Kfc Proj Wrk

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Final Project KFC (Kentucky Fried Chicken)

Submitted To:

Muhammad Asim Awaan

Developed By:Madiha khalidHijab AshrafRizwan KhalilSami Ullah(07108118)(07108124)(07108125)(07108140)

BBA Fall 2007Section B

Date of Submission:

15 06 2011


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1.


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Dedication

We dedicate our project to AL-Mighty ALLAH without whose guidancewe were unable to do so and also to our parents who support andhelped us to complete this uphill task in a better and perfect way

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Acknowledgement

We firstly thank ALLAH Almighty the most Beneficent and the Merciful, and theMaster of the Day of Judgment, who bestowed upon us the endurance to bring thiswork to an end.

We deem it our utmost pleasure to avail this opportunity to express gratitude andkeep sense of obligation of our Sir Muhammad Afzaal for her valuable guidance,scholarly criticism, untiring help, compassionate attitude and enlightenedsupervision during the whole project and making of the report.

Last but not the least, we feel highly obliged and earnestly pay humble andheartfelt thanks to most affectionate fathers and mothers for their moral andfinancial support and encouragement and specially our mothers because theyalways remember us in their prayers.



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Table of Contents

1. Introduction of Company........................................................................................................1

1.1 KFC in Pakistan..................................................................................................................2

1.2 Nature of the Business........................................................................................................2

1.3 Current Products.................................................................................................................3



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world. KFC operates more than 5,200 restaurants in the United States and more than 15,000units around the world. KFC is world famous for its Original Recipe fried chicken--madewith the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more thana half-century ago. Customers around the globe also enjoy more than 300 other products --fromKentucky Grilled Chicken in the United States to a salmon sandwich in Japan.John Y Brown and Jerry Messy purchased KFC for USA for $2 million in 1964 that time KFCbecome a corporation. After five years, Colonel buys first 100 shares of KFC. In1986, PepsiCompany purchased KFC. Pepsi company changed the logo from Kentucky fried chicken toKFC in 1991 and then in 1992 KFC 1000th restaurant opened in Japan and in 1994 9000threstaurant in china. KFC is the part of Tricon global restaurant. Tricon globalrestaurant is theworld largest restaurant group, with in nearly 100 countries around the world, which in turn wasworld. KFC operates more than 5,200 restaurants in the United States and more than 15,000

units around the world. KFC is world famous for its Original Recipe fried chicken--madewith the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more thana half-century ago. Customers around the globe also enjoy more than 300 other products --fromKentucky Grilled Chicken in the United States to a salmon sandwich in Japan.John Y Brown and Jerry Messy purchased KFC for USA for $2 million in 1964 that time KFCbecome a corporation. After five years, Colonel buys first 100 shares of KFC. In1986, PepsiCompany purchased KFC. Pepsi company changed the logo from Kentucky fried chicken to

KFC in 1991 and then in 1992 KFC 1000th restaurant opened in Japan and in 1994 9000threstaurant in china. KFC is the part of Tricon global restaurant. Tricon globalrestaurant is theworld largest restaurant group, with in nearly 100 countries around the world, which in turn wasFinal Project KFC (Kentucky Fried Chicken)

2. Introduction of CompanyKFC is the world largest and most well known chicken restaurant. Every day, morethan 12

million customers are served at KFC restaurants in 109 countries and territoriesaround the

spun off in 1997, and has now been renamed to Yum! Brands.



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1.1 KFC in PakistanIn 1997, KFC franchised with Gray Mecanza International and started work in Pakistan with itsfirst branch in Gulsha-e-Iqbal, Karachi, Rawalpindi branch started work in 1999and inIslamabad in August 2002 and now in Pakistan it currently has 69 branches operating in 19major cities. It is operated by a Dubai based company, Cupola, which took it over in 1999 with 4major outlets. Major competitors include McDonalds, Nandos, Hardees, AFC, HFC, Fri chicks,Go chicks and Dixy Chicks when talking about similar products. As in industry, however, KFCscompetitors will include all fast food chains: McDonalds, Pizza Hut, Genos, Hardees, Cock nBull, and Subway etc.KFC occupies a major position in the fast food industry, being the largest seller of chickenproducts in Pakistan. It captures 50 percent of the total fast food market in th

e country. KFCwore the title of being the market leader in its industry. Serving delicious andhygienic food in arelaxing environment made KFC everyones favorite. Since then, KFC has been constantlyintroducing new products and opening new restaurants for its customers. In Pakistan totallyChicken buy from Pakistani Poultry Forms, and also this Chicken is 100% Halal.

