the new promotion or coupons. They may not be able to

explain the details to customers with enquiries. In addition, it could affect the efficiency

and effectiveness of operation as crewmembers may not be familiar with the new



marketing strategies. They may not be able to up sell the products as the corporate wants.

As a result, profit may be affected.

6. Fewer opportunities to expand its restaurants base (due to financial reasons)

KFC is not a listed company because they say that they don’t need investors yet they say

that they are not opening up new franchises due to lack of resources and jut focus on

maintaining their current franchises. This can cause them harm because the market is still

unsaturated and there is market which is still not being entertained. They need to open up

franchises there to cater the demands of that market and gain market share which can be

taken by competitor if it makes the move before KFC.

7. Lack of communication channel for customers

The mission of KFC is “people be the first, customers be the focus”. It is found that KFC

did not take a proactive approach on listening to customers and employees. There is no

systematic customer survey for its products and services. It wholly relies on the branch

managers and public relation officers to get the customers’ opinion. As customers of

KFC, however, they would realize that it is not usual that managers and public relation

officer would take the chance to ask for opinion. Although the website of KFC has a

customer service comment box for customers to send suggestion. It may ignore those

customers who are not computer users. In addition, its customer service hotline is not

highly promoted. It means that it lacks communication channel between KFC and

customers.



1. SWOT Analysis

Strengths

50% Market share in Pakistan

Global presence in 109 countries

Extensive fast food franchise network with 68 outlets in Pakistan

Quality Assurance; KFC has a product excellence system to ensure quality raw materials,

packaging, equipment and new products that delight customers. In order to ensure

consistent quality, KFC also executes ingredient and equipment specifications. Food is

freshly cooked and fried chickens that are not sold for more than 45 minutes would be

withdrawn from sale to ensure the food quality. Fresh ingredients are provided to the

branches and hence it would ensure the quality of the food.

Vertical linkages with value chain of suppliers; suppliers of KFC chicken is K&N’s and

drinks are supplied by Pepsi, in Pakistan

KFC's secret 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.

Brand Equity because of being oldest and finest in Business

Does not have any Core competitor In chicken serving

Ranks highest among all chicken restaurants

Chains for its convenience and menu variety

Loyal customers

Faces numerous advantages of being a Multinational Organization e.g. economies of

scale.



Weaknesse s

Lack of focus on Research & Development

Imported raw material rise their prime cost

Inflexibility of prices makes it unaffordable to middle class people.

High rates on the prices as compared to the other brands selling same items may cause

the customer’s shift.

Opportunities

Increase consumption of fast food has increased the market size

Consumer prefer “All under one roof” in order to increase their sales turnover they can

increase or add the served items

They can open more outlets to get maximum market.

They can capture more customers by decreasing the price of their products

Updating their restaurants, Balanced menu, customer focus and Increase delivery service



Threat s

Competition from other international outlets – like Pizza Hut, McDonalds, Subway.

Entrance of New competitors into the market; as barriers to entry to the industry as a

whole are low, more and more firms as well individuals are entering in this business. For

past few years the industry is growing at the rate of 10% annually. For instance, Subway

successfully entered the industry a few years ago and now Hardees has also followed

suite.

High political instability/uncertainty. The deaths of political figures or any other such

incident are a threat in a way that angry public burns the outlets. Such incident happened

in Karachi.

Health Trend away from fried foods; KFC faces a lot of threat from its substitutes,

especially with growing health concerns among its customers. Health and obesity issues

associated with KFC food have diluted the trust people once had in them. It now faces an

issue of catering to the changing needs of customer demands.

Changing customer demands

Some international events badly affected the market of KFC in Pakistan like IRAQ and

AFGHAN war and we know KFC is American based. Therefore, it creates a great impact

on the performance of KFC.

Diseases like bird flu cause the decreases in sales because customers don’t buy chicken

or chicken related products in fear of this disease.

Increasing inflation rates directly affect menu prices. Government has also increased the

sales tax from15% to 21% that has raised the prices of these products.



3.1 Competitive Analysis

The major competition in Pakistan market faced by KFC is McDonald’s. As KFC and

McDonald’s offer similar type of products. A product offered by KFC is substitute a product

offered by McDonald’s and vice versa.

Factors that contribute towards a competition are:

Price – Value for money is a major factor; when one company changes its prices in any

product the other company has follow it to maintain its position.

Quality of Food – As both KFC and McDonald’s are following their international

standards, therefore it’s not a major concern

Flavors’ – This is one major factor that contributes towards attracting customers.

Different customers have different preferences.

Outlets – Number of outlets contribute towards market share which gives KFC an edge.

Market Share



3.2 BCG Matrix

✔ Star

According to BCG Matrix, Management says that KFC is a star. The reason for this is its

high market growth and high market share in the Pakistani market.

✔ Question Mark

According to BCG Matrix, all small outlets like HFC, AFC falls in the question mark,

because of low market share in the fast food industry of Pakistan.

✔ Cash Cows

On the other hand McDonald’s and Pizza Hut are the cash cows because of their low

growth rate and high market share. During past some years McDonald’s and Pizza Hut

have lost their market growth because of the fact that they could not provide the taste

according to the Pakistani culture.

✔ Dog

Another direct competitor of KFC is Subway. According to BCG Matrix it is a dog.

Some of the reasons that are responsible for its low market share and low market growth

are the less expansion strategies being followed by the company. Secondly they are not

focusing at all on all the major cities.



3.3 Competitive Advantage

The competitive advantage of KFC is its position as the as the dominant firm. It currently enjoys

50% market share in Pakistan.

Firm’s competitive advantage can be divided into two categories:

“Advantages based on the firm’s position” and “Advantages based on the firm’s

capabilities.”

KFC has positional advantage from heterogeneity within the industry.

Other positional advantage includes KFC’s brand name.

KFC has a largest number of outlets in Pakistan and they also enjoy economies of scale

that is why they are able to generate more profits.

It also enjoys tacit nature of capability based knowledge because of its secret original

recipe of fried chicken of seven herbs by Colonel.

It enjoys some advantages in defending itself such as reputation, economies of scale,

cumulative learning, and preferred access to suppliers and channels.



3.4 Sales Analysis In Rupees

2010 2009 2008

Total Chicken Served in KFC Restaurant

Annually1.914 Billion 1.825 Billion 1.729 Billion

Total KFC Chicken Pieces Sold Annually

5.89 Billion 5.61 Billion 5.31 Billion

Total Retail Sales 8.9 Billion 8.49 Billion 8.04 Billion

Above table shows that the total chicken served in KFC Restaurant Annually in 2008 was Rs/-

1.729 billion, and in 2009 it increases from Rs/- 1.825 Billion. The increasing ratio was 5.35%.

