Case10 Yum Brands TN

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Case10 Yum Brands TN

Transcript of Case10 Yum Brands TN



Teaching NoteOverviewThis case describes the evolution of the global fast-food industry and Yum! Brands, Inc.s development of the Pizza Hut and KFC franchises worldwide. It focuses on international business risk assessment and develops a model of country evaluation that students can use to analyze international business and market entry decisions in a variety of industries, regions, and countries.Teaching Objectives1. Develop skills in industry analysis

2. Develop skills in global industry analysis.

3. Develop knowledge of franchising and the costs and benefits of expanding globally using franchises versus company-owned stores.

4. Develop skills in international business risk analysis.

5. Develop skills in country portfolio evaluation and assessment.

Suggestions for Using the CaseThis case has been used successfully in undergraduate, MBA, and Executive MBA classes in strategic management, marketing management, and international business. It can be used in undergraduate courses to develop student skills in industry structure analysis, strategy analysis, and international business risk assessment. The teaching note is designed to give students practice in each of these three areas. Instructors may choose to use the case to discuss only one of these three areas during a single class period or to cover all three areas over two class periods. The case can be also used for student presentations and projects, especially for projects on country evaluation and risk assessment.

This note was prepared by Professor Jeffrey Krug as an aid to instructors to accompany the case Yum! Brands, Pizza Hut, and KFC. It is designed to stimulate student discussion, develop student skills in business analysis, and promote creative thinking of alternative approaches to strategy formulation and implementation.

Copyright 2004 by Jeffrey A. Krug of Appalachian State University, Walker College of Business, Department of Management, Box 32037, Boone, NC 28608. Phone: (828) 262-6236. Email: No part of this case may be copied, reproduced, stored in a retrieval system, or transmitted in any form without the permission of the author.For MBA and Executive MBA courses in strategic management, the case can be used in the beginning of the semester as a means of presenting a framework for industry structure and strategy analysis that the instructor develops throughout the semester. It can also be used in the second-year global & transnational strategy course in the beginning of the semester to introduce international business risk assessment. Alternatively, it can be used at the end of the semester as a review of industry structure, strategy, and international business strategy analysis.

The case is structured around the following themes:

(1) Industry analysis (U.S. fast-food industry),

(2) Multi-branding and franchising strategies (Yum! Brands, Inc., Pizza Hut, and KFC),

(3) International strategy analysis (Pizza Hut and KFC), and

(4) Country risk assessment (Mexico, Brazil, and Latin America).

The case is best understood after a class discussion of environmental analysis and business strategy. It is also helpful if students have been introduced to the concept of corporate strategy. The case has enough information to cover one or two sections of class discussion. If the instructor chooses to cover the case in two sections, one section might be used to conduct an industry analysis. A second section might then be used to analyze Pizza Hut and KFCs business strategies and discuss international business issues.

An alternative use of the case involves breaking the class into groups of four to five students and assigning one discussion question to each group at least one class period before the case is presented. When students return to class the following session, students can be broken into their groups for ten to fifteen minutes, during which time they formulate a response to their assigned question. The remaining time may then be used for short student presentations. I sometimes ask a representative from each group to give a five to eight minute response to his or her groups question and interject periodically to make sure that the questions are tied together correctly.A third use of the case is to ask groups to examine the Latin American market (or more specifically the Mexican and Brazilian markets) and analyze the costs and benefits of expanding further in Mexico versus expanding into other areas of Latin America such as Brazil. This also makes a good individual or group writing assignment. It can also be used for a semester paper.Teaching Aids

The beginning sections of the case can be used to conduct an in-depth industry analysis (industry characteristics, trends, and driving forces), analyze competitive forces (Porters Five Forces Model), and conduct a SWOT analysis for Pizza Hut and KFC. If students havent already been exposed to Porters work, the instructor might assign the following reading: Michael E. Porter, "How Competitive Forces Shape Strategy," Harvard Business Review, March-April, 1979, pages 137-145.

The last portion of the case focuses on international business analysis and country risk assessment. In particular, it discusses environmental risks and opportunities associated with international expansion, particularly in Mexico and Brazil. This section can be used to discuss the risks of doing business in a foreign country, market entry strategies, political and economic risk, and differences in industry structure across countries. The instructor might end the case by asking students which strategy companies like Pizza Hut and KFC should follow in Latin America.

If the instructor plans to discuss the international aspects of strategy, then the following article may be assigned:

Kent D. Miller, "A Framework for Integrated Risk Management in International Business," Journal of International Business Studies, vol. 21, no. 2, 1992, pages 311-331.Assigned QuestionsIndustry Analysis1. What are the primary driving forces in the U.S. fast-food industry in 2004?2. Using Porter's Five-Forces Model, assess the strength of each competitive force in the fast-food industry.3. Is the U.S. fast-food industry attractive?4. What are the fast-food industry's key success factors?Business Strategy Analysis1. Complete a SWOT analysis for Pizza Hut and KFC.2. In what ways are Pizza Hut and KFC positioned to take advantage of the industry's key success factors?3. What are Pizza Hut and KFC's competitive advantages?Franchising Strategy Analysis1. What are the benefits of franchising versus company-owned restaurants for companies like Pizza Hut, KFC, McDonald's, or Burger King?International Business Strategy1. Describe Pizza Hut and KFC's investment strategy in Latin America.2. Using the country and industry risk categories discussed in the case, compare and contrast Mexico and Brazil as alternative investment locations. What risks are associated with investment in Mexico? In Brazil? What strategies can be used to minimize these risks?INDUSTRY ANALYSIS1. What are the primary driving forces in the U.S. fast-food industry in 2004?

Industry sales are flat. The industry growth rate, which has averaged about three percent per year, indicates that the industry has matured. Lower growth rates have intensified competition among fast-food chains. Market share gains are increasingly achieved only by taking customers away from existing competitors rather than by attracting new customers into the industry.

The industry is consolidating. Significant merger and acquisition activity during the last decade has consolidated many fast-food chains under the same corporate umbrella. Many chains such as Yum! Brands, Inc. are actively engaged in acquisitions as a means of creating purchasing power and greater economies of scale in purchasing, brand management, advertising, and distribution.The industry is becoming more global. Most of the top U.S. fast-food chains have implemented foreign growth strategies to expand outside of the mature U.S. market. Foreign markets are less saturated than the U.S. market and offer significant opportunities for chains to grow sales and establish strong, long-term market positions outside of the United States.Diversification has become an important growth strategy. Fast-food chains are diversifying outside of their core products and attacking other fast-food chains as a means of increasing growth. For example, McDonald's, Wendy's, Arby's, and Hardee's sell a variety of chicken sandwiches in addition to their core portfolio of hamburgers. McDonald's also sells breakfast burritos, salads, cookies, and ice cream. Pizza Hut and other pizza chains have introduced chicken wings and other non-pizza items to their menus. This has blurred the distinction between competing chains and substitute products chains that were once classified as substitutes (e.g., McDonalds and KFC) are now competing chains.

Many customers are health conscious and want products with lower fat content, lower cholesterol, or fewer carbohydrates. Many hamburger chains have introduced grilled chicken sandwiches, low carbohydrate hamburgers, and salads to appeal to these consumers. The instructor might discuss the wide variety of viewpoints about what constitutes healthy food. Americans have historically viewed low-fat, low-protein products (i.e., carbohydrate-rich) products as most healthy. A growing number of Americans, however, have switched to low-carbohydrate, high-protein diets (the Atkins Diet) or more balanced diets (the Zone). To take advantage of these trends, KFC has begun advertising its products as low-carbohydrate alternatives to other fast-food products suc