Executive Summary
In the last three decades, social and demographic trends have changed how companies operate in the global business marketplace. Particularly, these changes have hit the fast-food industry hard because they have influenced customers’ buying behaviors. To understand this phenomenon, this paper explores the impact of social and demographic changes on businesses by using KFC as a case study. Although the company has outlets in many parts of the world, this paper focuses on America as a key market to analyze the company’s adaptation strategies in the face of changing customer tastes and preferences. In tandem with this analysis, this paper shows that age, income, and ethnic diversity play the greatest roles in influencing KFC’s marketing strategies.
Particularly, the quest by customers to eat healthier foods has emerged as the biggest force in the company. To cope with such changes, this paper shows how KFC has adopted different strategies that include adding vegetarian diets to its menu and changing the company’s name to KFC, as opposed to Kentucky Fried Chicken. The company has also tried to remind its customers about the principles and values of its founder by presenting them as guiding values in the operations of the company’s outlets. The goal of adopting these strategies is to adapt to changing demographics and social trends in the market. However, as this paper shows, these strategies have had mixed outcomes for the company.
Introduction
Globalization has brought new social and demographic changes in business. It has affected the decision-making processes of companies and influenced their strategic approach in managing their internal and external environments (Shimp 2006). In America, the United States (U.S) Census Bureau reports that the country would undergo significant social and demographic changes within the next ten decades (Shimp 2006). However, this phenomenon does not only affect Americans because many countries around the world are likely to experience the same changes. Some of the main social and demographic issues affecting businesses today include an aging population, slow population growth, and an increasing importance of immigration and its effects on many western countries (Taylor 2015).
To understand the effects of these changes on businesses, this paper uses KFC as a case study because it is currently trying to adapt to changing customer preferences in its local and internal markets (Prabhakar 2012). Some of these changes have emerged from demographic and social transitions in the global marketplace. However, since the company has expanded its operations in many parts of the world, this paper pays close attention to its American franchises. It also includes observations from other key markets, such as India and China, because they contribute to its bottom-line. Comprehensively, this paper explores the types of social and demographic changes affecting the company, how the company copes with them, and if it has successfully done so. Nonetheless, before delving into these details, it is crucial to understand the company’s history.
KFC Company profile
Arguably, KFC is the world’s most popular chicken chain restaurant. Based in Louisville, Kentucky, the company has different fast-food chains in America, Europe, Asia, South America, and Africa. It has more than 18,000 outlets, which are located in more than 100 countries around the world (Ghanawi 2012). KFC is not a standalone enterprise because it belongs to a larger group of companies, which are part of the Yum Brands (Bold 2012). Some restaurant chains that belong to this group of enterprises include Taco Bell and Pizza Hut.
Founded by Harland Sanders during the Great Depression, KFC has mainly operated using a franchising model. The first franchise was in Utah. It opened in 1952 (Ghanawi 2012). Using this model, the company popularized fried chicken in America. This marketing strategy was a departure from the widely popular marketing strategy to promote a hamburger at the time. In the 1960s, KFC was among the first American fast-food chains to expand beyond its borders (Bold 2012). Its first international outlets were in Canada, Mexico and the United Kingdom (U.K) (Bold 2012). However, Its 1987 market expansion in China emerged as the most successful international venture because the market accounts for most of the company’s international sales (Ghanawi 2012).
In 2013, experts estimated that the company’s sales were more than $23 billion (Bold 2012). The company still uses the image of its company’s founder as the company’s logo. Its restaurant structure is that of a drive-in, but some of its outlets still adopt a dine-in or takeout model. Most of them are located in non-traditional locations (for restaurants), such as filling stations, theme parks, and convenience stores. For a long time, KFC’s main product offing has been pressure fried chicken pieces. However, over the years, the company has expanded its menu to include other products, such as chicken fillet burgers, French fries, Coleslaws and soft drinks. However, as we will see in subsequent sections of this report, social and demographic changes have affected the company’s menu.
The Social and Demographic Changes affecting KFC
Demographic changes refer to traits that could influence customer product preferences. Many companies look for some of these specific traits among their customers to identify their target markets (Shimp 2006). Such information is useful in designing their advertisements and promotional campaigns. The fast-food industry has experienced significant changes in consumer buying preferences, which have emerged from changing social and demographic trends (Taylor 2015). In line with this observation, Oches (2012) says that some modern societies have become a melting point of age, race, and other demographic characteristics, thereby making it difficult for companies to define their typical customers in the first place.
Based on these changes, Oches (2012) posits that most companies, which can detect these changes and adapt accordingly are likely to be the big winners in today’s rapidly changing society. Relative to this observation, Oches (2012) also says, “When you look and understand how these people were brought up and you start to understand their taste profiles, you can really see how you can drive not only new product development, but repeat purchases” (p. 3). Some of the most significant social and demographic changes affecting KFC, and other fast-food chain restaurants, center on three important categories of socioeconomic factors – age, income, and ethnicity.
