Abstract
The Malaysian fast food market is easily one of the most competitive in Asia, but one that also holds immense promise. KFC Holdings Bhd understands this more than many other companies in this market, in part because of its long experience and dominant position that it holds. To further exploit this potential, KFC Holdings will seek to introduce a range of value menus, which will appeal to the low-income population in the country. Since the company also has limited operations in India and Brunei, which have a sizeable number of low-income consumers, the value menus are an effective strategy to get into these markets. This report includes details about the proposed value menus, a detailed analysis of the target market, and strategies to ensure that the introduction of the products is successful. In addition, the plan includes a practical timeline against which the implementation process may be evaluated to ensure success.
Introduction
The Malaysian Fast Food market is expected to grow by a CAGR of 7% in the near future (2014-2018), but the fastest growth is expected in the affordable foods segments, because the vast majority of the population in Malaysia (as well as in India and Brunei) falls in the low-come segment of the market. While the chained fast food continues to post positive growth, in part because of the brand consistency and successful marketing efforts by leading brands such as KFC Holdings and McDonald’s, the growth has also introduced tougher competition in the industry. Even the largest players such as KFC Holdings, which controls 36% of the Malaysian fast food market, are having to defend their market shares in the face of intensifying competition from both international and local providers. To this end, KFC Holdings is seeking to introduce more exciting and accessible menus, to help it gain a foothold among the low-income populations. The company will use its extensive retail network (more than 700 stores in Malaysia, India, Singapore and Brunei), backed by an elaborate marketing campaign to ensure that the proposed products are successful. The products and the marketing campaigns are tailored to suit the needs of the target population.
Internal Organizational Environment
Strengths
With 36.9% of Malaysia’s chained foodservice business, KFC Holdings (Malaysia) Berhad (KFCH)’s major strength lies in its established businesses/brand in Malaysia, strong financial health, and perhaps most importantly, a diversified portfolio of products. The company and its subsidiaries, runs restaurants, learning institutions, integrated poultry (including a feedmill, a hatchery, breeder, broiler farms, and poultry processing), and related businesses both in Malaysia several neighboring countries. The company owns or operates 539 chain restaurants in Malaysia, as well as 12 in Brunei, 13 in India, and 80 in Singapore. KFCH also owns a total of 27 RasaMas chain of restaurants in Malaysia and Brunei, 75 Kedai Ayamas stores and chicken outlets. The company’s poultry processing activities comprise of production, slaughtering, and processing chicken products into convenience foods (including burgers, bologna, nuggets, sausages, and sauté) sold under the Ayamas brand. Further, KFCH runs the KFC International College, which has two campuses in Johor Bahru and Puchong, which offer training in food, hospitality, education, business, an information technology related fields.
Weaknesses
Johor Corporation and CVC Capital Partners Asia Massive Equity Sdn Bhd (MESB), a special purpose vehicle, which acquired QSR Brands Bhd’s entire interest KFCH. Johor Corporation controls a 55% stake Kulim (Malaysia) Bhd that owns 51% of QSR (and QSR owns 51% of KFCH). Other than KFCH, QSR operates 420 Pizza Hut outlets in Malaysia. Even most importantly, marketing activities are carried out by KFC Marketing Sdn, a separate KFC subsidiary responsible for undertaking for marketing, sales, and trading activities for KFC and several QSR Brands businesses. Secondly, the market faces a weakened purchasing power following the implementation of Goods and Services Tax in April 2015, which when coupled with the consumer products’ inflation should depress demand.
Opportunities
The fast food industry grew by 12% to reach MYR5.5 billion and 3,951 stores in 2014, and was expected to grow by 7% in 2015 and a CAGR of 8% in 2014-2018, despite the commodity prices inflation and the falling store productivity. The market expansion offers opportunities for KFC to expand, without necessarily having to pry the market off another competitor, which is more difficult. Further, KFC and most of its competitors have been introducing affordable and healthier menu offers to attract lower income groups as well as health-conscious customers. KFC’s established ancillary businesses should give it an advantage in the move towards healthier foods. Other than healthier menu offerings, its other products include nutritional juiceries and vegetable commissaries that sell coleslaw, vegetables, fruits, salads, and other fresh products to food outlets.