1.2 Nature of the BusinessKentucky Fried Chicken (KFC) -one of the most known fast food chains in the world. Qualityand cleanliness (QSC) represents the most critical success factors to KFC's glob

al success. It isthe fast food franchise so its nature of business is providing the fast food services.Its business type is Business to Consumers.KFC has large chain of consumers. According to KFC, We are growing only with ourcustomer. KFC has great environment for their consumers and families. They are concernedabout the comfort and satisfaction of their customers. That is why 40 million isneed to open asingle outlet. KFC is multinational company. They have outlets, almost in everycountry. So theyhave international customers all over the world.



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1.3 Current ProductsMighty ZingerZinger burgerFish zinger burgerCol. Fillet burgerSalsa twisterMachos burgerChicken burgerCheeseSub 60twisterNuggetsHot wingsFries MiloFrotheCorn on the cobArabian spiceChicken maniaDinner rolls

Crispy chicken chunksHot and crispy soupSoft DrinkCola slawScope of wallFruit saladMineral /waterEspressoCappuccinoGIFT Business School Page 3


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KFC stands on the Champs ProgramThe CHAMPS ProgramChamps stands for our belief that the most important thing each of us can do isto focus on thecustomer. It stands for our commitment to provide the best food and best experience for the bestvalue.CHAMPS stand for the six universal areas of customer expectation common to all cultures andall restaurants concepts. These are:CleanlinessHospitalityAccuracyMaintenance of FacilitiesProduct QualitySpeed of ServiceCHAMPS is the philosophy to ensure that the customer has the consistent qualityexperience inevery restaurant, everyday, on every occasions and you will be playing role in d

eliveringCHAMPS to our customers.1.4 SizeKFC is part of Yum! Brands, Inc., the world's largest restaurant company in terms of systemrestaurants, with more than 36,000 locations around the world. The company is ranked #239 on



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the Fortune 500 List; with revenues in excess of $11 billion. KFC specializes inChicken BasedProducts.In Pakistan, It currently has 69 branches operating in 19 major cities. It has high sales volume as

they have great turnover. New outlets are being opened because they have greatersales volume(as per day worth 4.5 million is being consumed). Presently KFC has provided employment toover approximately 1200 Pakistanis, which adds up to 6000 individuals directly dependent onKFC Pakistan.1. Strategic IssuesThrough an analysis of the strengths, weaknesses, opportunities, and threats ofKFC, thefollowing strategic issues are identified:1. How would KFC maintain a market leadership in the Pakistan fast food industry?

Pakistans fast food franchise industry is still unsaturated and is in its growthphase.There is a lot of room for firms to enter and be profitable. As barriers to entry to theindustry as a whole are low, more and more firms as well individuals are entering in thisbusiness. For past few years the industry is growing at the rate of 10% annually. ForInstance, Subway successfully entered the industry a few years ago and now Hardees hasalso followed suit. Although KFC enjoys a market leader position in the countrybut theissue now is that how can it maintain its market leadership and how can it gain

asustainable competitive advantage.2. Consumer Health food trendKFC faces a lot of threat from its substitutes, especially with growing health concernsamong its customers. Health and obesity issues associated with KFC food have dilutedthe trust people once had in them. It now faces an issue of catering to the changing needsof customer demands.



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Final ProjectKFC (Kentucky Fried Chicken)

3. Occupies a Strategic PositionKFC occupies a strategic position in the market. It is in a profitable businesswithmaximum returns. However, the entire positioning is based upon one single secretrecipewhich if eluded by one of the competitors can cause serious damage to the brand.Therefore, the business though profitable is risky.

4.Limited variety of menu itemsKFC tries to project an image of chicken expert in the fast food industry fordifferentiating its products with other competitors. As one of KFCs key competitors,McDonalds also introduce chicken products. It is obvious that the competitive advantageof KFC may not be sustainable. The limited menu may be one of the main issues for

KFC. Lack of variety of menu items, customers may not be attracted for consumption.Customers may go to other fast food restaurant which with more choices andcombination. It may affect the competitiveness of KFC in the fast food industry.

