1.0 Introduction
KFC, the world’s largest fried chicken chain restaurants, was started in 1952 by Harland Sanders, under the name Kentucky Fried Chicken though the idea was first discovered in 1930 when Sanders started to sell fried chicken to visitors in Corbin Kentucky. It is the second largest restaurant chain, with about 1800 locations, with over 3000 stores in China, and a revenue of about $ 15 billion, McDonald’s is the first (Hu & Xie, 2013). In 1939, Sanders came up with an original recipe for fried chicken incorporating 11 spices that are kept at the Company's headquarters in Louisville, Kentucky. Sanders started marketing KFC and introducing its franchises nationwide in 1950 and by the early 1960s, KFC was sold in over 600 franchised outlets in the US and Canada. In 1964, Sanders sold the business to Jackey Massey and John Y Brown Jr, who made the company public in 1966 and was listed on New York Stock Exchange. Since then, the business has been sold three more times the most recent buyer being PepsiCo, which incorporated it into its Tricon Global Restaurants division but was later spun-off in 1997 and renamed Yum-Brands. KFC mainly sells fried chicken, hamburgers French Fries and other Western-style fast foods. KFC opened its first store in China, Beijing, in 1987 (Hu & Xie, 2013). The aim of this essay is to discuss KFC's milestone in the Chinese market as follows; Introduction, which gives the background of KFC and paper structure is in section one, the Golden Circle is discussed in section two and the Porter's five model in section three. Section four discusses KFC's sustainable competitive advantage and value creation model is in section five. Articulation of new strategy, a metric plan and a strategic marketing plan will be outlined in section six, seven and eight respectively.
2.0 Determination of Golden Circle
The golden circle as discovered by Simon Sinek has three layers; the why the how and the what. The ‘why' describes the company's core belief in existence. The ‘How’ describes how the company fulfills its core belief for existence and the ‘What’ describes the products and services provided by the company to fulfill its core belief for existence ("Creating a value proposition with the Golden Circle Model", 2015). Simon advice that companies should always begin with the ‘why' instead of the ‘what' to gain a sustainable competitive advantage. The reason why KFC is the leading multinational fast food restaurant in China is that it started with the ‘Why' question. Based on the rapid growth it experienced in the Chinese market with over 3000 outlets, its core belief is to serve the best food products that are safe and dominate the Chinese market. Rapid growth has been achieved through its franchising policy, ‘not from scratch’ which has attracted many Chinese investors and enhanced KFC’s deep penetration into the Chinese market. The company fulfills this belief by differentiating its food products that are integrated with Chinese characteristics and even fully localizing some of the food product on their menu.
3.0 Porter’s five model
The model uses five competitive forces to analyze competition in industry. The five forces are; the threat of entry, rivalry among existing competitors, the threat of substitution, bargaining power of buyers and bargaining power of suppliers.
The fast food industry does not have a lot of barriers to entry and exit, and the therefore threat of new entry is high. The start-up capital is not intensive, and therefore, any willing investor with substantial capital enters the industry. Companies like Radix Fried Chicken founded in 2008, ("Task 5 - 5 Porter model (KFC)," 2013), have entered the industry and are competing with KFC, which dates back to 1930.
In the fast foods industry, competition is very high. KFC‘s major competitors are McDonald’s, Pizza Hut and Burger King, with McDonald’s leading the industry currently. The stiff competition has led to losses since KFC is losing its loyal customers to competitors.
The threat of substitutes in the fast food industry is high. Companies such as Popeyes Louisiana Kitchen sell products and services almost similar to KFC’s. The products are priced same or relatively cheaper thus, KFC losing customers to such ("Task 5 - 5 Porter model (KFC)", 2013).
The buyers' bargaining power is high due to the presence of many competitors. The customers are aware of the slightest change in prices and can switch to competitors swiftly, and even substitutes without incurring major costs. KFC’s loyal customers have switched to competitors and even substitutes due to lower prices offered on the other side. KFC has had to adopt loyalty programs where customers in possession of a reward card referred to as My KFC card get a discount of up to 5% on the products they buy and exclusive VIP offers (Z0hi & Shualing, 2015). It has had to reduce prices too, to attract customers with less money to spend such as students.
The suppliers' bargaining power is low. The presence of many chicken suppliers in the market makes it hard for one single supplier to dictate prices. KFC can easily switch from one supplier to the next without major costs.
