Case Study of KFC: Establishment of a Successful Global Business Model

By mid 1950s, fast food franchising was still in its infancy when  Harland Sanders began his cross-country travels to market  “Colonel Sanders’ Recipe Kentucky Fried Chicken.” He had  developed a secret chicken recipe with eleven herbs and spices.  By 1963, the number of KFC franchises had crossed 300. Colonel  Sanders, at 74 years of age was tired of running the daily operations  and sold the business in 1964 to two Louisville businessmen —  Jack Massey and John Young Brown, Jr. — for $2 million. Brown, who later became the governor of Kentucky, was named president,  and Massey was named chairman. Colonel Sanders stayed in a  public relations capacity.

In 1966, Massey and Brown made KFC public, and the company was enlisted  on New York Stock Exchange. During late 1960s, Massey and Brown turned  their attention to international markets and signed a joint venture with  Mitsuoishi Shoji Kaisha Ltd. in Japan. Subsidiaries were also established in  Great Britain, Hong Kong, South Africa, Australia, New Zealand, and Mexico.  In the late 1970s, Brown’s desire to seek a political career led him to seek  a buyer for KFC. Soon after, KFC merged with Heublein, Inc., a producer of  alcoholic beverages with little restaurant experience and conflicts quickly  arose between the Heublein management and Colonel Sanders, who was  quite concerned about the quality control issues in restaurant cleanliness.  In 1977, Heublein sent in a new management team to redirect KFC’s strategy.  New unit construction was discontinued until existing restaurants could be  upgraded and operating problems eliminated. The overhaul emphasised  cleanliness, service, profitability, and product consistency. By 1982, KFC  was again aggressively building new restaurant units.

KFC Successful Business Model

In October 1986, KFC was sold to PepsiCo. PepsiCo had acquired Frito-Lay  in 1965, Pizza Hut in 1977 with its 300 units, and Taco Bell in 1978. PepsiCo  created one of the largest consumer companies in the United States.  Marketing fast food complemented PepsiCo’s consumer product orientation  and followed much the same pattern as marketing soft drinks and snack  foods. Pepsi soft drinks and fast food products could be marketed together  in the same restaurants and through coordinated national advertising.

The Kentucky Fried Chicken acquisition gave PepsiCo the leading market  share in three of the four largest and fastest growing segments in the U.S.,  quick-service industry. By the end of 1995, Pizza Hut held 28 per cent  share of $18.5 billion, U.S pizza segment. Taco Bell held 75 per cent of $5.7  billion Mexican food segment, and KFC held 49 per cent of the $7.7 billion,  U.S chicken fast food segment.

Japan, Australia, and United Kingdom accounted for the greatest share of  the KFC’s international expansion during the 1970s and 1980s. During the  1990s, other markets became attractive. China with a population of over 1  billion, Europe and Latin America offered expansion opportunities. By 1996,  KFC had established 158 company-owned restaurants and franchises in  Mexico. In addition to Mexico, KFC was operating 220 restaurants in the  Caribbean, and in the Central and South America.

Many cultures have strong culinary traditions and have not been easy to  penetrate. KFC previously failed in German markets because Germans were  not accustomed to take-out food or to ordering food over the counter. KFC  has been more successful in the Asian markets, where chicken is a staple  dish. Apart from the cultural factors, international business carries risks not  present in the U.S. market. Long distances between headquarters and foreign  franchises often make it difficult to control the quality of individual franchises.

In some countries of the world such as, Malaysia, Indonesia and some  others, it is illegal to import poultry, a situation that has led to product  shortages. Another challenge facing KFC is to adapt to foreign cultures.  The company has been most successful in foreign markets when local  people operate restaurants. The purpose is to think like a local, not like an  American company.

As KFC entered 1996, it grappled with a number of important issues. During  1980s, consumers began demanding healthier foods, and KFC’s limited  menu consisting mainly of fried foods was a difficult liability. In order to  soften its fried chicken chain image, the company in 1991, changed its  name and logo from Kentucky Fried Chicken to KFC. In addition, it responded  to consumer demands for greater variety by introducing several new  products, such as Oriental Wings, Popcorn Chicken, and Honey BBQ Chicken  as alternatives to its Original Recipe fried chicken. It also introduced a  dessert menu that included a variety of pies and cookies.

Soon after KFC entered India, it was greeted with protests of farmers,  customers, doctors, and environmentalists. KFC had initially planned to set  up 30 restaurants by 1998, but was not able to do so because its revenues  did not pick. In early 1998, KFC began to investigate the whole issue more  closely. The findings revealed that KFC was perceived as a restaurant serving  only chicken. Indian families wanted more variety, and the impression that  KFC served only one item failed to enhance its appeal. Moreover, KFC was  also believed to be expensive. KFC’s failure was also attributed to certain  drawbacks in the message it sent out to consumers about its positioning. It  wanted to position itself as a family restaurant and not as a teenage hangout.  According to analysts, the ‘family restaurant’ positioning did not come out  clearly in its communications. Almost all consumers saw it as a fast food  joint  specializing  in a chicken recipe.

KFC tried to revamp its menu in India. Cole Slaw was replaced with green  fresh salads. A fierier burger called Zinger Burger was also introduced. During  the Navaratri festival, KFC offered a new range of nine vegetarian products,  which included Paneer burgers. Earlier, KFC offered only individual meals,  but now the offerings include six individual meals, two meal combos for two  people, and one family meal in the non-vegetarian category. For vegetarians,  there are three meal combos for individuals, and meals for couples, and for  families.

KFC also changed its positioning. Now its messages seek to attract families  who look not only, for food, but also some recreation. Kids Fun Corner is a  recreational area within the restaurant to serve the purpose. Games like ball  pool, and Chicky Express have been introduced for kids. The company also  introduced meal for kids at Rs. 60, which was served with a free gift.

Over the years, KFC had learned that opening an American fast food in  many foreign markets is not easy. Cultural differences between countries  result in different eating habits. For instance, people eat their main meal of  the day at different times throughout the world. Different menus must also  be developed for specific cultures, while still maintaining the core product —  fried chicken. You can always find original recipe chicken, cole slaw, and  fries at KFC outlets, but restaurants in China feature all Chinese tea and  French restaurants offer more desserts. Overall, KFC  emphasizes  consistency and whether it is Shanghai, Paris, or India, the product basically  tastes the same.

Questions For Discussion

  1. Analyse the case and determine the factors that have made KFC’s a  success global business.
  2. Why are cultural factors so important to KFC’s sales success in India  and China?
  3. Spot the cultural factors in India that go against KFC’s original recipe;  KFC Fried Chicken.
  4. Why did Kentucky Fried Chicken change its name to KFC?

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