And in 2010 it jumps up to Rs/- 1.914 Billion with the increase of 4.65%. The total KFC chicken

Pieces Sold Annually in 2008 was Rs/- 5.31 Billion, Rs/-5.61 Billion in 2009 and Rs/- 5.89

Billion in 2010 with the increase of 5.35%.

Thus, the total Retail Sales of KFC in 2008 was Rs/- 8.04 Billion, 8.49 Billion in 2009 and in

2010 it increases from 8.49 to Rs/- 8.9 Billion with the increasing percentage of 5.35%.

According to the management of KFC, their profit margin increases year by year.



3.5 PEST Analysis

The Pest Analysis includes the political, economical, socio-culture and technological factors.

These are described in detail as under.

Political Factors

The political factors include the government policies as KFC being a foreign company, but they

have to obey the policies of the Government laid by the government of Pakistan, the country

where the business activities are being carried out. KFC has handled this situation very tactfully

and has obeyed the policies of the Government as prescribe by the government in order to run

this kind of business. And the most important factor is the political instability. As in Pakistan,

there are political crises faced by the government, these greatly affect the business of KFC.

There are certain government regulations pertaining to the fast food franchise industry in

Pakistan. Some of the requirements include Halal food production and selling, Corporate Social

Responsibility, standardization checks, a test to prove quality before entering the market,

renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous other

certifications, especially if operating on a large scale. . KFC complies with both of the

requirements and provides Halal food and contributes to the local sales up to 95%.

Economical Factors

The economic factors includes the income of the people, KFC is going to target. Income is an

important economical factor of the KFC. This factor decides which class KFC is going to target.

In the early time of KFC, they were focusing on the upper class but they after some time

changed their strategies and started to target the mass market by introducing some different kinds

of meals and offers through which we can say that they target the upper middle & the upper level

as well. In Pakistan there is a mixed economy so private organization easily perform their tasks

within any given economic system of course, organization are influenced by a variety of



economic features over which they have little independent control, such as inflation, interest

rates and recession.

Another important input to the enterprise is the nature of government fiscal and policies. KFC

pays tax properly. Moreover, the Government of Pakistan receives over Rs.10 million per month

from KFC Pakistan as direct taxes, and 95% of all food and packing material used in KFC

Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. So

KFC plays an integral role in developing the economy of Pakistan.

Socio – Cultural Factors

Culture element includes the attitudes, values, norms, beliefs, behaviors and associated

demographic trends that are features of a given geographic area.

Multinational company faces the challenge to understand about the culture of that country where

they work. To solve these problems KFC hire all employees of local area and now it is easy for

them to understand about the culture of Pakistan. KFC management knows about that Pakistan

is a Muslim country; therefore they use 100% Halal (Zibiha) chicken.

KFC start their branches in those cities which are famous for food eating. Pakistani people like

spicy foods, therefore KFC also provide spicy foods in Pakistan. KFC open its branches in

advance cities of Pakistan like Lahore, Karachi, and Islamabad/Rawalpindi etc. In these cities

mostly come out with their family because KFC mainly focus family.

Technological Factors

The technological factors include the Pace of change at a fast level. Pace of change means rate of

change. KFC has strategy to introduce new technology whenever they think that it is a time to

introduce new technology. Research & Development is also an important factor in the

Technological factor. KFC always support the work of research & development in order to

introduce the new technology. Capital formation means stock of machinery. KFC has a stock of

machinery in order to run its business activities. In other words KFC has a good amount of

Capital Formation. New techniques affect the quality of products and services in better way.

Technology is very important in order to compete with the competitors. Organizations have an



eye on their competitors and also new techniques which their competitors used. Today the world

going fast and market is globalize, new techniques comes in production and services

departments.

Although KFC and McDonald’s has same cooking machinery but KFC has efficient delivery

system; they provide home delivery so quickly. KFC purchase machinery from Hanney Penny

company, they are main suppliers of machinery throughout the world.



3.6 Porter’s five forces

Porter’s five forces help to identify the key structural factors determining an industry’s

competitive position in the market and its profitability. They highlight the strengths, weaknesses

opportunities and threats along with their significance of the industry. Analysis helps to

understand the current competitive position the industry occupies, animates positioning and

clarifies areas of improvement. It will also help determine intensity of industry competition and

the forces impacting strategy formulation.

Pakistan fast food Industry Analysis

KFC operates in the fast food industry. However, for convenience of understanding and

application the group has carried out the analysis by considering KFC to be in two major

industries, the first being fast food and the second being franchise. Hence, industry analysis is

carried out by taking the industry to be fast food franchise.

3.6.1 RivalryNumerous competitors operating as fast food franchises exist in the market. Some of them are

Nandos, McDonalds, Pizza Hut, HFC, AFC, Go Chicks, Dixy Chicks, Cock n Bull, Hardees,

Salt and Pepper and Subway. These continuously fight against each other for a better position in

the market. Rivalry among competitors takes place in the form of price competitions, advertising

battles, product differentiation and increased customer services. Rivalry in fast food industry can

be measured by analyzing the following:

Number of competitors and size

Fast food franchise industry in Pakistan consists of large number of firms having large

variance in size and scale. Also, they differ a lot in prices, quality and service. So, they

do not have to monitor all the firms for their actions and they can make moves without

the risk of severe retaliation. However, few large players that compete against each other

have resources for vigorous retaliation when some close competitor makes an important

move. Hence, KFC’s competition is restricted to the size of the competitor. KFC will

usually not consider what Cock n Bull or AFC is doing as important as to what



McDonalds or Pizza Hut is doing. Fierce competition might result in the form of various

deals and price cuts offered specially in burgers between McDonalds and KFC, but on

the whole rivalry in the industry remains moderate due to the existence of numerous

players operating in various sizes.

Industry growth

Pakistan’s fast food franchise industry is still unsaturated and is in its growth phase.

There is a lot of room for firms to enter and be profitable. As barriers to entry to the

industry as a whole are low, more and more firms as well individuals are entering in this

business. For past few years the industry is growing at the rate of 10% annually. For

instance, Subway successfully entered the industry a few years ago and now Hardees has

also followed suit. Due to industry’s absorbent and unsaturated nature competition for

gaining market share is not bitter. Also, existing firms are increasing their number of

outlets quite fast. Moreover, firms continue to introduce products and expand their

product lines, hence, entering the new markets and targeting the new set of buyers.

Hence, because the overall profitability from the industry is high, the rivalry is not very

bitter and everyone gets its share of profits without diverging into severe price-wars and

advertising battles. However, major players in the market, mostly equal in size, do get

influenced by each other’s strategies and imitate quickly but that usually does not result

in price wars. The rivalry thus remains moderate.