5.Lack of communication between marketing and operationAccording to some of the KFC staff, they mentioned that there is lack of communicationbetween marketing department and operation of KFC. Marketing departments may notgive the details of new promotion and new products to the KFC operation or not c

learlyexplain about the campaign. This leads to many problems for the operation. Operationteam may be confused about the new promotion or coupons. They may not be able toexplain the details to customers with enquiries. In addition, it could affect the efficiencyand effectiveness of operation as crewmembers may not be familiar with the new

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marketing strategies. They may not be able to up sell the products as the corporate wants.As a result, profit may be affected.

6.Fewer opportunities to expand its restaurants base (due to financial reasons)KFC is not a listed company because they say that they dont need investors yet they saythat they are not opening up new franchises due to lack of resources and jut focus onmaintaining their current franchises. This can cause them harm because the market is stillunsaturated and there is market which is still not being entertained. They needto open upfranchises there to cater the demands of that market and gain market share whichcan betaken by competitor if it makes the move before KFC.7. Lack of communication channel for customers

The mission of KFC is people be the first, customers be the focus. It is found that KFCdid not take a proactive approach on listening to customers and employees. Thereis nosystematic customer survey for its products and services. It wholly relies on the branchmanagers and public relation officers to get the customers opinion. As customersofKFC, however, they would realize that it is not usual that managers and public relationofficer would take the chance to ask for opinion. Although the website of KFC has acustomer service comment box for customers to send suggestion. It may ignore tho

secustomers who are not computer users. In addition, its customer service hotlineis nothighly promoted. It means that it lacks communication channel between KFC andcustomers.



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1. SWOT AnalysisStrengths50% Market share in PakistanGlobal presence in 109 countriesExtensive fast food franchise network with 68 outlets in PakistanQuality Assurance; KFC has a product excellence system to ensure quality raw materials,packaging, equipment and new products that delight customers. In order to ensureconsistent quality, KFC also executes ingredient and equipment specifications. Food isfreshly cooked and fried chickens that are not sold for more than 45 minutes would bewithdrawn from sale to ensure the food quality. Fresh ingredients are provided to thebranches and hence it would ensure the quality of the food.Vertical linkages with value chain of suppliers; suppliers of KFC chicken is K&Nsanddrinks are supplied by Pepsi, in Pakistan

KFC's secret Original Recipe fried chicken --made with the same secret blend of 11herbs and spices Colonel Harland Sanders perfected more than a half-century ago.Brand Equity because of being oldest and finest in BusinessDoes not have any Core competitor In chicken servingRanks highest among all chicken restaurantsChains for its convenience and menu varietyLoyal customersFaces numerous advantages of being a Multinational Organization e.g. economies ofscale.GIFT Business School Page 1


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Weaknesses

Lack of focus on Research & DevelopmentImported raw material rise their prime costInflexibility of prices makes it unaffordable to middle class people.High rates on the prices as compared to the other brands selling same items maycausethe customers shift.Opportunities

Increase consumption of fast food has increased the market sizeConsumer prefer All under one roof in order to increase their sales turnover theycanincrease or add the served itemsThey can open more outlets to get maximum market.They can capture more customers by decreasing the price of their productsUpdating their restaurants, Balanced menu, customer focus and Increase delivery

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Threats

Competition from other international outlets like Pizza Hut, McDonalds, Subway.Entrance of New competitors into the market; as barriers to entry to the industry as awhole are low, more and more firms as well individuals are entering in this business. Forpast few years the industry is growing at the rate of 10% annually. For instance, Subwaysuccessfully entered the industry a few years ago and now Hardees has also followedsuite.High political instability/uncertainty. The deaths of political figures or any other suchincident are a threat in a way that angry public burns the outlets. Such incident happenedin Karachi.Health Trend away from fried foods; KFC faces a lot of threat from its substitut

es,especially with growing health concerns among its customers. Health and obesityissuesassociated with KFC food have diluted the trust people once had in them. It nowfaces anissue of catering to the changing needs of customer demands.Changing customer demandsSome international events badly affected the market of KFC in Pakistan like IRAQandAFGHAN war and we know KFC is American based. Therefore, it creates a great impacton the performance of KFC.Diseases like bird flu cause the decreases in sales because customers dont buy ch

ickenor chicken related products in fear of this disease.Increasing inflation rates directly affect menu prices. Government has also increased thesales tax from15% to 21% that has raised the prices of these products.GIFT Business School Page 3


