CASE STUDY OF KFC: ESTABLISHMENT OF A SUCCESSFUL GLOBAL BUSINESSMODEL By mid 1950s, fast food franchising was still in its
CASE STUDY OF KFC: ESTABLISHMENT OF A SUCCESSFUL GLOBAL BUSINESSMODEL By mid 1950s, fast food franchising was still in its infancywhen Harland Sanders began his cross-country travels to market“Colonel Sanders’ Recipe Kentucky Fried Chicken.” He had developeda secret chicken recipe with eleven herbs and spices. By 1963, thenumber of KFC franchises had crossed 300. Colonel Sanders, at 74years of age was tired of running the daily operations and sold thebusiness in 1964 to two Louisville businessmen — Jack Massey andJohn Young Brown, Jr. — for $2 million. Brown, who later became thegovernor of Kentucky, was named president, and Massey was namedchairman. Colonel Sanders stayed in a public relations capacity. In1966, Massey and Brown made KFC public, and the company wasenlisted on New York Stock Exchange. During the late 1960s, Masseyand Brown turned their attention to international markets andsigned 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 late1970s, Brown’s desire to seek a political career led him to seek abuyer for KFC. Soon after, KFC merged with Heublein, Inc., aproducer of alcoholic beverages with little restaurant experienceand conflicts quickly arose between the Heublein management andColonel Sanders, who was quite concerned about the quality controlissues in restaurant cleanliness. In 1977, Heublein sent in a newmanagement team to redirect KFC’s strategy. New unit constructionwas discontinued until existing restaurants could be upgraded andoperating problems eliminated. The overhaul emphasized cleanliness,service, profitability, and product consistency. By 1982, KFC wasagain aggressively building new restaurant units. 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 UnitedStates. Marketing fast food complemented PepsiCo’s consumer productorientation and followed much the same pattern as marketing softdrinks 2 and snack foods. Pepsi soft drinks and fast food productscould be marketed together in the same restaurants and throughcoordinated national advertising. The Kentucky Fried Chickenacquisition gave PepsiCo the leading market share in three of thefour largest and fastest growing segments in the U.S. quick-serviceindustry. By the end of 1995, Pizza Hut held 28 per cent share ofthe $18.5 billion, U.S pizza segment. Taco Bell held 75 percent ofthe $5.7 billion Mexican food segment, and KFC held 49 percent ofthe $7.7 billion, U.S chicken fast food segment. Japan, Australia,and the United Kingdom accounted for the greatest share of KFC'sinternational expansion during the 1970s and 1980s. During the1990s, other markets became attractive. China with a population ofover 1 billion, Europe and Latin America offered expansionopportunities. By 1996, KFC had established 158 company-ownedrestaurants and franchises in Mexico. In addition to Mexico, KFCwas operating 220 restaurants in the Caribbean, and in Central andSouth America. Many cultures have strong culinary traditions andhave not been easy to penetrate. KFC previously failed in Germanmarkets because Germans were not accustomed to take-out food or toordering food over the counter. KFC has been more successful in theAsian markets, where chicken is a staple dish. Apart from thecultural factors, international business carries risks do notpresent in the U.S. market. Long distances between headquarters andforeign franchises often make it difficult to control the qualityof individual franchises. In some countries of the world such asMalaysia, Indonesia and some others, it is illegal to importpoultry, a situation that has led to product shortages. Anotherchallenge facing KFC is to adapt to foreign cultures. The companyhas been most successful in foreign markets when local peopleoperate restaurants. The purpose is to think like a local, not likean American company. As KFC entered 1996, it grappled with a numberof important issues. During the 1980s, consumers began demandinghealthier foods, and KFC’s limited menu consisting mainly of friedfoods was a difficult liability. In order to soften its friedchicken chain image, the company in 1991, changed its name and logofrom Kentucky Fried Chicken to KFC. In addition, it 3 responded toconsumer demands for greater variety by introducing several newproducts, such as Oriental Wings, Popcorn Chicken, and Honey BBQChicken as alternatives to its Original Recipe fried chicken. Italso introduced a dessert menu that included a variety of pies andcookies. Soon after KFC entered India, it was greeted with protestsof farmers, customers, doctors, and environmentalists. KFC hadinitially planned to set up 30 restaurants by 1998 but was not ableto do so because its revenues did not pick. In early 1998, KFCbegan to investigate the whole issue more closely. The findingsrevealed that KFC was perceived as a restaurant serving onlychicken. Indian families wanted more variety, and the impressionthat KFC served only one item failed to enhance its appeal.Moreover, KFC was also believed to be expensive. KFC’s failure wasalso attributed to certain drawbacks in the message it sent out toconsumers about its positioning. It wanted to position itself as afamily restaurant and not as a teenage hangout. According toanalysts, the ‘family restaurant’ positioning did not come outclearly in its communications. Almost all consumers saw it as afast food joint specializing in a chicken recipe. KFC tried torevamp its menu in India. Cole Slaw was replaced with green freshsalads. A fierier burger called Zinger Burger was also introduced.During the Navaratri festival, KFC offered a new range of ninevegetarian products, which included Paneer burgers. Earlier, KFCoffered only individual meals, but now the offerings include sixindividual meals, two meal combos for two people, and one familymeal in the non-vegetarian category. For vegetarians, there arethree meal combos for individuals, and meals for couples, and forfamilies. KFC also changed its positioning. Now its messages seekto attract families who look not only, for food, but also somerecreation. Kids Fun Corner is a recreational area within therestaurant to serve the purpose. Games like ball pool, and ChickyExpress have been introduced for kids. The company also introducedmeal for kids at Rs. 60, which was served with a free gift. Overthe years, KFC had learned that opening an American fast food inmany foreign markets is not easy. Cultural differences betweencountries result in different eating habits. For 4 instance, peopleeat their main meal of the day at different times throughout theworld. Different menus must also be developed for specificcultures, while still maintaining the core product — fried chicken.You can always find original recipe chicken, cole slaw, and friesat KFC outlets, but restaurants in China feature all Chinese teaand French restaurants offer more desserts. Overall, KFC emphasizesconsistency and whether it is Shanghai, Paris, or India, theproduct basically tastes the same.
1. Why are cultural factors so important to KFC’ssales success in India and China?
2. Why did Kentucky Fried Chicken change its nameto KFC?