High fixed and storage costs

For the fast food franchise industries the fixed costs are usually high due to the royalty

charges they have to pay to operate as a franchise. As for KFC, it takes the cooperation

approximately 40 million to open a new outlet. Similarly, for its close competitors the

costs are similar, as they are about equal in scale, size and operations. High sales,

however, help these firms to earn sustainable profits. Storage costs are also high due to

expiry and quality issues. This also places pressure to increase sales hence increasing

marketing efforts and cutting prices which can drive profits low. Therefore, with the



fixed and storage costs being high, the firms compete against each other vigorously when

storage and expiry issues arise. In these cases they might even indulge in severe

advertising battles. Therefore, the rivalry increases. However, this is only the case with

small franchise businesses. The firms following quality standardize do not usually face

the problem of over capacity and hence do not have to incur costs of wastage of storage

materials. The rivalry overall remains moderate.

Differentiation and switching costs

Product differentiation in the fast food industry exists but is not quite high and generally

the products are perceived as commodities so their choice largely depends on price and

service so the pressure to ensure competitive price and service escalate. Also, switching

costs are quite low, as customers do not have to incur any cost for not buying from a

firm. This industry’s customers are characterized as highly price sensitive so they can

easily switch to a product that is like in quality and service but offered at lower price.

Therefore, rivalry can become high. Competitors have to enter into price and advertising

wars to attract customers. However, this usually happens in small franchises who are

unable to differentiate their products either on price or quality or the by increasing the

product line. Larger firms including KFC, McDonalds, Hardees, do get influenced by

each other’s techniques to attract customers but always try to differentiate rather engage

into bitter rivalry for a higher share, but, since competition is there, rivalry does exist. On

the whole, the industry operates in conditions where rivalry is moderate.

Increasing capacity in large increments

In the mentioned industry, there are expiry issues so raw material is not purchased in

bulk. KFC never purchases in large quantity that would result in overcapacity, because it

has set quality standards and KFC never compromises on that. Overcapacity can result in

huge wastage of raw materials because most of the raw materials are perishable. Hence,

KFC do not face this issue so price cutting or chronic overcapacity is not a problem.

Small firms like HFC might increase capacity, but in the long run they may suffer due to



quality, health and accountability issues. Firms following strict quality standards which

the multinationals in particular do, usually do not face the problem, thus the rivalry in the

industry resulting from overcapacity remains moderate to low.

Diverse competitors and high strategic stakes

There exist diverse competitors in the fast food industry as it consists of local franchises

to huge multinationals. However, they are operating for a primary goal of making profits.

So, no firm will make a move that might harm profitability. And almost all firms

operating in the industry are profitable and no one would be willing to sacrifice high

returns for some other reason. Apparently, no one is operating for some other strategic

stake. This makes rivals to operate for single goal of profitability and hence their actions

are not destructive for existing rivals. Therefore, KFC can easily make profitable

decisions. KFC competes directly with companies like McDonalds on products like

burgers and chicken variants. The products are the same, both provide fun meals and play

place for children, both provide home delivery and both occupy prominent locations

throughout the country. Rivalry thus among competitors is not bitter. However, both have

differentiated these products on the basis of quality, taste, efficiency etc to position

themselves. The strategies behind are different. Thus, the rivalry among them stays

moderate.

Exit barriers

Exit barriers are economic, strategic, and emotional factors that keep companies

competing even in times of low profits. The exit barriers for a firm in the industry remain

moderate and so does the rivalry. Exit barriers can be explained as following:

Specialized assets & fixed cost of Exit



KFC does not have highly specialized assets and the nature of assets are such that they

can easily be sold in the market. Therefore, it can easily sell its assets, as it purchases its

fixed assets from Hanny Penny from outside Pakistan, and a buyer will easily pay the

price to get these. Same is the case with other firms; assets usually do not create an exit

barrier.

Strategic interrelationships

It has high strategic importance as apart from fulfilling commitment of serving delicious,

fresh and hygienic food and at the same time provides customer with the ultimate

entertainment; KFC also plays in the economics development of Pakistan. Also, it has

relationships with other companies like K&Ns and Cupola. For K&Ns, as K&Ns claims,

KFC makes its products more acceptable to people because of KFC’s brand name and

image. Cupola runs KFC’s franchises in Pakistan. Therefore, these strategic relationships

might make it difficult for KFC to leave the industry. Firms in the franchise industry,

hence, do face an exit barrier as per strategic inter relationships are concerned.

Emotional Barriers

KFC has high emotional barriers as presently it has provided employment to

approximately 7000 individuals who will lose jobs in the case of KFC’s exit from the

industry. So, management of KFC, or any other firm for that matter, might show

unwillingness to make economically justified decisions due to loyalty to employees and

fear for their own careers. KFC Pakistan is helping the people suffering from impaired

hearing. It is helping them accelerate their career development, personal and professional

growth. Cupola does it by empowering the special persons creating role models for the

rest. KFC is providing a platform for the disabled youngsters of Pakistan. It strives to



give equal training and promotion opportunities to the disabled based on merit and work

performance. So, all these emotional ties can make it difficult for KFC to leave.

Government and Social Restrictions

This is a foreign country so government cannot impose any kind of exit restrictions on

KFC and most of the multi nationals in business. However, economic effects will be

negative and people will lose jobs. Moreover, the Government of Pakistan receives over

Rs.10 million per month from KFC Pakistan as direct taxes, and 95% of all food and

packing material used in KFC Pakistan is procured locally, which sums up to a purchase

of over Rs.35 million per month. So, it might be discouraged to leave. However, there are

no restrictions as such for KFC or any other franchise to exit the industry as far as it does

not have any loans it needs to pay back.

3.6.1 Threat of Entry

New entrants will impose a threat to the existing players in the industry. These entrants may be

potential entrants of acquisitions and will bring new capacity and resources and will lay

foundations for enhanced competition for market share. These threats to entry are determined by

barriers to entry along with expected reaction of the existing competitors. As the barriers set by

the existing players increase, the threat of new comers to enter the market will decrease.

Barriers to entry

If the barriers to entry are high the threat of entry is low. Here, we will be focusing on the

barriers to entry in fast food industry to which KFC belongs.