Threats
The Malaysian fast food industry is characterized by intense competition, both by leading international chains such as Golden Arches Sdn and 7-Eleven, as well as local players. Intense competitive rivalry increases the cost of business (high market costs) and price-based competition that cuts profit margins because of higher buyer power. Further, the increasing awareness about the adverse health effects caused by high-energy foods that comprise the mainstay of the fast food industry will only lead to lower demand, particularly given the rising prevalence of lifestyles diseases such as obesity and diabetes.
Segmentation, Targeting and Positioning
The fast food restaurants industry is generally segmented according to the main type of food sold. In Malaysia, the main categories include Asia, bakery products, burger, chicken, fish, ice cream, Latin American, Pizza, and Middle Eastern fast food restaurants. These restaurants are either independent or chained. The market can be segmented as follows:
Demographics
With a GDP per capita of $10,538.06, the average household income for the top 20% is RM9, 796, while the middle 40% RM4,372. The country has a population of 29.72 million, mainly youthful people (69.1% of whom are aged between 15 and 64), fast food outlets mainly target this market, with a particular bias towards the youth. Given the cultural sensitivity of food, younger populations are more open to experimenting with new menus and foods as against older generations. KFCH has newly introduced the KFC Value Treats Combo, which includes several classic rice menus, chips, burgers, drinks, and other foods for prices that begin fromRM5.95. The Value Combo is targeted at the Middle and lower class customers, including students. This is a sizeable segment of the market, and the KFCH should draw more customers to its stores.
Behavioral
Fast food customers are driven by the need for convenience, brand consistency, and exotic cultural imports. Fast foods take a relatively short time to prepare, serve and eat, and the standardization of products that brands offer makes customer know what they are paying for wherever they see an outlet. Further, restaurant formats i.e. fast food, non-casual and fast casual serve the needs of different consumers.
Psychographic - Chinese, Latin American, Mexican, and North American menus are a major draw for aspirational consumers in Malaysia, and most of them, mainly young consumers patronize KFCH and other international fast food chains for the exotic value that they offer. The Value Combos include a variety of menus, which should appeal to different demographic groups. The new menu offerings should meet the needs of low-income consumer groups that desire KFCH’s brand consistency and variety of exotic offerings. Customers can drop into the stores or order the foods by phone of Internet and have them delivered.
Targeting/Positioning
KFCH Value Treats Combo will be targeted at low-income customers and the middle classes. Consumers from households incomes of less than RM4,372, particularly those aged between 15 and 34. KFCH will position its Value Combos as an affordable, high-quality, tasty menu that offers variety and affordability for consumers with tight budgets. It will look to tap into customers that want a bite, but not large portions that are usually pricier (Wheelen, Hunger, Wheelen, & Hoffman, 2013; KFC Holdings (Malaysia) Bhd, 2012).
Performance Targets
While fast food outlets occasionally offer value menus for promotional purposes, KFCH’s Value Combos will offer affordably priced products at a lower price, to maximize on the volume of sales. While the portion sizes will be smaller than regular offerings, the company will ensure cost savings from reduced packaging and other savings. To this end, it is expected that the KFCH Value menus are expected to are expected to sell upwards 58,904 units in 2016, which given the expected industry annual growth rate of 7.0% between 2014 and 2018, is expected to rise to 67,691 units by the close of 2018. A breakdown of the expected sales volume for mainstream KFC menus and the value products by volume is shown in Table 2.
The KFC value menus are expected to contribute 18% of the KFC Malaysia operations’ revenues by the close of 2018, and the contributions of the respective submenus are shown in Table 4.
ANSOFF Matrix analysis
Product Development
Develop and popularize more of KFC’s value menus - In Malaysia, the per capita consumer expenditure is RM20,785 (US$6,366), and while this is expected to rise by a CAGR of 5% by the close of 2018, the young adults have much lower spending power, even they are more exposed to the KFC and international fast foods outlets than older generations. However, aspirational lifestyles have resulted in debt and further depressed market power that keeps many off pricey food products. To tap into this market with the value menus, KFCH holdings will employ an organic expansion strategy, because it already has an established retail presence across Malaysia and the neighboring countries. All the company needs to do is to do is to introduce the new menus, market, and set up the production facilities to accommodate the new products.
