Introduction
Background information
Kentucky Fried Chicken (KFC) is a fast food firm which was established in 1952 by Cornel Harland Sanders. The firm has its headquarters in Kentucky. Over the years it has been in operation, KFC has been very successful. One of the factors contributing to its success is its effectiveness in implementing expansion strategies.
For example, apart from conducting domestic investments, it has also ventured into the international market through incorporation of internationalization strategy. In addition, the firm has integrated the concept of franchising. As a result, KFC has established a chain of 16,200 outlets in 100 countries in which it operates (Hoovers Incorporation para. 1). Of these franchises, 5,100 are located in the United States. This has enhanced its ability to achieve its profit maximization objective.
Its success is also associated with the management team’s effectiveness in implementing good organizational values which directs all the firm’s operations. For example, the management team respects and rewards all the contributions by its employees.
In its operation, KFC ensures that it offers its customers high quality products. This is evident in its philosophy statement which is represented in its CHAMPS program. CHAMP is an acronym for the values held by the firm which include Cleanliness, Hospitality, Accuracy, and Maintenance of facilities, Product quality and Speed in service delivery. The program has enabled the management team to integrate the concept of customer focus amongst the employees.
Aim
This report illustrates an internal analysis of KFC by considering the business and corporate level strategies.
KFC’s SWOT Analysis
The table below illustrates the firm’s strengths, weaknesses, opportunities and threats.
Corporate Level Strategy
Core competence
Hitt, Ireland and Hoskisson (81) define core competence as the ability of a firm to attain a high competitive advantage compared to its rivals. Since its establishment, KFC has laid more emphasis on provision of diverse fried chicken products. This has enabled the firm to effectively position itself in the market.
Some of the factors which have contributed towards the firm’s efficiency include its competence in delivering unique experience, offering the right chicken and ease of access of its products in the market. The resultant effect is that KFC has been widely recognized as the ‘chicken expert’.
KFC’s corporate level strategy
In its operation, KFC has incorporated different concentration strategies. Kazmi (150) further defines concentration strategy to include how a firm specializes in certain products or services. Kazim further asserts that firms which are successful in different industries are those that have incorporated the concept of specialization. Concentration strategies mainly involve investing in a certain product line. KFC has integrated different concentration strategies. These include market penetration, market development and product development.
Product development strategy
This strategy involves a firm innovating new products and marketing them in the same market with the other products (Kazim 150). By introducing new products, a firm is able to attract more customers. In line with this, KFC intends to reintroduce the Rotisserie chicken. As a result, the firm will attract new customers.
Market development
This is where a firm introduces and sells its products to a new market. This means that the firm expands its geographical coverage. Alternatively, market development may also involve a firm offering the same products to a new market but at a different price (Slack & Parent 112). KFC has integrated this strategy by introducing its present products to new markets. In addition, the firm also develops its market by targeting new categories of customers.
Business Strategy
Franchising
According to Burgess (119), franchising has been widely accepted as one of the most effective ways through which small and medium enterprises can grow. In addition, franchising model can be used to restructure a firm’s operations so as to be successful. According to Floyd (para. 3), increased incorporation of franchising in the fast food industry has arisen from the increment in competition.
Over the years, KFC’s growth has resulted from incorporation of the concept of franchising. Through franchising, KFC has been able to penetrate into the international market.
According to Wit and Meyer (916), KFC was amongst the first fast food firms to venture into the international market during 1950s through franchising. n 2007, the firm refocused its internationalization strategy through franchising by considering markets in China, South Africa, South Korea, Malaysia, Great Britain, Mexico, Phillipines, Indonesia and Japan ( Witt & Meyer 916).
Through franchising, the firm has been able to expand its operations rapidly in small countries which only have a capacity of supporting few restaurants.
Product differentiation
According to Ireland, Hoskisson and Hitt (99), focused differentiation strategy can enable a firm to attain a high competitive advantage. Focused differentiation entails a firm’s effort to produce products and services which its target customers consider being unique (Ireland, Hoskisson & Hitt 99). Additionally, it is vital for a firm to incorporate all the primary and support activities in its value chain so as to be effective in its differentiation strategy.