Economies of Scale

Economies of scale refer to reduction in unit price due to large volumes produced which

can be a result of efficient production, marketing, purchasing etc. Although, when food

products are produced at large scale economies of scale occur as fixed cost is spread over

large volume of products, however, due to the nature of the industry products these

economies are constrained by the volume of sales. Therefore, these economies of scale

are no incentive for existing firms to keep new entrants away. Also, there are no by



products that are produced to earn incremental revenues that means new entrant would

not have to face a cost disadvantage on this account. However, patents and established

brand names provide large economies of scale as these can be shared across all company

products. That means that new entry will only have to face disadvantage, if it wants to

enter in direct competition with the established firms which are quite few in Pakistan.

There exists no vertical integration across the industry but only few established firms like

KFC itself. However, this would not keep the entrants away as the industry allows a lot

of flexibility for size and scale with which new entries can set up business. In conclusion,

economies of scale in fast food industry for established franchise business exists and may

serve as an entry barrier, and so contribute towards building a threat to potential entrants.

Product Differentiation

Product differentiation means that established firms have brand identification and

customer loyalty. In Pakistan’s fast-food franchise industry, product differentiation does

play a role in the growth of a business. Potential entrants will have to differentiate

slightly to capture the attention of the customers. It is hence not very easy to enter and

operate profitably. KFC has differentiated its products on the basis of “Food, fun &

Festivity”, providing numerous variants of its special recipe in the form of chicken meals.

It also offers various deals to differentiate its products from its competitors. Apart from

the products it offers, KFC differentiates itself on the basis of the experience it provides:

the right chicken, the right place and the right celebration! Hence the emphasis on ‘we do

chicken right’. Seasonal discounts (Ramadan deals), sales promotions (Ufone, Standard

Chartered, and Bareeze), birthday parties, chicky area and events organized for social

responsibility (donations for SOS and FARYAD) are all ways of differentiating what it

offers. KFC also differentiates service in the form of the dine-in experience, take away

and KFC on Wheels. Thus product differentiation is a tool utilized by most businesses



but not to an extent to enter a blue ocean. The core products offered by all remain more

or less the same; hence do not pose a high barrier to entry. Therefore, there is not a high

threat to entry into the industry. Firms come in, differentiate slightly and run businesses

without competing on product differentiation.

Capital Requirements

Capital requirements are the financial resources needed for investment to set-up the

business and to compete. It may also include R&D, human resource and marketing costs

to differentiate and overcome brand loyalty of competitors. In this industry, capital

requirements for entry are high because franchises usually require a lot of set up cost,

specially the royalty they have to pay on land. Furthermore, for penetration in the market,

it might have to incur some amount on marketing and advertisement for not only

awareness but differentiation. Thus, the capital requirements are huge: setup, plant and

equipment, management and employees, suppliers, production, marketing and promotion

etc. Therefore, the capital for entering the industry is a barrier to entry and poses a threat

to new comers.

Access to distribution channels

Distribution channels include retail and wholesale firms that would help distribute

products to end users. In the franchise industry finding an appropriate place for the

restaurant, sometimes becomes an issue, but mostly it remains at a low scale. All new

entrants if they have the required capital and resources do find a place to set their

business up. So, access to distribution channels cost for new entrants is low, however,

established firms go to an extent of building their strategy on their distribution network.

To come and grow as large as them is surely impossible, but to find a place in the market

as a newcomer is not very hard. Hence, the barrier remains low ad the threat high.

Cost disadvantages independent of Scale

Competitors might have cost advantage based on several other factors independent of

their size and economies of scale:



✔ Proprietary product technology: On the whole, the industry has got no product

technology that would make a real difference in products offered or the way they

offer. However, there exist some established firms that have patents for some recipes.

For instance, KFC has a secret recipe.

✔ Favorable Access to raw materials: Raw materials for this industry include buns,

bread, chicken, oil, flour, spices, vegetables etc. These materials are easily available

locally. Their procurement is not a hard task.

✔ Favorable Locations: Fast food franchise market in Pakistan is still much

unsaturated and room for finding favorable locations is high. A glance at urban areas

of Pakistan and fast food restaurants located there shows that a lot of markets are still

not served. In other words there are enough people in urban Pakistan for any

restaurant to survive. New entrants can easily secure for them a favorable location as

shopping malls and markets continue to expand. Therefore, this barrier does not

necessarily serve as shield against new entrants. Entrants can easily enter the market

and find a favorable location for them.

✔ Learning or Experience Curve: Because this is food-based industry, the more you

cook the more you master it. Moreover, those who are serving in the industry for so

long have more experience about customers taste, buying behavior, switching options

etc. than new entrants. For them, efficient production is easy; hence, unit cost also

decreases. KFC has experience of 13 years of serving in Pakistan and more than

seven decades in business. Moreover, it is the most experienced firm in chicken

production. Therefore, experience curve might provide some barrier to entry and

decrease threat of entrants.

Government Policy



There are certain government regulations pertaining to the fast food franchise industry in

Pakistan. Some of the requirements include Halal food production and selling, Corporate

Social Responsibility, standardization checks, a test to prove quality before entering the

market, renovation after every 8 to 10 years as mentioned per contract, tax duty and

numerous other certifications, especially if operating on a large scale. In general, this

barrier is moderate, since nearly all the companies in Pakistan produce Halal food and

contribute to some extent to the local sales; they also fulfill other requirements since

entering the franchise industry. Therefore, entry is not highly difficult, and new firms can

enter the industry making the competition fierce and increasing the threat of entry. KFC

complies with both of the requirements and provides Halal food and contributes to the

local sales up to 95%. Food and packing material used in KFC Pakistan is procured

locally, which sums up to a purchase of over Rs.35 million per month.

Expected retaliation

In past, retaliation shown by established firm has been quite low. For instance, recent

entries like HFC, AFC, Subway and Hardees show the ease with which they entered.

Also, no major moves against them have been observed from existing firms, because they

are already well established or reaping profits. No doubt, all firms will compete against

each other to grab the better share in the market, but sever retaliation has not been usually

observed. Hence, expected retaliation is low and threat of entry is high.

Entry-deterring price

The prevailing price structure of huge companies like KFC is a balance of the value

provided with the associated cost. Entrants will either have to come up with a similar

structure, which suggests providing quality product for a high price. However, most

products already exist in the market and so anything provided by the entrant would have

to be well differentiated to motivate customers to pay the high price. Since KFC had in

house baking facility and an efficient value chain network, it can afford to offer products

at a reasonable price; now targeting the middle class as well. In contrast a developing



business cannot afford to offer similar prices for equally good products, hence will suffer

a loss. The entry deterring price is thus high and imposes a major barrier to entry. The

threat of entry hence becomes low.

