Kentucky Fried Chicken

(Part 2)


– Increased popularity of full service restaurants due to changes in demographics (See APPENDIX), and increase in the number of fast food chains, has resulted in many alternatives for customers.
– Entry of McDonald’s owned Boston Market into the Chicken fast food market poses a large threat to KFC.
– Marketing innovation by KFC?¦s competitors has reduced KFC’s market share in the US. For example, Boston Market established most of its units outside of shopping malls instead of major city intersections.
– Globalization of the industry due to the difficulties in the domestic market has produced further competition in foreign countries where KFC has some presence.
– Increased costs due to demographics (see APPENDIX). The inability of KFC to increase prices due to competition has resulted in lowered profit margins.
– Emerging preferences for healthier alternatives has also resulted in a slow down of the industry.
– The NAFTA has eliminated tariffs between member nations, allowing better accessibility to Latin America, particularly Mexico. Although some drawbacks are evident such as political and economic instability in some Latin American countries, this market provides a great opportunity for KFC and its competitors to expand their operations in the region.


4.0 Criteria of Evaluation: Goals, Objectives, Performance Targets and Time Frames

– Increase KFCs market share in the domestic market.
– Penetrate new markets in the Latin American region.
– Maintain a market leader in Mexico and the Caribbean.


5.0 Alternatives

Some strategic choices are as follows:

5.1 Short Term

– Focus on sustaining its position in Mexico and the Caribbean and postpone plans to expand into other large markets like Venezuela, Brazil, and Argentina.
– Focus on 2-in-1 units in the domestic market.
– Invest more capital into other large markets in the region including Venezuela, Brazil, and Argentina to challenge existing competitors.
– Reduce prices in the US market to increase its competitive edge.
– Build additional company owned restaurants in the US market to regain some lost market share.

5.2 Long Term

– Focus on the expansion of international markets through building a franchise base throughout Latin America, in order to build KFC’s brand image and prevent competitors from establishing first mover advantages. Introduce ‘2-in-1’ units to international markets where Pizza Hut and KFC exist such as China.
– Focus on maintaining its market share in the domestic market through the introduction of healthier choices, concentration on positioning KFC as an international brand name, and the introduction of 3-in-1 units.
– Produce more innovative new tastes and menus suitable to the region, and bring them to market promptly, and emphasize innovation in production to increase quality and reduce costs.


6.0 Recommended Strategy

6.1 Short Term

– Focus on sustaining its position in Mexico and the Caribbean and postpone plans to expand into other large markets like Venezuela, Brazil, and Argentina.
– Focus on ‘2-in-1’ units in the domestic market.


7.0 Justification of Recommendations

As a short term strategy, KFC should focus on sustaining its position in the Mexico and the Caribbean regions. These two areas are in close proximity of the United States. Comparatively lower transportation costs, less communication and operational problems. This enables KFC to operate mainly company-owned restaurants. There can be some advantages of franchising; however control is harder to maintain, KFC has been, for the most part, unsuccessful with them in the region. With its company owned restaurants, on the other hand, issues such as restaurant cleanliness and service levels can be maintained.

The Mexican and Caribbean markets are not yet saturated and, by a number of indications, KFC is doing well in these locations. KFC outlets in Mexico on average have sales 63 percent higher than U.S. branches. Furthermore, the Mexican market is one of the chain?¦s most profitable on a per-restaurant basis.


KFC can also create and add local food items on the menu that cater to the local market taste. This is particularly important in countries such as Chile where tastes differ significantly to the US.

The costs in establishing themselves in other Latin American countries will be higher than in Mexico. Competitors such as McDonalds and Wendy?¦s already dominate these markets, therefore marketing costs will be comparatively high.

No doubt, there can be first-mover advantages in entering other Latin American nations. Nevertheless, there is also a great deal of risk with this strategy. While the advantages of being the first mover is increased revenue and potential market dominance, the downside is that a company may suffer losses in the short term.

To deal with US market saturation and rising costs, KFC has already begun implementation of a plan to multi-brand with ‘2-in1’ units. In the domestic market, KFC should have a short term focus on the expansion of its ‘2-in-1’ units.