4.0 Sustainable Competitive Advantage
KFC’s continuous integration and effective use of limited resources, and its capacity in China have enabled it to gain a cost advantage over its fierce competitor, McDonald's. Its franchising model has adopted and incorporated Chinese characteristics in their operations. KFC has extensive experience in the Chinese market together with the full localization of its raw materials helps cut on the cost of production. The franchising mode helps increase economies of scale which is critical in cutting operation costs. It won the interest of many Chinese investors through its franchising policy; ‘not starting from scratch’ (Hu & Xie, 2013).
KFC also has valuable hard to imitate unique abilities which enable them to differentiate their products from competitors’. Product differentiation is achieved through the standardization of research and development, which is their core knowledge, which enables them to stay relevant in the market through the continuous development of company procedures. KFC is keen on building a brand that fits the needs of the Chinese market through product diversification, according to consumer group needs. It adapted to Chinese tastes, diet, eating habits and consumption characteristics (Hu & Xie, 2013). There are over 30 new types of products with half incorporating Chinese characteristics and some like hibiscus fresh vegetable soup, traditional herbal tea; Wanglaoji and traditional Beijing chicken roll fully localized with inspiration from Chinese cuisine. The foods are served in a fast food way at reasonable prices KFC has also moved its focus to the regional localization of its products due to the diversity in the Chinese market. It has 40 national nutrition experts and a Chinese KFC Food Health Advisory Committee (Hu & Xie, 2013).
5.0 Value Creation Model
A firm must deliver compelling economic value by offering quality products and services to its customers. KFC has adopted value creation activities that focus on both customers and competitors. KFC defines the standards for its products and services to its restaurants across the world (Sayers, 2012). For instance, alongside its traditional fried chicken recipes, KFC offers golden rotisserie-cooked chicken to serve both the traditional fast food and health conscious customers. KFC also offers value-priced meals that incorporate fried chicken with mashed potatoes or biscuits at a relatively lower price. The company introduced roasted boneless chicken in 2003. Occasionally, it introduces new chicken-based products like popcorn chicken and spicy wings. KFC is also keen on localizing the China market where its products are incorporated into the Chinese taste (Hu & Xie, 2013). However, KFC needs to focus on service logic to create value for customers from the services they offer. The key service areas that need improvement include; reducing queue time, delivering the right order and in good time.
6.0 Articulation of new strategy plan
A food security scare and customers' concerns about KFC's fast foods caused KFC's reputation in China to be tainted when it was allegedly reported that the chicken it used was fed with too many antibiotics in 2012. The report led to the decline in sales in China by 4% in the fourth quarter of 2013 ("KFC China Revamps Menu and Marketing Plan Following Food Safety Scare", 2014). KFC can only correct this negative media publicity by adopting the following strategies; incorporation of healthy food products in their Chinese menu like; golden rotisserie-cooked chicken, fried chicken with mashed potatoes or biscuits popcorn chicken and spicy wings for the health conscious customers, revamp its storage designs and packaging and provide a number of digital initiatives like new mobile apps, E-menu and prepay take-out option. A new marketing strategy will also be formulated to boost the company’s brand name and enhance customer trust.
7.0 Metric plan
KFC’s reputation was tainted in 2012 by the food scare report by the media which caused the sales revenue to drop by 4% in the last quarter of 2013 and a stagnant growth rate ("KFC China Revamps Menu and Marketing Plan Following Food Safety Scare", 2014). A plan has to be formulated to measure revenue and market growth after the articulated strategies have been formulated. The plan will assess the progress of the strategies formulated at intervals of six months, where set objectives will be compared against results achieved. Customer feedback will also be useful to evaluate the success of the strategies.
8.0 Strategic Marketing Plan
KFC has to come up with a new strategic marketing planning to achieve the goal of rebuilding its reputation and increasing sales revenue in the Chinese market. The strategic marketing planning is carried out in five steps; stating the company's mission, carrying out a SWOT analysis of the company, setting marketing objectives, developing the strategy by identifying the target market and evaluation of the objectives.
8.1 KFC’s Mission
KFC’s mission is to serve food in a fast in a friendly environment that appeal to the pride and health conscious customers.