3.6.3 Bargaining Power of Buyers

KFC as a buyer or the customers of KFC can compete in the industry by forcing down prices or

demanding higher quality and more incentives. The following factors determine the bargaining

power housed by the buyers:

Concentration of buyers

KFC has a large customer base. Its revenues are not dependent upon the buying power of

a single customer. Hence, the customer buying power is low unless a major action of the

company causes distress to a group of buyers like the incident of opera coupons, where

the customers got upset by the non-functioning of the coupons and KFC has to reimburse

them along with a public apology. Buyers always hold sufficient power to bargain with

the firm. However, if the customer base in large, the sales and profitability is not affected

by retaliation by a small group. If the group is large however, the bargaining power

increases.

Price sensitivity

The population in Pakistan is price sensitive; people would rather go for similar product

selling for fewer prices than buying an expensive one. Also, there are lots of alternatives

to within and outside the fast food industry as a whole. While a brand loyal customer

may pay whatever price KFC asks for a customer looking for just good fast food would

go to a place where his need is satisfied with the least amount of cost incurred. Hence,

price sensitivity gives a lot of power in the hands of the buyers.

Products are undifferentiated

Products in the fast food remain undifferentiated, as discussed before. Marketing efforts

help differentiate the products a bit and build brand awareness; it does not help customers



lock up with the firm as they can find similar products elsewhere. There are some firms

offering a different range of products, like Subway, who have managed to differentiate

their products from the rest of the industry, targeting the health conscious people.

However, if we talk only about KFC and other chicken specialists, the products remain

more or less the same. Taste, in the Pakistani market does matter, but the prospect is not

strong enough to stop people from switching. Everyone is willing to go and try food from

a new comer. Therefore, as the differentiation itself, the bargaining power also remains

moderate.

Switching costs or substitution costs

There is no monetary cost associated with switching from KFC. As discussed earlier,

switching costs depend upon buyer behavior: their extent of price sensitivity or

inclination towards preferred taste etc. Those emotionally connected with it might suffer

switching cost of psychological nature concerning their emotional attachment with the

brand. However, that does not necessarily decrease their bargaining power as they still

can switch to other brand at their discretion.

Therefore, the bargaining power of a single buyer is not much, but on the whole they have got

bargaining power based on their buying behavior, price sensitivity and low switching cost

3.6.4 Pressure from Substitutes

Substitutes are the products that can perform the same function as the industry product. For fast

food the substitutes are home-made-meals, ready- to -cook meals offered by Knorr, Mon Salwa,

K & N’s Chicken and local vendors, other restaurants as they could choose anyone of these

foods over fast-food. Moreover, increased health consciousness has lead people to switch from

fast food to health oriented food as offered by Subway or made at home.

Switching costs

When a customer switches from a product to its substitute, then he has to bear a

switching cost. If the cost is high then the probability of customer to switch will be low.

In the industry, there is low switching cost as customers do not have to incur any



additional cost to switch from a product. Therefore, there is increased pressure of

substitutes because customers can easily switch from products on the basis of low prices.

In the market there are numerous substitutes available for fast food. Firms like K&N’s

and Menu offer Ready-to-Cook meals. The long range of products offered by these firms

provides best substitutes for KFC. In price sensitive market like Pakistan, products of

comparable quality with low price attract customers. Same is the case with KFC; the

substitutes available have low price, comparable quality and long expiry life than the

products of KFC. Moreover, local restaurants and cafés also deal as substitutes of KFC.

Health and obesity issues keep rising which again push people towards healthy eating

and fast food is not considered to be one. On the whole, the switching cost remains low

and pressure from substitutes high.

Buyer inclination to substitutes

Buyers have greater inclination towards substitutes because they are considered healthier

and more health conscious people would rather move to other substitutes. KFC faces this

threat, because it can lose its loyal customers as health consciousness and obesity issues

increase. It has made efforts by advertising and launching its trans-fat meals which have

low fat content. Nevertheless, fast food remains as such and people refrain from eating it

especially if advised by a doctor. The buyer inclination towards substitutes thus

increases, increasing the pressure from substitutes too.

Substitute’s price-quality trade-off

Analysis of substitutes shows that most of the products have attractive price-quality

combination. Also, range of products at different prices is available. Hence, price-quality

combinations offered by substitutes may tend to motivate customers to shift, especially

with increasing health concerns. So, KFC has to face the pressure from the substitutes

available in the industry it belongs to. Although, KFC claims that it provides quality

chicken based on secret recipe that no else has it, has already been replicated to an extent,



by its competitors. So, it can increasingly lose its customers due to above mentioned

factors. The pressure from substitutes hence rises.

3.6.5 Bargaining Power of Suppliers

Suppliers of KFC include K & Ns, Pepsi Co, Hilal, Nescafe and bread and buns are produced

internally. Marination is imported from California, India and Dubai. The suppliers within

Pakistan can compete in the industry by raising prices or reducing quality of produced goods or

services.

Supplier concentration

In Fast food industry there are lots of suppliers available as the raw materials needed for

the end products are widely available across Pakistan. Firms can easily switch suppliers.

Overall, supplier concentration of chicken in Pakistan is low, but drinks suppliers are

concentrated. So, the bargaining power differs across different vendor industry. However,

KFC produce bakery products in-house. However, Suppliers of KFC chicken is K&N’s

and drinks are supplied by Pepsi, in Pakistan. As for chicken other alternatives such as

Zenith and Menu are there. KFC has to rely solely on Pepsi for drinks because there is no

other quality supplier except Coca-cola that is the major supplier to McDonalds. Hence,

the bargaining power of Pepsi is high. It is difficult for KFC to find an equivalent

supplier. However, both being multinationals benefit from each other. K & N’s too, being

certified for quality and Halal food possesses some bargaining power but options are

available and in the case K & N’s is the beneficiary; to be associated with a huge

company like KFC. Amongst all the suppliers, maximum bargaining power is with Pepsi,

also it is strongest multinational. K n N’s come second. Recently, a firm is said to launch

which will provide chicken to the restaurants at a much convenient price than K n Ns,

and at the same quality. If the firm is successful, it might hurt the bargaining power

which K n Ns possesses.



Size of supplier

In industry there are suppliers of different sizes. Smaller the size of certain supplier

lowers the bargaining power of the supplier. Pepsi is huge and won’t be affected if KFC

stopped buying. KFC on the other hand cannot afford to let go of Pepsi, especially when

Coke is already serving McDonalds and various other competitors. Not that Coke will

refuse to supply to KFC, the firm itself will prefer to be different from its major

competition. KFC is major buyer of K&Ns which would not want to lose partnership

with KFC, especially when new chains like Zenith and Menu are coming up. Also,

affiliation with KFC makes it more acceptable to people. On the other hand, KFC does

not have an option to buy from a well known and certified chicken supplier. Zenith is

new and Menu is also not as large and popular as K n Ns. Thus, suppliers overall do

possess bargaining power.