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3.1 Competitive AnalysisThe major competition in Pakistan market faced by KFC is McDonalds. As KFC andMcDonalds offer similar type of products. A product offered by KFC is substitutea productoffered by McDonalds and vice versa.Factors that contribute towards a competition are:Price Value for money is a major factor; when one company changes its prices inanyproduct the other company has follow it to maintain its position.Quality of Food As both KFC and McDonalds are following their internationalstandards, therefore its not a major concernFlavors This is one major factor that contributes towards attracting customers.Different customers have different preferences.Outlets Number of outlets contribute towards market share which gives KFC an edge.Market ShareGIFT Business SchoolPage 3


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3.2 BCG Matrix.StarAccording to BCG Matrix, Management says that KFC is a star. The reason for thisis itshigh market growth and high market share in the Pakistani market..Question MarkAccording to BCG Matrix, all small outlets like HFC, AFC falls in the question mark,because of low market share in the fast food industry of Pakistan..Cash CowsOn the other hand McDonalds and Pizza Hut are the cash cows because of their lowgrowth rate and high market share. During past some years McDonalds and Pizza Huthave lost their market growth because of the fact that they could not provide the tasteaccording to the Pakistani culture..DogAnother direct competitor of KFC is Subway. According to BCG Matrix it is a dog.

Some of the reasons that are responsible for its low market share and low marketgrowthare the less expansion strategies being followed by the company. Secondly they are notfocusing at all on all the major cities.



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3.3 Competitive AdvantageThe competitive advantage of KFC is its position as the as the dominant firm. Itcurrently enjoys50% market share in Pakistan.

Firms competitive advantage can be divided into two categories:

Advantages based on the firms position and Advantages based on the firmscapabilities.

KFC has positional advantage from heterogeneity within the industry.

Other positional advantage includes KFCs brand name.

KFC has a largest number of outlets in Pakistan and they also enjoy economies ofscalethat is why they are able to generate more profits.

It also enjoys tacit nature of capability based knowledge because of its secretoriginalrecipe of fried chicken of seven herbs by Colonel.

It enjoys some advantages in defending itself such as reputation, economies of scale,cumulative learning, and preferred access to suppliers and channels.



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3.4 Sales AnalysisIn Rupees2010 2009 2008

Total Chicken Servedin KFC Restaurant

1.914 Billion 1.825 Billion 1.729 BillionAnnually

5.89 Billion 5.61 Billion 5.31 BillionTotal KFC ChickenPieces Sold Annually

8.9 Billion 8.49 Billion 8.04 BillionTotal Retail Sales

Above table shows that the total chicken served in KFC Restaurant Annually in 20

08 was Rs/

1.729 billion, and in 2009 it increases from Rs/-1.825 Billion. The increasing ratio was 5.35%.And in 2010 it jumps up to Rs/-1.914 Billion with the increase of 4.65%. The total KFC chickenPieces Sold Annually in 2008 was Rs/-5.31 Billion, Rs/-5.61 Billion in 2009 andRs/-5.89Billion in 2010 with the increase of 5.35%.Thus, the total Retail Sales of KFC in 2008 was Rs/-8.04 Billion, 8.49 Billion in 2009 and in2010 it increases from 8.49 to Rs/- 8.9 Billion with the increasing percentage o

f 5.35%.According to the management of KFC, their profit margin increases year by year.GIFT Business School Page 1


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3.5 PEST AnalysisThe Pest Analysis includes the political, economical, socio-culture and technological factors.These are described in detail as under.Political FactorsThe political factors include the government policies as KFC being a foreign company, but theyhave to obey the policies of the Government laid by the government of Pakistan,the countrywhere the business activities are being carried out. KFC has handled this situation very tactfullyand has obeyed the policies of the Government as prescribe by the government inorder to runthis kind of business. And the most important factor is the political instability. As in Pakistan,there are political crises faced by the government, these greatly affect the business of KFC.There are certain government regulations pertaining to the fast food franchise industry in