Market Penetration
Further expansion into neighboring countries – While KFCH has 539 restaurants in Malaysia, and it has only a few stores in neighboring markets i.e. India, Brunei, and Singapore. With a population of 1.2 billion people, India promises a large market. India’s fast food sales increased by 11% in 2014, and are expected to expand by an annual CAGR of 2% between 2014 and 2019, to reach upwards of Rs 1.1 trillion. However, KFCH has only 13 stores in the country. India’s large population comprises a large middle class and low-income groups, whose purchasing power is relatively low, but potentially lucrative for KFCH’s value menus. Aspirational consumption in India and Brunei is sufficient to make KFCH value offerings profitable. Similarly, KFCH only has a handful of stores in Singapore and Brunei, which also promise potentially lucrative returns (Rugman & Collinson, 2012; Euromonitor International, 2015b).
Targeting young adults - KFCH holdings will seek to tap into the low income, youthful market in Malaysia, and the neighboring countries. There are 7 million people aged 18 to 29 years in Malaysia, who mostly dwell in urban areas, have relatively higher education, and affinity for fast foods in part because they are unlikely to cook for themselves or eat at home. While fast food outlets target all population groups, emphasis has always been on the middle classes and the high-income groups. However, KFC and other international fast food outlets’ business models are based on developed economies where incomes are generally higher.
Market Consolidation
Intensive utilization of technology – Currently, KFC controls slightly over 36% of the Malaysian fast food market, but the fast food industry in Malaysia and other markets where KFCH have operations is extremely competitive. To maintain its existing market, the company must continually innovate and create customer value, particularly through the differentiation of its brand, products, and services. Intensification of technological use in supply chain management, customer relationship management, and planning should help deliver cost savings that will in turn translate into lower costs, prices, and or greater profit margins. Technologies such as Wi-Fi in stores, mobile payment applications, online ordering and delivery, have become extremely important, and it will help if KFC embraced these technologies.
Related Diversification
Introduction of value menus based on local Malaysian cuisines – Malaysia has been a source of inspiration for many of KFC’s global menus. However, the local foods mainly comprise rice and seafood-based cuisines such as nasi lemak (rice mixed with coconut milk) and accompaniments like peanuts, beef curry, chili-based sauce, and boiled eggs. Local cuisines have already existent markets because locals are used to them, and thus the marketing costs are lower. Even most importantly, by offering these foods at affordable prices, KFCH is likely to draw customers that would normally go to local hotels and restaurants for these foods at a higher price and inconsistent quality.
Marketing mix
Price
KFC Malaysia Bhd’s value menus are meant to be affordable to the low-income and middle class market segments. The prices start from as low as RM3 to a maximum of RM 12 for products that would normally cost a lot more because of the different menu components. While there is an increasing number of affordable fast food in the Malaysian market being offered by operators in order to encourage more fast food consumers, these are usually short-term offers. Other than KFC Value Treats, there is Subway’s Everyday Value and McDonald’s McSavers, among others. The KFC Value Menus are meant to last and be offered consistently at the company’s stores, so that customers do not have to guess whether there is an offer before making a purchase. Even mot importantly, the prices will vary slightly from city to city, depending on the cost of living as well as whether customers eat-in, take-away, or order from the website. In this way, consumers that want to maximize their value will be encouraged to use different distribution channels, times of day/month/year, and other factors that may affect the price of the value menus. Given relatively high differentiation by KFC both as a brand and its individual products, the company should still make acceptably good mark ups on the value menus, but the emphasis is to maximize revenues by reducing mark-ups/prices, which should in turn increase the overall profitability.
Product
KFC Bhd Value products essentially repackage the company’s much loved products in sizes, tastes and quantities that are affordable by the vast majority of customers in Malaysia and other emerging economies in which KFC Holdings Bhd has operations. The products are targeted at customers with tight budgets as well as those that want a bite but are not too hungry to buy full portions. There’s no need to buy a whole bucket of chips or half a chicken when all one needs is something to stem their craving. Further, KFC is offering product category with diversified menus that customers can choose from. The menus include chicken, chips, burgers, rice, salads and sauces, and beverages (juice and carbonated drinks). Additionally, KFC may introduce more rice- and seafood-based menus to cater for the local Malaysian tastes, in order to expand its market share and profitability. The KFC brand consistency will also be emphasized in the new products. For instance, standard packaging and branding are used for value products. In the future, KFC will seek to introduce value products based on the local cuisines, particularly rice- and seafood-based menus, which should help the company tap into a much greater market (MarketLine, Inc., 2015; Euromonitor International, 2015b).