Uniqueness of service/Product

The products and services offered by the suppliers are alike as the products they supply

are naturally produced that they do not produce artificially. So, the uniqueness of the

products and services is not there. However, KFC have choice to buy from big chicken

suppliers like Zenith, Menu and Knorr, they are not perfect alternatives for KFC

suppliers, because K&Ns have better standard and it is HACCP, it helps build KFC’s

image as Halal, and it also got brand of the year award in 2009. All these factors make it

best for KFC’s brand image. These factors can make K&Ns stand apart and give it some

bargaining power. Pepsi too, of course, is unique in what it offers. Halal on the other

hand has no uniqueness in service. KFC could easily shift it for Knorr or National.

Hence, the suppliers providing some uniqueness have more right to bargain than the

others.

Switching costs to KFC



KFC faced the issue of not providing halal chicken some years back, which deteriorated

its image. But due to its present supplier, K & N’s, which is largest Pakistan-based

company and known for best practices for slaughtering but also follow stringent quality

standards has regained the trust of public. Indirectly KFC has based its halal chicken on

K & N’s brand name. So, switching cost for KFC can be higher if it switches from K&Ns

and even Pepsi, for both brands complement each other. These factors raise bargaining

power of its suppliers.

Threat of forward integration

Forward integration by suppliers can pose a major threat to the company to which it is

supplying, especially when not many alternatives are available. K & Ns can start their

own restaurant and fast food chain. This may pose a threat to KFC’s supply of chicken in

Pakistan and thus gives some bargaining power to the supplier.



3.7 Value Chain AnalysisPrimary activities are the sequence of activities through which raw materials are transferred into

benefits enjoyed by customers. While support activities provide inputs that allow the primary

activities to take place which in turn improve coordination across and achieve efficiency within

the firm (Hill and Jones, 1998).

C.H.A.M.P.S. stands for cleanliness, hospitality, accuracy, maintenance, product quality and

speed of service. It is found that KFC has its core competence in its C.H.A.M.P.S. operating

system to ensure food quality, service standard to earn customers smile with more value,

improved service and better facilities. In addition, by using Colonel Harland Sanders to build up

its distinctive brand image makes KFC be one of the well-recognized brands in fast food

industry.

Primary activities

✔ Inbound Logistics

In Pakistan to ensure the quality of products, most of ingredients of KFC are imported from

other countries instead of Pakistan. When the chickens have been seasoned, they would be

transported to the branches in a daily basis. Fresh ingredients are provided to the branches

and hence it would ensure the quality of the food. However, outsourcing of logistic service, it

may increase the transportation cost and in turn would be added into the cost of food. It leads

to an increase of the food cost.

✔ Operation

The foundation of KFC relationship with franchisees is built up by the partnership pact. It

states that it gets franchisee inputs and involvement before decisions are made. It is

always mindful of franchisee economics in all it recommend by establishing clear,

customer-based system performance standard and providing opportunities first and

foremost to its current partners. In order to ensure the consistent food quality and service

standard, it also builds a one system mentality at its restaurant support centers.



KFC has a product excellence system to ensure quality raw materials, packaging,

equipment and new products that delight customers. In order to ensure consistent quality,

KFC also executes ingredient and equipment specifications. Food is freshly cooked and

fried chickens that are not sold for more than 45 minutes would be withdrawn from sale

to ensure the food quality. It also has its brand standard product designs, such as

distinctive packaging of the “Bucket” of chicken. The system with clear instructed

procedures would effectively guide the staff to do operational work, hence it ensure

quality consistence in each KFC’s branches.

✔ Marketing and Sales

Brand excellence system of KFC helps to ensure continuing high Yum! Brands monitors

and promotes the value of its brand in the market by clearly communicating the

personality of KFC. By using animated Colonel Sanders to market the brand, it builds up

a brand image of American style chicken expert in Hong Kong and adheres to its primary

concept with friend chicken as core products. The slogan used is now “We do chicken

right” and appears on poster advertising in newspapers and magazines. The website

provides KFC with an additional marketing avenue to promote KFC’s extensive products

and specials on offer. The site will allow KFC to further strengthen its icon and continue

Colonel Sanders and the company’s spirit and heritage. KFC also creates a disciplined

positioning strategy. It positions itself as an up-scale, eat-in and quick service restaurant

that targets customers from 16 to 39 years old with emphasis on young age group

including office workers and young executives. KFC usually advertise specific products

with consistent campaign to pull those products together. Integrated marketing strategies

would enhance effectiveness of promotion.

✔ Service

KFC commits to delight every customer on every visit in every restaurant. For its

customers, it is obsessed to go the extra miles to make them happy. In order to develop

restaurant excellence system, Yum! Brands provide supporting programmes needed to

run a restaurant and satisfy customers. KFC has to follow global operating standards,

C.H.A.M.P.S. to define the restaurant excellence.



Support activities

✔ Procurement

The franchise agreement provides for buying approved equipment, service ware and the

cooking spices from KFC approved suppliers. With Centralized distribution of food

purchasing and ware provider, this gives KFC great strength as quality could be ensured.

Cost control could also be achieved as KFC purchases their supplies in bulk directly.

✔ Human resources management

Although human resources management is carried out on a decentralized basis for

recruitment and hiring operational staff, KFC does provide training for the management

team. They would be hired in a centralized basis by the Head Office in Karachi and

Lahore. KFC trains management for people planning process to identify and plan staffing

and development needs. Restaurant human resources tool kit assists managers for human

resources issues at restaurant level. The training program would provide practical

practices and useful information to staff. It could ensure quality staff to provide quality

services. In its mission, KFC believes in people, trust in positive intentions, encourage

ideas from everyone and actively develop a workforce that is diverse in style and

background. It celebrates the achievements of others, coach and support employees. It

also executes with positive energy and intensity within the company and stay away from

bureaucracy. “Team together, team apart” indicates that it practices teamwork after

collaborative debate. In each branch, there is a C.H.A.M.P.S board to recognize

employees who are able to perform up-to-standard services.

✔ Infrastructure



In order to assist the restaurant planning and management practices, KFC starts with a

strategic analysis of the opportunity by market development strategic plan. KFC maps

demographics to determine where to develop and identify restaurant locations and

provides asset management to determine the optimum concept mix and number of

locations. Construction and project management by Yum! Brand helps to design and

build individual restaurants. With market development system of Yum! Brand, that KFC

would try to locate in convenient location (Steele, 1996).