Customer service must also be a focus. This goes hand in hand with high employee turnover. KFC must redevelop its culture to promote employee retention. This will positively affect customer service. They must develop health conscious products, along with a major advertising campaign to battle the loss of market share.

As a long term strategy in the domestic market, KFC should develop healthy menu items to be in line with trends in customer preferences.

KFC do not have the ability to concern any options with price considerations. Immense competition in the domestic market disallows this alternative.

Due to increases in prime land prices, KFC is also limited in the expansion of its locations domestically.


8.0 Implementation, Control and Follow-up

The uncertainty in these countries is high. KFC has a successful franchise program and should implement this in Latin America in conjunction with a small percentage of company owned restaurants. This strategy will take advantage of the Latin American market through franchise fees while being able to establish some control over the franchises through small numbers of company-owned presence.

By extending the use of local suppliers in the form raw food supplies and distribution services such as Tyson Foods in Mexico, KFC is able to reduce some effects of currency fluctuations. If similar suppliers can be negotiated in other countries in the regions, this will be beneficial to the long term objectives.

Each location in the Latin American countries should be strictly monitored, and weak performers should be eliminated immediately. Testing the market with company-owned units will enable quick withdrawal of poor performing units. The performance of each unit must be measured using US Dollars to gain an accurate measurement.



SWOT Analysis

– It had expanded early in its corporate history and had experience
– Strong brand name.
– Secret and unique recipe.
– Its affiliation with Pizza Hut and Taco Bell allowed it to create operational efficiencies abroad as well as domestically.
– It prior relationship with PepsiCo, which had extensive international efficiencies abroad as well domestically.
– KFC had focused on countries in which McDonaldI? did not have a strong presence.
– World?¦s largest chicken chain restaurant Third largest fast food industry.
– KFC continued to dominate the chicken segment, with sales of $4.4 billion in 1999.




– As a competitor in international market KFC mostly consider only about franchising market. This is not a very good idea as other imported fast food is catching the domestic market.
– KFC was losing market share as other chicken chains increased sales at a faster rate.
– KFC’s share of chicken segment sales fell from 71% in 1989 to less than 56% in 1999,a 10 year drop of 15%.

– 3-in-1 units V KFC/Pizza Hut/Taco Bell Express.
– Establishment of premises in alternative locations such as hospitals and universities.
– NAFTA – Expansion of its Mexico operations, and other large Latin American nations.
– Further expansion into emerging markets such as the Middle East, and developing nations such as China.





– Competition in the Asian market for the fast food industry is growing rapidly.
– Increasing competition from alternatives. Technological improvements
– Mexico?¦s slow reduction of restrictions on US investments.
– Instability of the Peso may reduce profitability in US Dollars.
– Social unrest in Mexico ?V organized crime, high poverty rate, political murders etc.
– Regulatory and policy changes may affect US-Mexico trade due to changes in government. The National Action Party may have differing agendas to the previous political party.


– The Mexican economy stabilized by 2000 and the GDP was increased at an average annual rate of 24% and unemployment had decreased to slightly more than 2 percent. This economic condition favors KFC and other fast food industries in the Mexico. However, the Mexican Peso is of some concern, it has depreciated against US dollar because of inflation and higher interest rates.





– This involves assessing the political environment of the country/countries of destination. It includes such factors as the type of government (e.g. democratic, authoritarian), the actions of the host country government (e.g. limits on the amount of foreign ownership, subsidies), the type of economic system (e.g. capitalist, socialist), and the stability of the government (e.g. how long it has been in power).
– Political situation in Asia is not stable because of that industry has to take risk to invest money in Asian countries.
– With the setting up with World Trade Organization (previously named GATT), countries reducing trade barriers. This will open up potential new markets. For example Mexico, one of the markets for KFC had been lowering its tariffs since it had become a member of GATT.
– Government rules and regulations effect to fast food industry. Changes government policies, changes in tax related laws on the industry.





– The demographic segment is concerned with population, size, age structure, geographic distribution, ethnic mix and income distribution. As previously noted, the firm analyses demographic segments on a global basis rather than a domestic-only basis.
– As a USA and global market of the KFC has to be very concern with those demographic factors because slight change of one factor could affect the whole market at once. For example aging population of most countries.