Promotion
KFCH realizes that the success of the value products, as well as other products depend on its ability to the market them effectively, to the targeted market segments. To this end, KFC Marketing would use its operational reach across Malaysia, Singapore, India and Brunei to market the value products. Given the fact that the vast majority of the targeted consumers i.e. young adults use the Internet heavily, KFC Marketing intends to use the Internet to achieve the desired results. Particularly, sponsored social media adverts on leading sites such as Facebook, Twitter and Instagram would be used to drive user traffic to the company’s pages as well as website(s). Social media will also be used to engage KFC’s current and prospective customers on the company’s old and new products, as well as whether new products should be introduced. Further, KFC Marketing would use traditional media, including television, newspapers and food/lifestyle magazines to advertise the new products. These include the Company’s and its parent company’s own online and hard publications such QSR Magazine.
KFC will also sponsor popular food, health and lifestyle related activities (e.g. sports and cooking competitions) to promote KFC value products’ brand awareness and drive sales. Lastly, KFCH intends to extensively use in-store advertising to drive sales. This is the meeting point between KFC and its customers, and the company will use it to its advantage to promote KFC value products. Promotional posters will be included across all KFC stores. In addition, customers and members of the public that pass by or work close to the company’s stores will be given leaflets promoting the new menu offerings. The company’s staff at the store as well as those who deliver the products to customers’ homes/officers would be required to suggested the new products to the clients. Lastly, free samples and BOGOFs will be offered at the stores to encourage the existing customers to try out the company’s new product offerings.
Place
The KFC value menus will be easily rolled out across Malaysia, Singapore, Brunei and India, because the physical infrastructure already exists to facilitate the same. This is not entirely true with respect to India and Brunei, because KFCH only ha a paltry of stores in these countries. In this respect, therefore, the company will seek to open at least 20 stores in each of these countries within the next two years, and even more if the initial efforts are successful. More stores, particularly in India will give the company a foothold in a potentially growing and lucrative market. Expansion into India is also enticing because of the large proportion of the population being in the middle class and low-income groups, which are specifically targeted by the KFC value offerings.
Physical Environment
KFCH has upwards of 700 stores in Malaysia, Singapore and Brunei. The stores are designed to project the company’s value proposition. The stores are mainly in urban areas, and mostly in high traffic areas of town. KFC, and other international fast food outlets often favor high-end streets/locations such as malls. In addition to the physical stores, the company intends to increase the utilization of the Internet to order foods, as well as the home/office delivery services. It will offer discounts and offers for customers that utilize these services.
Process
Like all KFC’s products in Malaysia and elsewhere in the world, the quality of the food and service would be kept high. KFC has robust quality standards and assurance programs that ensure that the quality of inputs, handling, storage, preparation, packaging, and serving produce high quality products that are consistent with the KFC brand. Further, KFC intends to ensure that fast food is fast. The processes will be such that customers do not have to wait for unduly long periods before being served. To this end, and in anticipation of an increase in the number of customers, the company will increase the number of staff and invest in technology.
People
KFC Malaysia’s marketing functions are carried out by a separate subsidiary, KFC Marketing Sdn Bhd (or KFC Marketing), which was founded in 2001. KFC Marketing is a trading arm of KFCH, and it seeks to ensure KFC’s products are preferred for their superior quality. KFC has a strong organizational culture, built around excellence, personal customer relationships and innovation. Other than the marketing staff, KFCH employs approximately 30,000 people, who have the knowledge and skills necessary to ensure the product succeeds. Other than the product development staff that are responsible for developing new menus, other critical staff members include the customer service team, chefs/cooks, and the store management teams.