Pakistan. Some of the requirements include Halal food production and selling, Corporate SocialResponsibility, standardization checks, a test to prove quality before enteringthe market,renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous othercertifications, especially if operating on a large scale. . KFC complies with both of therequirements and provides Halal food and contributes to the local sales up to 95%.Economical FactorsThe economic factors includes the income of the people, KFC is going to target.Income is an

important economical factor of the KFC. This factor decides which class KFC is going to target.In the early time of KFC, they were focusing on the upper class but they after some timechanged their strategies and started to target the mass market by introducing some different kindsof meals and offers through which we can say that they target the upper middle &the upper levelas well. In Pakistan there is a mixed economy so private organization easily perform their taskswithin any given economic system of course, organization are influenced by a variety of



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economic features over which they have little independent control, such as inflation, interestrates and recession.Another important input to the enterprise is the nature of government fiscal andpolicies. KFC

pays tax properly. Moreover, the Government of Pakistan receives over Rs.10 million per monthfrom KFC Pakistan as direct taxes, and 95% of all food and packing material usedin KFCPakistan is procured locally, which sums up to a purchase of over Rs.35 millionper month. SoKFC plays an integral role in developing the economy of Pakistan.Socio Cultural FactorsCulture element includes the attitudes, values, norms, beliefs, behaviors and associateddemographic trends that are features of a given geographic area.Multinational company faces the challenge to understand about the culture of that country where

they work. To solve these problems KFC hire all employees of local area and nowit is easy forthem to understand about the culture of Pakistan. KFC management knows about that Pakistanis a Muslim country; therefore they use 100% Halal (Zibiha) chicken.KFC start their branches in those cities which are famous for food eating. Pakistani people likespicy foods, therefore KFC also provide spicy foods in Pakistan. KFC open its branches inadvance cities of Pakistan like Lahore, Karachi, and Islamabad/Rawalpindi etc. In these citiesmostly come out with their family because KFC mainly focus family.Technological Factors

The technological factors include the Pace of change at a fast level. Pace of change means rate ofchange. KFC has strategy to introduce new technology whenever they think that itis a time tointroduce new technology. Research & Development is also an important factor intheTechnological factor. KFC always support the work of research & development in order tointroduce the new technology. Capital formation means stock of machinery. KFC has a stock ofmachinery in order to run its business activities. In other words KFC has a goodamount ofCapital Formation. New techniques affect the quality of products and services in

better way.Technology is very important in order to compete with the competitors. Organizations have an



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eye on their competitors and also new techniques which their competitors used. Today the worldgoing fast and market is globalize, new techniques comes in production and servicesdepartments.Although KFC and McDonalds has same cooking machinery but KFC has efficient deliverysystem; they provide home delivery so quickly. KFC purchase machinery from Hanney Pennycompany, they are main suppliers of machinery throughout the world.



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3.6 Porters five forcesPorters five forces help to identify the key structural factors determining an industryscompetitive position in the market and its profitability. They highlight the strengths, weaknessesopportunities and threats along with their significance of the industry. Analysis helps tounderstand the current competitive position the industry occupies, animates positioning andclarifies areas of improvement. It will also help determine intensity of industry competition andthe forces impacting strategy formulation.Pakistan fast food Industry AnalysisKFC operates in the fast food industry. However, for convenience of understanding andapplication the group has carried out the analysis by considering KFC to be in two majorindustries, the first being fast food and the second being franchise. Hence, industry analysis is

carried out by taking the industry to be fast food franchise.3.6.1 RivalryNumerous competitors operating as fast food franchises exist in the market. Someof them areNandos, McDonalds, Pizza Hut, HFC, AFC, Go Chicks, Dixy Chicks, Cock n Bull, Hardees,Salt and Pepper and Subway. These continuously fight against each other for a better position inthe market. Rivalry among competitors takes place in the form of price competitions, advertisingbattles, product differentiation and increased customer services. Rivalry in fast food industry canbe measured by analyzing the following:

Number of competitors and sizeFast food franchise industry in Pakistan consists of large number of firms having largevariance in size and scale. Also, they differ a lot in prices, quality and service. So, theydo not have to monitor all the firms for their actions and they can make moves withoutthe risk of severe retaliation. However, few large players that compete againsteach otherhave resources for vigorous retaliation when some close competitor makes an importantmove. Hence, KFCs competition is restricted to the size of the competitor. KFC will

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McDonalds or Pizza Hut is doing. Fierce competition might result in the form ofvariousdeals and price cuts offered specially in burgers between McDonalds and KFC, butonthe whole rivalry in the industry remains moderate due to the existence of numerousplayers operating in various sizes.