Age
Changes in consumer tastes and preferences among the millennial generation have mostly affected the operations of fast-food restaurants, such as KFC (Brindal 2010). The millennial generation includes customers who are between 20 years old and 35 years old. According to the United States Census Bureau, this demographic is about 22% of the American population (Brindal 2010). Other disciplines have also documented the effect of this population group in adapting to technological trends (social media and mobile phone adoption) (Brindal 2010).
This effect has also spilled into culinary trends. For example, Oches (2012) says this population group is synonymous with multitasking roles. Its members also prefer to balance their work and personal life through social media. Boldness and smartness are common traits associated with them. Still, according to Oches (2012), this population group is
“Not really into fashion and that kind of cool stuff, but they are really into comfort. If you look at food, they were brought up on ethnic foods as part of their cuisine, unlike Gen X and unlike Baby Boomers” (p. 10). A senior consumer research manager for a British health agency (cited in Brindal 2010) says these young people often have a lot of information about healthy eating habits and prefer to buy unprocessed and natural foods. Similarly, they like proper food services, which is almost a significant part of their lifestyle expectations. Although the recent global recession hit this generation hard, experts say they still commit a significant proportion of their income to buying food from fast-food restaurants (Brindal 2010). This finding could explain why most frequent fast-food buyers (56%) are between the ages of 18 and 34 (Oches 2012).
Ethnicity
Although different countries have different ethnic compositions, Taylor (2015) says that fast food restaurants like KFC should not ignore ethnic changes in the country or their associated effects on their company’s operational processes. In the U.S, the Hispanic population is the largest ethnic group in the country. Experts say since 2000, it has grown by more than 43% (Brindal 2010). The American Food Institute reports that this ethnic group spends 38% of their income on buying fast foods (Oches 2012).
Since experts estimate that the ethnic concentration of Hispanics in the U.S is likely to increase in the future, they suggest that fast-food restaurants, such as KFC, should cater to this population’s needs (Taylor 2015). The growing influence of other racial minorities in the operations of KFC is also adding to the company’s pressure to adjust its operations and address the needs of ethnic minorities. For example, there is a growing influence of African-Americans in the company’s operations, especially because most of its fast-food chain outlets are on the fringes of big cities, where ethnic minorities live. Experts say that the African-American population makes up 12.5% of the population, but this percentage should rise to 16% by 2050 (Oches 2012).
They also say that this ethnic group spends 35% of its food expenditure on buying fast foods (Brindal 2010). Comparatively, Asians outspend Hispanics and African Americans in purchasing fast foods. According to Brindal (2010), they spend up to 48% of their income buying such foods. However, this ethnic group only makes up 4% of the U.S population. Based on these demographic characteristics, Taylor (2015) recommends that KFC should adapt to these changes by opening more outlets closer to where these ethnic minorities live. He also advises that the company should include ethnic foods on its menu because ethnic minorities prefer to have them in their diet, at least once a month (Brindal 2010).
Income
Changes in income, in the US, have had a profound impact on how people choose to spend their money. The recent global economic depression hit different demographics differently. However, young people were the hardest hit. Based on this observation, Business Journals (2015) say there is a correlation between unemployment and the impact of the global recession on Americans. However, young people are not the only ones that have suffered under the impact of an unstable global economy; poverty has increased in some demographics, thereby affecting how they spend their disposable income. Although KFC has tried to adjust to these income changes by offering value menus and lower price points for its products, observers say that the company has yet to tap into its potential of meeting the needs of other income groups (Prabhakar 2012). According to Taylor (2015), the share of income that most people spend on buying food is directly proportional to the share of household income.
Although there is a common perception that KFC and other fast-food restaurants cater to low-income groups only, recent research has shown that affluent customers also buy fast foods more often than people assume (Business Journals 2015). For example, the percentage of people that visit these restaurants, across different income cadres, is almost the same. Oches (2012) says that 84% of affluent customers bought their food from fast-food restaurants, monthly.
He also found that 89% of upper-middle-class customers did the same, while 87% of the lower middle class also bought food from fast-food restaurants (Oches 2012). The percentage of working-class people, who admitted to buying food from fast-food restaurants, monthly, was 84%. Cumulatively, the percentage of people who bought fast foods was relatively the same (within the 80% margin) (Oches 2012). This finding dispels assumptions that fast-food restaurants only cater to low-income people. It also shows that KFC has more work to do to cater to the needs of all income groups.
Impact of Social and Demographic Changes on KFC
The social and demographic changes that have affected KFC have centered on people’s changes in dietary preferences from fatty or fried foods (including red meat) to white meat and vegetarian meals. According to Prabhakar (2012), the number of people consuming red meat is declining, as more people are conscious of its effects on their health. Instead, “meat lovers” are now considering buying other types of meat products, such as chicken and fish, because they are healthier options.