Timeline
Cross-functional dependencies
Perhaps the most important relationship that needs to be functional in order for the product and KFC’s other products to succeed is that of KFCH and KFC Marketing. By centralizing its marketing resources under a separate subsidiary, KFCH gains scale economies that should result into lower costs that can then be transferred to customers in the form of lower prices and greater value. KFC Marketing has been immensely successful as a trading arm of KFCH, and distributes related third party products as well. Effectively, an even closer working relationship between KFC and KFC Marketing would be necessary to ensure that the products that are introduced on the market are ultimately successful. There is already a seamless relationship between the two companies, and therefore the coordination of the marketing activities should not be difficult or create undue burdens on the part of the two companies.
Further, the relationship between the marketing team (KFC Marketing) and KFCH’s product innovation teams is important to ensure that the company develops products that consumers want. Developing new products, particularly those that reflect the local cultures and tastes remains a central strategy that will see the success of the low-cost menus. To this end, KFC Marketing and KFCH will form a standing team to ensure that the customer feedback gets to the product development team. Even most importantly, greater reliance on knowledge management technology to foster information sharing and utilization within the company, while at once fostering seamless communication among teams and individual employees. Even most importantly, the close relationship between the marketing team and KFC would be critical to the evaluation and control of the strategy’s implementation. Real time information on the performance of the products would be needed by the management team to determine areas of improvement to remedy failures and capitalize on the opportunities that arise.
KFC also needs to ensure that there is fluent communication and collaboration between the corporate office and the store management teams, which are responsible for implementing the strategy in the first place. Individual store leadership and other teams are responsible for ensuring that their stores and quality of services/products reflects the KFC brand image and expectations. Even most importantly, the store staff is expected to push the value products to the existing customers and thus their performance and feedback will be crucial for implementation. Lastly, KFCH is dependent on its parent company QSR Brands as well as US-based Yum! Brands, These are critical in the determination of the overall strategy and resources. Effectively, close collaboration among these companies is crucial to the success of the KFC value menus.
Research areas and literature
conclusion
KFCH has a sizeable share of the market and an extensive distribution network to that makes for relatively easy and competitive introduction of new products onto the market. Further, the company has immense experience in the production of great food, which it should leverage to ensure that the value offerings are successful. The introduction of low-priced menus will not only help KFCH tap into the low-income segment of the population in Malaysia, but will also be important for KFCH’s expansion into India and Brunei, where the vast majority of the population have relatively low incomes (Euromonitor International, 2015b; Euromonitor International, 2015b). Given the similarity of the business models of many fast food companies across the world, differentiation of the products and services is crucial to success. The intensive competition in the industry requires that KFCH deploys its competitive advantages to create more value for it consumers. This is particularly important because of KFCH’s complicated corporate structure, and its possible strategic reliance on QSR Brands, KFC Marketing and Yum! Brands. It is critical that different units within the company and outside it work in unison to achieve the strategic goals set by KFCH.
references
CIA World Factbook, 2014. Malysia: Country Profile. Retrieved Oct 17, 2015, from https://www.cia.gov/library/publications/the-world-factbook/geos/ml.html
Euromonitor International, 2015c. Fast Food in Malaysia. London: Euromonitor International.
Euromonitor International, 2015b. India Fast Food Market. London: Euromonitor International.
Euromonitor International, 2015a. Malaysia: Country Profile. Euromonitor International, Euromonitor International. London: Euromonitor International.
KFC Holdings (Malaysia) Bhd, 2012. Annual Financial Statement 2011. Luala Lumpur: KFC Holdings (Malaysia) Bhd.
MarketLine, Inc, 2015. Yum! Brands. New York: MarketLine, Inc.
QSR Brands, 2016, Our Strength. Retrieved Feb 22, 2016, from http://www.qsrbrands.com/
Rugman, A. M., & Collinson, S., 2012. International Business (6th Ed). London: Pearson Education.
Teece, D. J., Pisano, G., & Shuen, A., 1997. Dynamic capabilities and strategic management. Strategic Management Journal , 18 (7), 509–533.
Thomson, N., & Baden-Fuller, C., 2010. Basic Strategy in Context: European text and cases. Boston: John Wiley & Sons.
Wheelen, T. L., Hunger, D., Wheelen, K. E., & Hoffman, A. N., 2013. Strategic Management and Business Policy: Towards GLobal Sustainability. Boston: Pearson Education.
World Bank., 2015. Malaysia. World Bank. New York: World Bank.