Industry growthPakistans fast food franchise industry is still unsaturated and is in its growthphase.There is a lot of room for firms to enter and be profitable. As barriers to entry to theindustry as a whole are low, more and more firms as well individuals are entering in thisbusiness. For past few years the industry is growing at the rate of 10% annually. Forinstance, Subway successfully entered the industry a few years ago and now Harde

es hasalso followed suit. Due to industrys absorbent and unsaturated nature competitionforgaining market share is not bitter. Also, existing firms are increasing their number ofoutlets quite fast. Moreover, firms continue to introduce products and expand theirproduct lines, hence, entering the new markets and targeting the new set of buyers.Hence, because the overall profitability from the industry is high, the rivalryis not verybitter and everyone gets its share of profits without diverging into severe price-wars and

advertising battles. However, major players in the market, mostly equal in size,do getinfluenced by each others strategies and imitate quickly but that usually does not resultin price wars. The rivalry thus remains moderate.

High fixed and storage costsFor the fast food franchise industries the fixed costs are usually high due to the royaltycharges they have to pay to operate as a franchise. As for KFC, it takes the cooperationapproximately 40 million to open a new outlet. Similarly, for its close competit

ors thecosts are similar, as they are about equal in scale, size and operations. High sales,however, help these firms to earn sustainable profits. Storage costs are also high due toexpiry and quality issues. This also places pressure to increase sales hence increasingmarketing efforts and cutting prices which can drive profits low. Therefore, with the


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fixed and storage costs being high, the firms compete against each other vigorously whenstorage and expiry issues arise. In these cases they might even indulge in severeadvertising battles. Therefore, the rivalry increases. However, this is only thecase withsmall franchise businesses. The firms following quality standardize do not usually facethe problem of over capacity and hence do not have to incur costs of wastage ofstoragematerials. The rivalry overall remains moderate.

Differentiation and switching costsProduct differentiation in the fast food industry exists but is not quite high and generallythe products are perceived as commodities so their choice largely depends on price andservice so the pressure to ensure competitive price and service escalate. Also,

switchingcosts are quite low, as customers do not have to incur any cost for not buying from afirm. This industrys customers are characterized as highly price sensitive so they caneasily switch to a product that is like in quality and service but offered at lower price.Therefore, rivalry can become high. Competitors have to enter into price and advertisingwars to attract customers. However, this usually happens in small franchises whoareunable to differentiate their products either on price or quality or the by increasing the

product line. Larger firms including KFC, McDonalds, Hardees, do get influencedbyeach others techniques to attract customers but always try to differentiate rather engageinto bitter rivalry for a higher share, but, since competition is there, rivalrydoes exist. Onthe whole, the industry operates in conditions where rivalry is moderate.

Increasing capacity in large incrementsIn the mentioned industry, there are expiry issues so raw material is not purchased inbulk. KFC never purchases in large quantity that would result in overcapacity, b

ecause ithas set quality standards and KFC never compromises on that. Overcapacity can result inhuge wastage of raw materials because most of the raw materials are perishable.Hence,KFC do not face this issue so price cutting or chronic overcapacity is not a problem.Small firms like HFC might increase capacity, but in the long run they may suffer due to


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quality, health and accountability issues. Firms following strict quality standards whichthe multinationals in particular do, usually do not face the problem, thus the rivalry in theindustry resulting from overcapacity remains moderate to low.