Companies like KFC have often attracted criticism because they have historically sold some of these unhealthy foods to their customers. Consequently, they have suffered from negative publicity. For example, in 2000, the company suffered negative publicity from an email hoax that originated from one of America’s main universities, which claimed that KFC was selling chicken, which is procured by killing featherless and genetically mutated poultry (Taylor 2015). The email also encouraged KFC customers to contact their local restaurants and demand their money back.
In the past, customers were comfortable with buying foods, which had low calories. They were even more satisfied with their purchases if the restaurants promised them that their food had vitamins (Taylor 2015). However, today, customer tastes, preferences, and their definition of nutrition and healthy diets have changed by becoming more complex. For example, fast-food chains are increasingly suffering from increased pressure from customers to be more transparent about their food preparation methods.
Concisely, customers are demanding to know the kinds of raw materials, ingredients, and hygiene conditions that go into preparing their foods. The associated hypersensitivity has made it easy for a blogger, or a customer, to damage a company’s reputation by merely writing negative reviews about a restaurant. Based on these changes, fast food restaurants are often eager to take precautionary measures to protect their reputation before people call them out. Darby Hughes, an analyst in the food and beverage chain industry says, “I think that what is interesting is that traditional definitions of healthiness are changing” (Taylor 2015, p. 3).
Stemming from the changing perceptions about health and nutrition, KFC has made many promises to its customers to improve its food quality. For example, it has promised to eliminate genetically modified (GMO) foods from its menu (Prabhakar 2012). Other restaurants have promised to exclude chicken products that contain antibiotics from their products (Taylor 2015). Nonetheless, these changes have increased competition among fast-food restaurants as many of them fall over one another to find new suppliers.
Increased awareness among consumers about KFC’s business practices has also affected the company’s operations because animal rights proponents have raised concerns about the company’s animal welfare record (Brindal 2010). They have also drawn a link between these practices and the rising levels of obesity and environmental degradation in America and other countries where KFC is operating. Some animal right groups have even written books about these issues. Some of them include Fast Food Nation and Supersize Me (Brindal 2010). Most of the condemnations for KFC’s business practices have come from their choice of suppliers not only in America but in other parts of the world as well.
In fact, Canada is the only market that has been immune from such concerns because the KFC franchise in the country signed an agreement with authorities to source its products from animal-friendly suppliers (Brindal 2010). In certain markets, protestors have held demonstrations in some of the homes of KFC executives. In response, the company has protested some of these actions, terming them mischaracterizations of the company as a producer of poultry products, as opposed to a purchaser of the same products (Prabhakar 2012). To cope with some of these accusations and to adapt to changing social and demographic characteristics, KFC has had to change its core business strategies.
Strategic Adaptations by KFC
In line with some of the social and demographic changes that have affected KFC, the company has adopted significant strategic changes to its overall business strategy to align better with its external environment. Key among them is an adaptation of its menu to reflect a new product development strategy (Bold 2012).
Adaptation of its Menu
In 1999, KFC excluded processed chicken from its menu for a healthier product offing. For example, it introduced more convenient-to-eat products such as burgers, which account for almost half of its sales (Bold 2012). In China, the company responded to decreased sales numbers by changing its menu. For example, in December 2015, the company introduced a “black diamond bacon spicy chicken leg burger” (Peterson 2015, p. 1) to support its struggling restaurant business. Currently, the company also sells bright and pink burgers, which is a departure from the conventional burgers known by Chinese customers (Peterson 2015). The quest by KFC to change its menu to align with changing customer needs has also emerged in its Indian subsidiaries, which have witnessed a 30% chance of its menu. New items, such as “Veg Zinger,” “Veg Snacker” and “Veg ZingKong” have been added to the list of foods available in KFC’s Indian outlets.
“In recent months, the brand has followed the launch of a non-veg product with a veg equivalent (Example: Zingkong boxes). KFC now plans to simultaneously unleash veg and non-veg items in the Indian eating-out marketplace, according to Tarun Lal, general manager at KFC India” (Prabhakar 2012, p. 2).
In line with these changes, observers say that KFC has adopted flexible strategies to align with prevailing local customer needs. However, attempts by the company to change its menu in its Indian market come as no surprise because the country is largely a vegetarian nation. Nonetheless, the company has had to walk a thin line between sticking to its authentic identity of selling animal products and adapting to local customer needs (vegetarian diets). Indeed, offering a largely vegetarian menu is not part of KFC’s identity, but it has had to do so to align with local customer preferences.