According to Smith (61); the fast food industry is characterized by a high degree of rivalry. This arises from the large number of players in the industry. The large number of competitors has made switching cost to be low. As a result, firms in this industry are required to be very efficient in developing their competitive advantage. One of the core sources of competitive advantage for these firms is their ability to provide unique and quality service.
This is due to the fact that customers associate their satisfaction with the value and the experience attained (Vequist et al 34). In an effort to cope with industry rivalry, the large firms such as KFC, Hardees and McDonalds try to differentiate their products so as to attain a high competitive edge.
Over the years it has been in operation, KFC has managed to develop a competitive advantage with in offering its food products. Its products are unique which makes it difficult for competitors to imitate. The firm primarily deals with chicken pieces, sandwiches, salads and wraps (Crest 1). However, its core focus is fried chicken. The firm offers a wide range of chicken products. In order to be successful in the international market, the firm customizes its products to the local market.
As a result, KFC is able to meet the local customers’ tastes and preferences. However, the eleven herbs and spices which make its products unique remain universal. Its effectiveness in maintenance of unique and diverse fast food products has contributed towards the firm developing customer loyalty. To be effective, KFC has incorporated the ‘Food, Fun and Festivity’ concept. This enables the firm to offer diverse food products with chicken being the main meal.
KFC’s Value Chain Analysis
According to Sekhar (115), value chain entails a number of activities undertaken by a firm in an effort to ensure that it delivers high quality products and services. This means that the probability of the firm attaining its profit objective is increased. In an effort to achieve this, KFC has integrated a comprehensive value chain which is composed of both primary and support activities as discussed below.
Inbound activities
The firm procures high quality materials from local firms. The procurement process is relatively simple. To ensure efficiency in its operation, KFC has incorporated an effective inventory control mechanism in all its outlets around the world. This has been achieved through implementation of an efficient information communication technology.
Examples of technologies integrated in its inventory system include the VPN and ADSL. Through these technologies, it has been possible for the firm to manage raw material usage. In addition, inventory control ensures timely replenishment of the stock (FRSVISION para. 1-3).
Operations
These entail activities which are aimed at transforming inputs into final goods and services (Sekhar 116). To ensure that its products and services contribute to a high level of customer satisfaction, KFC has instituted a research and development department.
The objective of R&D is to enable the firm meet the customers’ requirement by understanding the existing market demand. Additionally, the firm collaborates with its suppliers in an effort to offer high quality products and services to its customers by ensuring that suppliers supply high quality raw materials.
Outbound logistics
These include activities aimed at ensuring efficient distribution of the finished products (Sehkar 116). KFC’s management team has appreciated the role of Information Communication Technology (ICT) in enhancing product distribution. As a result, the firm implemented the concept of e-commerce in 2007 (The Franchise Mall para. 1). This has enabled customers to undertake online ordering. To ensure that customers achieve a high value, the management team has also integrated a free delivery service.
Marketing and sales
These entail the various tasks aimed at satisfying the customer and also generating sales. To achieve this, the firm has incorporated continuous product improvement. KFC has been effective in marketing and sales as a result of diversifying its menu.
In order to generate sales, the firm promotes its products through various mediums such as the internet. For example, the marketing of KFC Popcorn Chicken was rolled out through MSN across the United States. Since its target for this new product was the at-work audience, the campaign was rolled out during lunch hours (Plummer 23). The firm’s marketing and sales activities are also enhanced through issuing free samples such as during an individual’s birthday party.
Services
These are the after-sale services offered to the customer after closing a sale (Sehkar 117). To ensure delivery of high value, the firm has instituted interactive communication with the customers. After consuming its products, the consumers can be able to raise their opinion regarding the service offered. This enables the firm to make adjustments to its products based on the information received.