1. Stakeholder Analysis

1.1 Internal Stakeholders of KFC

Managers

Managers of KFC want the company to succeed Better chance of promotion. They know

that Successful Company may reward them by paying them higher salaries, giving them a

bonus, Better fringe benefits and if company fails they could lose their job.

Employees

Employees of KFC want the company to succeed more likely to get better pay, chance of

promotion, Better facilities. Because they know if the KFC fails, then company will

threaten their jobs, Freeze their pay, and possibly cut their wages.

Suppliers

KFC has numerous suppliers among which K & N’s supplies the major chicken to KFC

and those chickens are further processed to serve into their chain of restaurant all over the

Pakistan. Proper steps and methods are applied to evaluate the suppliers and their

products as suppliers largely affect the overall operation and business of KFC. Suppliers



must want the company to succeed to get more orders for them and more success for their

business, as KFC is the supplier’s main buyer of their chickens in huge mass.

1.1 External Stakeholders of KFC

Customers

Customers do have a say in the working of the brand they are so loyal to. No company

can afford to lose its customers. Although, the customer base is huge and one single

customer does not have much bargaining power, KFC tries to listen to each and every

buyer via feedback and opinion cards. Mass customization is what KFC is trying to do to

make all customers happy thus it makes it a point to do whatever is possible to cater to

the needs of the customers. Customers continue to return to the KFC because of the good

quality and same taste of their food products. KFC has many fans and continue to go to

provide better customer services. KFC provides their customers best quality, good

services and they always introduce innovative products to attract their customers. That’s

why customers of KFC are loyal. KFC has high emotional barriers as presently it has

provided employment to approximately 7000 individuals who will lose jobs in the case of

KFC’s exit from the industry.



Government

Government is the external stakeholder of the KFC i.e. when a KFC business succeeds;

the more profit the business makes the more taxes it pays. The Government of Pakistan

receives over Rs.10 to 11 million per month from KFC Pakistan as direct taxes. But if the

business of KFC drop off then workers are made unemployed. Presently KFC has

provided employment to over 1200 Pakistanis, which adds up to approximately 6000

individuals directly dependent on KFC Pakistan.



1. Recommendations

Product Differentiation

KFC faces a lot of threat from its substitutes, especially with growing health concerns

among its customers. Health and obesity issues associated with KFC food have diluted

the trust people once had in them. Hence, the reason, substitute pressure is there. KFC

has tried launching salads and promoted production using vegetable oil in the past in

foreign companies. It should expand its product line and add variety into its served items

to cater the demands of this market in Pakistan.

KFC chooses differentiation strategy by emphasizing the preparation of food with high

quality ingredients as well as unique recipes and special seasonings to provide appealing,

tasty and attractive food at competitive prices. As the diversity of products of its

competitors, it is suggested that KFC should provide more innovative food products in

order to gain its competitiveness in the fast food industry. It may increase the variety of

menu products and give customers more choices. Different packaging of its menu may

also increase the variety of menu.

So, KFC should try and differentiate its products on other lines than only chicken to

capture other segments in the fast food industry. Product differentiation in the fast food

industry exists but is not quite high and generally the products are perceived as

commodities so their choice largely depends on price and service so the pressure to

ensure competitive price and service escalate. Also, switching costs are quite low, as

customers do not have to incur any cost for not buying from a firm. This industry’s

customers are characterized as highly price sensitive so they can easily switch to a

product that is like in quality and service but offered at lower price. Product

differentiation means that established firms have brand identification and customer

loyalty. In Pakistan’s fast-food franchise industry, product differentiation does play a role

in the growth of a business. Potential entrants will have to differentiate slightly to capture



the attention of the customers. It is hence not very easy to enter and operate profitably.

KFC has differentiated its products on the basis of “Food, fun & Festivity”, providing

numerous variants of its special recipe in the form of chicken meals. It also offers various

deals to differentiate its products from its competitors. Apart from the products it offers,

KFC differentiates itself on the basis of the experience it provides: the right chicken, the

right place and the right celebration! Hence the emphasis on ‘we do chicken right’.

However, the entire positioning is based upon one single secret recipe which if eluded by

one of the competitors can cause serious damage to the brand. Therefore, the business

though profitable is risky.

Products in the fast food remain undifferentiated, as discussed before. Marketing efforts

help differentiate the products a bit and build brand awareness; it does not help customers

lock up with the firm as they can find similar products elsewhere. There are some firms

offering a different range of products, like Subway, who have managed to differentiate

their products from the rest of the industry, targeting the health conscious people.

However, if we talk only about KFC and other chicken specialists, the products remain

more or less the same. Taste, in the Pakistani market does matter, but the prospect is not

strong enough to stop people from switching. Everyone is willing to go and try food from

a new comer. So KFC should do differentiation. They should also try the local desi taste

addressing the desi food lovers, thus it will help to increase their market share.

Better communication channel

Lack of communication in the operation would lead to many problems. Inconsistency of

products and services may occur due to misunderstanding of different internal

departments. It is therefore recommended that KFC should provide more communication

channel for gathering opinion so as to improve the service quality. Daily briefings may

be held by branch managers in order to keep crewmembers knowing up-to-date

information in a timely manner about the operation, promotion and direction of KFC. It

may help to improve the communication between marketing and operation and hence

minimize inconsistency of service in the restaurant chain. Informal tasting of new



products for employees may also help to gather opinion on how to promote the products

as crewmembers directly contact with customers. They may be the direct source to gather

customers’ opinion about products. It therefore may save marketing budget to promote

on unpopular menu items and concentrate on public accepted food products and in turn

enhance sales.

Enhancement on value of product and services

As shown in the strategies of KFC, it tries to minimize the costs, the decentralized

trainings for crewmembers, the bulk purchase of production ingredients and materials

and so forth. However, as the costs of food products are high, KFC may not be able to

decrease price of its food products to maintain its competitiveness in the fast food

market. In the other words, cost leadership is not a business strategy that it mainly takes.

Instead of competing on price, it is suggested that KFC should enhance the value and

maintain the quality of its products and services. Bigger portion of food may eliminate

the expensive impression for its products. Quality is always something that customers

look for. With unique recipe and tasty chicken as well as other innovative menu items,

KFC may have more sustainable competitiveness achieved by its differentiation strategy.

Adopt different pricing strategy to attract the customers

Price is always a primary concern for the customer; therefore, they should adopt certain

strategy to attract the customers. And it can only be done by lowering the prices. It could

be by introducing some discount packages for families, employees, students or regular

customers. The membership card can be used to provide certain extra value to the

customer. It can gain sustainable competitive advantage by either cost or differentiation.

If you have cost advantage you can cut your prices which will generate high sales volume

and this will ultimately result in higher profits. You can get cost advantage because of

economies of scale. If firm achieves differentiation, it can charge premium prices and

gain higher margins.