Diverse competitors and high strategic stakes

There exist diverse competitors in the fast food industry as it consists of local franchisesto huge multinationals. However, they are operating for a primary goal of makingprofits.So, no firm will make a move that might harm profitability. And almost all firmsoperating in the industry are profitable and no one would be willing to sacrifice highreturns for some other reason. Apparently, no one is operating for some other strategicstake. This makes rivals to operate for single goal of profitability and hence t

heir actionsare not destructive for existing rivals. Therefore, KFC can easily make profitabledecisions. KFC competes directly with companies like McDonalds on products likeburgers and chicken variants. The products are the same, both provide fun mealsand playplace for children, both provide home delivery and both occupy prominent locationsthroughout the country. Rivalry thus among competitors is not bitter. However, both havedifferentiated these products on the basis of quality, taste, efficiency etc topositionthemselves. The strategies behind are different. Thus, the rivalry among them st

aysmoderate.

Exit barriers

Exit barriers are economic, strategic, and emotional factors that keep companiescompeting even in times of low profits. The exit barriers for a firm in the industry remainmoderate and so does the rivalry. Exit barriers can be explained as following:

Specialized assets & fixed cost of Exit



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KFC does not have highly specialized assets and the nature of assets are such that theycan easily be sold in the market. Therefore, it can easily sell its assets, as it purchases itsfixed assets from Hanny Penny from outside Pakistan, and a buyer will easily paytheprice to get these. Same is the case with other firms; assets usually do not create an exitbarrier.

Strategic interrelationships

It has high strategic importance as apart from fulfilling commitment of servingdelicious,fresh and hygienic food and at the same time provides customer with the ultimateentertainment; KFC also plays in the economics development of Pakistan. Also, ithas

relationships with other companies like K&Ns and Cupola. For K&Ns, as K&Ns claims,KFC makes its products more acceptable to people because of KFCs brand name andimage. Cupola runs KFCs franchises in Pakistan. Therefore, these strategic relationshipsmight make it difficult for KFC to leave the industry. Firms in the franchise industry,hence, do face an exit barrier as per strategic inter relationships are concerned.

Emotional Barriers

KFC has high emotional barriers as presently it has provided employment to

approximately 7000 individuals who will lose jobs in the case of KFCs exit from theindustry. So, management of KFC, or any other firm for that matter, might showunwillingness to make economically justified decisions due to loyalty to employees andfear for their own careers. KFC Pakistan is helping the people suffering from impairedhearing. It is helping them accelerate their career development, personal and professionalgrowth. Cupola does it by empowering the special persons creating role models for therest. KFC is providing a platform for the disabled youngsters of Pakistan. It strives to



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give equal training and promotion opportunities to the disabled based on merit and workperformance. So, all these emotional ties can make it difficult for KFC to leave.

Government and Social RestrictionsThis is a foreign country so government cannot impose any kind of exit restrictions onKFC and most of the multi nationals in business. However, economic effects willbenegative and people will lose jobs. Moreover, the Government of Pakistan receives overRs.10 million per month from KFC Pakistan as direct taxes, and 95% of all food andpacking material used in KFC Pakistan is procured locally, which sums up to a purchaseof over Rs.35 million per month. So, it might be discouraged to leave. However,there areno restrictions as such for KFC or any other franchise to exit the industry as f

ar as it doesnot have any loans it needs to pay back.3.6.1 Threat of EntryNew entrants will impose a threat to the existing players in the industry. Theseentrants may bepotential entrants of acquisitions and will bring new capacity and resources andwill layfoundations for enhanced competition for market share. These threats to entry are determined bybarriers to entry along with expected reaction of the existing competitors. As the barriers set bythe existing players increase, the threat of new comers to enter the market willdecrease.

Barriers to entryIf the barriers to entry are high the threat of entry is low. Here, we will be focusing on thebarriers to entry in fast food industry to which KFC belongs.Economies of ScaleEconomies of scale refer to reduction in unit price due to large volumes produced whichcan be a result of efficient production, marketing, purchasing etc. Although, when foodproducts are produced at large scale economies of scale occur as fixed cost is spread overlarge volume of products, however, due to the nature of the industry products these

economies are constrained by the volume of sales. Therefore, these economies ofscaleare no incentive for existing firms to keep new entrants away. Also, there are no by



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products that are produced to earn incremental revenues that means new entrant wouldnot have to face a cost disadvantage on this account. However, patents and establishedbrand names provide large economies of scale as these can be shared across all companyproducts. That means that new entry will only have to face disadvantage, if it wants toenter in direct competition with the established firms which are quite few in Pakistan.There exists no vertical integration across the industry but only few established firms likeKFC itself. However, this would not keep the entrants away as the industry allows a lotof flexibility for size and scale with which new entries can set up business. Inconclusion,economies of scale in fast food industry for established franchise business exists and mayserve as an entry barrier, and so contribute towards building a threat to potent

ial entrants.