Support services
The success of KFC also arises from its experienced human capital. The firm has a human resource base of 445,000 employees. The firm has a quality assurance department which ensures procurement of high quality raw materials. This has played a significant role in ensuring food safety (KFC para. 1). To enhance its procurement process, the firm has sought the services of experts.
Financial Analysis
Profitability ratios
- Return on assets (ROA). This ratio is used to evaluate a firm’s ability in utilizing its assets to gain profits. This is achieved by comparing the firm’s profits with the assets used to generate the profit. If a firm has a relatively high ROA, it means that there is effective and efficient utilization of assets. In addition, ROA depicts a firm stability. During the 2010 financial year, KFC had a ROA of 3.97% (Bloomberg Business 1). This illustrates a relatively low ROA which means that the firm is not utilizing its assets to the maximum.
- Return on Equity. This ratio is a measure of the shareholders equity in comparison to a firms’ net income. The ratio illustrates how effective a firm has been in reinvesting its earning so as to generate more earnings. KFC had a ROE of 11.29% during its 2010 financial year. This illustrates that the firm has been effective in reinvesting its earnings (Bloomberg Business 1).
- Return on capital (ROCA). ROCA shows how a firm has utilized its borrowed capital either equity or debt capital to generate profit. KFC had a ROCA of 7.68%. This illustrates that KFC has been effective in utilizing its capital (Bloomberg Business 1).
Asset turnover ratios
- Total Asset Turnover. Bloomberg Business defines this ratio as a measure of a firm’s efficiency in generating sales using its assets. During its 2010 financial year, KFC had a TOA of 1.1 times. This means that the assets were used to generate sales 1.1 times (Bloomberg Business 1).
- Accounts Receivables Turnover. The ratio shows the average duration taken by a firm’s clients to pay their invoices. A firm with a low account turnover indicates that its clients are very efficient in settling their bills which means that the firm becomes financially stable. KFC had an account receivable turnover of 2.9 times which is relatively low indicating a high financial stability (Bloomberg Business 1).
- Fixed Assets Turnover. The ratio compares a firm’s sales to its fixed asset. As a result, one is able to determine how a firm is utilizing its fixed assets. Alternatively, it may indicate that a firm has a lot of money tied in its fixed assets. A fixed asset turnover ratio of 4.9 times indicates KFC’s efficiency in utilizing its fixed assets (Bloomberg Business 1).
Conclusion
From the analysis, it is evident that KFC’s success has resulted from a number of sources. The firm’s internal analysis indicates that the firm has developed a number of strengths. For example, KFC has incorporated the concept of customer focus which has enhanced its commitment towards ensuring that the customers attain a high level of satisfaction.
This is illustrated by the firm’s emphasis on value addition. In addition, KFC deals with a wide range of fast food products which has enabled it to address the differences in consumer tastes and preferences.
The firm has also developed a core competence with regard to fried chickens. Its unique quality of fried chicken products has enabled the firm to develop a high competitive advantage. In addition, the firm has a strong management team which is very effective in decision making and implementation. As a result, the firm has been effective in implementing business and corporate level strategies.
Some of the business level strategy which the firm has integrated relate to product differentiation and franchising. These strategies have enhanced the firm’s competitiveness considering the fact that the industry is characterized by a high degree of rivalry. For example, the secret recipe has enabled the firm to be effective in differentiating its products hence attaining a strong market position.
On the other hand; franchising has enabled KFC to expand its operations both in the domestic and the foreign market. Implementation of corporate level strategies which include product and market development has enhanced the firm’s ability to expand its market share. Both the business and corporate level strategies has contributed towards the firm’s financial stability as illustrated by the above financial ratios.
Recommendations
Considering the high degree of industry rivalry, it is paramount for the firm’s management team to consider the following:
- Diversifying its products and service offering so as to attract a large number of customers. One of the ways through which this can be achieved is by conducting a consumer market research prior to venturing into a new market. This way it will be possible for the firm to understand the customers’ product and service requirements.
- The firm should consider other expansion strategies such as entering into merger with potential partners. However, it is vital for the management to undertake a cultural analysis prior to entering the merger to prevent failure.
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