8.2 SWOT analysis
8.2.1 Strengths
KFC is the second best brand, and the first in the Chinese market, in fast food industry which is its first strength. Customers trust the brand due to its early franchising and international expansion. Secondly, KFC has a strong finance base from arising from the franchise. The company can, therefore, invest in research and development which will help in identifying changing customer needs and advanced machinery that would cut on production costs. Thirdly, KFC's staff is trained, knowledgeable and experienced in customer relations, and this gives the company a competitive advantage over competitors. The staff also is focused on delivering quality products. The fourth strength is the solid management foundation, which arises from KFC’s prior management experience in the international expansion (Zhi & Shualing, 2015).
8.2.2 Weaknesses
The first weakness is the unscrupulous suppliers who supplied KFC with contaminated poultry and quick chicken; this caused sales revenue to drop and a tainted reputation. Secondly, KFC's mode of operation is directed towards risk aversion. The stores can enjoy a good corporate image from the chain restaurant industry, but again, if one store damages the corporate image, the whole brand is damaged (Zhi & Shualing, 2015).
8.2.3 Opportunities
Increasing demand for healthier food. KFC can grab this chance and introduce healthier food in their menus to leverage the weakness.
8.2.4 Threats
Competition is high in the developed economies which are overcrowded with fast food restaurants making it impossible for KFC to grow. Secondly, substitutes have hit the fast food industry with many companies offering products almost similar to KFC’s.
8.3 Marketing Objectives
The marketing plan is intended to restore KFC’s reputation after the food security scare in 2012, and create awareness among customers, in 6 months grow sales revenue by 10% in the next 12 months and open at least 400 KFC outlets in 12 months’ time.
8.4 Strategy development
Strategy development involves identifying a target market, segmenting this market based on customer characteristics and implementation using the 4ps marketing mix.
8.4.1 Target market
The target market is people of all ages in China. From previous researches and findings, the results reveal that in China, KFC serves mostly the old people whereas the young and youth prefer competition; McDonald’s, because of free internet services provided there. The new strategy will incorporate this group by introducing the services that lure them.
8.4.2 Implementation tactics (4ps)
The 4ps, a marketing mix that comprises products, promotion, price and place will be used to implement the marketing strategy. The food security scare together with emerging demand for healthy food products has made KFC to change its food products menu which will incorporate healthy safe food products. Since the young generation aged between 18-24 years will be targeted more, KFC will price their products at a relatively lower affordable price for this age group that mostly comprises of students who do not have much money to spend. KFC will run an advertising campaign on television and social media for three months to promote the new products. Customers will easily get the food products from the KFC numerous outlets and by home delivery for those who order online.
8.5 Evaluation
Evaluation, which assesses the progress of the strategy implementation, is useful in keeping the company on track towards its marketing objectives and making necessary adjustments where the strategy is not working. The following timeline shows the people responsible for the implementation of the strategies and within what time.
Source: Author
The evaluation plan will involve comparing new number customers to target, sales revenue achieved against target and determination of a number of outlets opened at the end of the 12 months against the target.
9.0 Conclusion
KFC is the leading fast food restaurant in the Chinese market. However, the company faces some strategic issues like stiff competition from McDonald's and other emerging fast food restaurants. The food safety scare resulting from a media report in 2012 did not help for it saw the company's sales revenues dropping by 4% in the last quarter of 2013 and left KFC's reputation tainted. The company, therefore, has come up with new strategies to address these issues. The company also has formulated a new strategic marketing plan to achieve its core objectives of rebuilding customer trust, increasing awareness and growing sales revenue.
References
Creating' a value proposition' with the Golden Circle Model. (2015). Smart Insights. Retrieved 27 April 2016, from http://www.smartinsights.com/digital-marketing-strategy/online-value-proposition/start-with-why-creating-a-value-proposition-with-the-golden-circle-model/
Hu, W. & Xie, Y. (2013). Comparative Study of McDonald’s and Kentucky Fried Chicken (KFC) Development in China. Savonia: International Business Administration.
KFC China Revamps Menu and Marketing Plan Following Food Safety Scare. (2014). International Business Times UK. Retrieved 27 April 2016, from http://www.ibtimes.co.uk/kfc-china-revamps-menu-marketing-plan-following-food-safety-scare-1442070
Sayers, J. (2012). Service Thlinking: KFC Customer Processing: Student Work - Service Logic Essay. Service-thlinking.blogspot.co.ke. Retrieved 27 April 2016, from http://service-thlinking.blogspot.co.ke/2012/10/kfc-customer-processing-student-work.html
Zhi, Y. & Shualing. 2015. KFC Developments in Chinese' Market-Based on the Social Responsibilities and Ethics. International Business and Management. 10(3), 142-146.