Environment friendliness

It can develop a competitive advantage for itself by introducing environment friendliness

concept as it has been introduced in Northampton USA. The restaurant is designed to

environmental goals that include cutting energy and water consumption by 30% and

reducing CO2 emission. Other than this is an effort to reduce its packaging by 1400 tons,

KFC is now switching from cardboard to recyclable and biodegradable paper wrapping

for some its products. It can start producing its own biodegradable paper and reduce cost

due to economies of scale.

Geographic Incumbency

As far as placement of the products is concerned, it is an important factor, for a company

to increase its market share, by targeting the right customer. KFC needs to have more

outlets, at commercial areas. It will help to target the actual as well as the potential

customers. Mobile outlets may be an effective addition as well. Geographic incumbency

can be another strategy by which it can gain advantage. Pakistani fast food market is still

unsaturated and there are some urban an most of rural areas where there is no outlet to

serve this need so KFC can use geographic incumbency advantage here and open up

outlets in these areas, fulfill the demands of this market and increase its market share.

Promotional Campaigns

KFC has large customer equity, but being a market symbol, a company should strive for

having more actual customers. KFC should work for having more solid marketing

departments. They should organize and run the proper advertisement campaign. It would

definitely be an incremental factor for their sales. They can also use the brand

promotions. They can set up the promotional campaigns. All they need is an effective

marketing department to facilitate t he promotional activities.

Ways for gathering customer feedback



As mentioned in marketing strategy, marketing team relies on customers’ feedback for

choosing their marketing promotion. Customers’ feedback means high sale volume and

positive sales revenue. It, however, may not reflect the positive customers’ feedback on

sales. Whenever a new product is out in the market, it may lead to sudden sales increase

of that particular product as customers may want to try something new. However, it may

not mean that the product is popular because product may be a fad. It therefore is

suggested that marketing team in KFC should carry out more comprehensive market

researches on product development. Branch manager or public relation officers could

take a chance to communicate with customers in the restaurant and collect their

feedbacks on the products as well as services. To increase the response rate, coupons or

other souvenir could be given to customers. Employees are always one of the sources to

gather customers’ feedback. Informal meetings may be held for operation team in order

to gather the customers’ response on new products and services. It would lead to a much

more clear direction for product development rather than keep introducing new products

with uncertain popularity.

Lack of Employee Training

Proper Training of Staff engaged in maintenance of service quality should be provided to

deal all such issues at local level. According to the manager, sometimes an issue

regarding the services happens. At present they are not focusing on the training in their

some outlets, so they should provide proper training to their employees because in fast

food: the service is within the minute.

Defensive Tactics

Like every company KFC is also vulnerable to competitors so it can adopt the three types

of defensive tactics:

✔ Raising structural Barrier

✔ Increasing expected retaliation

✔ Lowering the inducement to attack



✔ It can the raise the structural barriers by

1. Fill product or Positioning Gaps: They can fill these products gap by

introducing a variety in their menu. They should include healthy food as

consumers now a days are becoming health conscious. They can position their

products through advertisements by carefully selecting their target market and

using integrative marketing to fill the positioning gap.

2. Defensively increase the scale of economies: They can increase their scale of

economies so that they can charge fewer prices to increase their sales volume

and achieve higher margins. Economies of scale help to take cost advantage.

3. Defensively increase the Capital requirement: They can bring in more

investors and upgrade their outlets. Open outlets in markets which have yet

not been approached and take incumbency advantage there.

4. Foreclose alternative technologies: It’s a technological era and technology can

help you gain competitive advantage. They should find and implement

alternative technologies to get cost advantage and do differentiation

.

Increasing Expected Retaliation by Establish blocking positions. (e.g.

Price cuts) Price cuts can be done when you have cost advantage which can come from

economies of scale, Vertical linkages with the value chain of suppliers and channels ,

geographic location and discretionary policies keeping in mind KFC.


Strengths

KFC's secret recipe

Brand Equity

Oldest and finest in Business

High Goodwill

Does not have any Core competitor In chicken

serving

Ranks highest among all chicken restaurants

Chains for its convenience and menu variety

Loyal customers

Interactive relationship marketing

Advantages of being a Multinational Organization

WeaknessesLack of focus on Research & Development

Imported raw material

Inflexibility of prices makes it unaffordable to

middle class people.

High rates on the prices as compared to the other

brands

OpportunitiesCheap and easy availability of labor

Increase consumption of fast food

Consumer prefer “All under one roof”

Expand their sweet products

Open more outlets

Capture more customers by decreasing the price of

their products

Updating their restaurants, Balanced menu,

customer focus and Increase delivery service

ThreatsCompetition from other international outlets

Entrance of New competitors

High political instability/uncertainty

Increasing inflation rates

Health Trend away from fried foods

Changing customer demands

International events badly affected

Diseases like bird flu


1. ExhibitsExhibit 1

SWOT Analysis



Exhibit 2

Michael Porter’s five forces


High economies of scaleModerate product differentiationHigh capital requirementsHigh access to distributionModerate government policies

Low concentration High price sensitivityModerate product differentiationLow switching costs

Low switching costsHigh buyer inclinationHigh sensitivity towards price quality trade off

High concentrationLarge to small sizeUniqueness of product high to lowHigh switching costsHigh threat of forward integration




Exhibit 3



1. References

http://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+c

ommunication+problems+at+kfc/316329

http://www.austrade.gov.au/Food-to-Pakistan/default.aspx

http://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=92048

http://paknet.net/expending-in-pakistani-food-sector/

http://www.kfc.com/menu/salads.asp

http://www.kfcpakistan.com/

http://www.jang.com.pk/thenews/investors/feb2003/if.htm

http://www.psopk.com/media/news_detail.php?nid=96

http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-Convention.html

Interview with the Marketing Manager: Muhammad Kaleem

www.kfc.com


http://www.kfc.com/

http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-Convention.html

http://www.psopk.com/media/news_detail.php?nid=96

http://www.jang.com.pk/thenews/investors/feb2003/if.htm

http://www.kfcpakistan.com/

http://www.kfc.com/menu/salads.asp

http://paknet.net/expending-in-pakistani-food-sector/

http://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=92048

http://www.austrade.gov.au/Food-to-Pakistan/default.aspx

http://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+communication+problems+at+kfc/316329

http://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+communication+problems+at+kfc/316329


Competing on the Edge, Strategy as the Structured Chaos by Shona L. Brown and

Kathleen M. Eisenhardt

*---------------------*


Kfc proj docu

Automotive

public relation

kentucky fried

choice largely

tricon global

government

highly price

fast food

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