Change of Name
The name Kentucky Fried Chicken has not only been synonymous with American culture but has also represented the main product sold by the company – fried chicken. However, after people became health conscious, in the late 1990s, and early 2000s, the company changed its name to KFC. Therefore, according to many observers, Kentucky Fried Chicken changed its name to KFC to avoid the negative image associated with the word “fried”, which many people associated with unhealthy foods. According to Shimp (2006), the company wanted to shift its customers’ attention from the fried chicken to other products in its menu. Relative to KFC’s strategy, Shimp (2006) says that “because marketplaces are dynamic and consumer preferences and desires change over time, some brand names lose their effectiveness and have to be changed to avoid negative images” (p. 192).
Emphasis on Company’s Founder
Since KFC has experienced significant backlash from industry observers and customers about its food safety standards and business practices, to celebrate the company’s 75th anniversary, it tried to revive the enthusiasm that most customers shared with the company in its early stages of development by reminding them of the innovative recipes that the company’s founder developed (Business Journals 2015). Indeed, the company has mostly tried to remind its customers about Sander’s entrepreneurial spirit and showmanship that helped to elevate the company’s profile in the first place.
They have done so by linking these attributes to the pursuit of the American dream (Business Journals 2015). To support this view, one of the company’s executives said, “We want to remind today’s hardworking folks that his passion, dedication, and famous secret blend of 11 herbs and spices are alive and well across our 4,300 restaurants in the U.S” (Business Journals 2015, p. 1). With these attempts, the company aims to remind its customers that the company still produces quality foods.
Are the Strategies Working?
KFC has tried to adapt to its external environment by adopting some of the strategies outlined above. Although these strategies are supposed to improve the company’s success in its local and overseas markets, they have produced mixed outcomes. For example, Peterson (2015) says the introduction of pink and black burgers in 2015 has largely confused many customers, with some of them terming it as “weird.” However, according to Melnick (2010), KFC’s attempts to adapt to changing social and demographic changes have worked because the company attracts more health-conscious customers than other fast-food restaurants do.
For example, a new study by the CFI group shows that many fast-food buyers prefer to shop at KFC as opposed to other fast-food restaurants, such as McDonald’s and Burger King because of their “healthy” foods (Melnick 2010). In this regard, Ghanawi (2012) says that KFC attracts more health-conscious customers than the average fast-food restaurant does. The study sampled the views of more than 1,200 customers who bought fast-food products three days before the study (Ghanawi 2012).
Part of the reason for the relatively high number of customers who chose KFC stems from the fact that the company sells chicken products, which are relatively healthier than beef products. Some experts also say that the recent adjustment of KFC’s menu to include healthier foods is also a reason for its popularity among fast-food enthusiasts (Melnick 2010). An interesting finding from a new study is the heightened importance of convenience as a motivator for the choice of fast-food restaurants (Melnick 2010). This reason also emerged as a key reason for the selection of KFC as a favorite restaurant for health-conscious consumers.
Overall, these findings show that KFC’s menu change strategy has been partly successful. However, we cannot say the same for its name change strategy because many customers still associate the company with “fried chicken.” Excluding the word, “fried” from its company name has not made much difference in changing customer perception regarding the association of fried products with KFC. Part of the reason for this failure has been the continuous cultural association of the company with fried chicken. Indeed, for several years, the company has used this product to differentiate itself from other fast-food companies like McDonald’s. Comprehensively, these insights show that KFC’s strategic adjustments have had mixed results.
Conclusion
This paper shows that international companies have to adjust to the challenging social and demographic trends in the global business marketplace. It has paid particular attention to the global fast-food business by using KFC as a case study. Although the company has outlets in many parts of the world, this paper focused on America as a key market to analyze the company’s adaptation strategies in the face of changing customer tastes and preferences. Broadly, this paper has shown that age, income, and ethnic diversity play the greatest roles in influencing the market strategies of key fast-food restaurants in the world.
Particularly, the quest by customers to eat healthier foods has emerged as the biggest force in influencing the marketing strategies of key fast-food restaurants. KFC is no exception. To cope with these changes, it has adopted different strategies that include adding vegetarian diets to its menu and changing the company’s name to KFC, as opposed to Kentucky Fried Chicken. The company has also tried to remind its customers about the principles and values of its founder by presenting them as guiding values for the company. These strategies have had mixed outcomes. For example, this paper has shown that tweaking the company’s menu, in China, has confused many customers who view some of the company’s new products as “weird.”
However, independent studies have shown that health-conscious customers still prefer the company’s foods as opposed to other products provided by its rivals. Part of the reason for this preference is the understanding that white meat is healthier than red meat. In line with the observations outlined in this paper, it is important for KFC to further tweak its strategies and appeal more to its customers. The company could shift more of its efforts towards including ethnic foods in its menu to tap into the growing number of ethnic minorities in the U.S. The key to this strategy is tapping into the potential that exists from exploiting demographic trends in America. Overall, the company’s future depends on its expediency in doing so.
References
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