Product Differentiation

Product differentiation means that established firms have brand identification andcustomer loyalty. In Pakistans fast-food franchise industry, product differentiation doesplay a role in the growth of a business. Potential entrants will have to differentiateslightly to capture the attention of the customers. It is hence not very easy toenter and

operate profitably. KFC has differentiated its products on the basis of Food, fun&Festivity, providing numerous variants of its special recipe in the form of chicken meals.It also offers various deals to differentiate its products from its competitors.Apart fromthe products it offers, KFC differentiates itself on the basis of the experienceit provides:the right chicken, the right place and the right celebration! Hence the emphasison we dochicken right. Seasonal discounts (Ramadan deals), sales promotions (Ufone, StandardChartered, and Bareeze), birthday parties, chicky area and events organized for

socialresponsibility (donations for SOS and FARYAD) are all ways of differentiating what itoffers. KFC also differentiates service in the form of the dine-in experience, take awayand KFC on Wheels. Thus product differentiation is a tool utilized by most businesses



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but not to an extent to enter a blue ocean. The core products offered by all remain moreor less the same; hence do not pose a high barrier to entry. Therefore, there isnot a highthreat to entry into the industry. Firms come in, differentiate slightly and runbusinesseswithout competing on product differentiation.

Capital Requirements

Capital requirements are the financial resources needed for investment to set-upthebusiness and to compete. It may also include R&D, human resource and marketing coststo differentiate and overcome brand loyalty of competitors. In this industry, capitalrequirements for entry are high because franchises usually require a lot of setup cost,specially the royalty they have to pay on land. Furthermore, for penetration in

the market,it might have to incur some amount on marketing and advertisement for not onlyawareness but differentiation. Thus, the capital requirements are huge: setup, plant andequipment, management and employees, suppliers, production, marketing and promotionetc. Therefore, the capital for entering the industry is a barrier to entry andposes a threatto new comers.

Access to distribution channels

Distribution channels include retail and wholesale firms that would help distrib

uteproducts to end users. In the franchise industry finding an appropriate place for therestaurant, sometimes becomes an issue, but mostly it remains at a low scale. All newentrants if they have the required capital and resources do find a place to settheirbusiness up. So, access to distribution channels cost for new entrants is low, however,established firms go to an extent of building their strategy on their distribution network.To come and grow as large as them is surely impossible, but to find a place in the market

as a newcomer is not very hard. Hence, the barrier remains low ad the threat high.

Cost disadvantages independent of Scale

Competitors might have cost advantage based on several other factors independentoftheir size and economies of scale:



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.Proprietary product technology: On the whole, the industry has got no producttechnology that would make a real difference in products offered or the way theyoffer. However, there exist some established firms that have patents for some recipes.For instance, KFC has a secret recipe.

.Favorable Access to raw materials: Raw materials for this industry include buns,bread, chicken, oil, flour, spices, vegetables etc. These materials are easily availablelocally. Their procurement is not a hard task.

.Favorable Locations: Fast food franchise market in Pakistan is still muchunsaturated and room for finding favorable locations is high. A glance at urban

areasof Pakistan and fast food restaurants located there shows that a lot of marketsare stillnot served. In other words there are enough people in urban Pakistan for anyrestaurant to survive. New entrants can easily secure for them a favorable location asshopping malls and markets continue to expand. Therefore, this barrier does notnecessarily serve as shield against new entrants. Entrants can easily enter themarketand find a favorable location for them.

.Learning or Experience Curve: Because this is food-based industry, the more you

cook the more you master it. Moreover, those who are serving in the industry forsolong have more experience about customers taste, buying behavior, switching optionsetc. than new entrants. For them, efficient production is easy; hence, unit costalsodecreases. KFC has experience of 13 years of serving in Pakistan and more thanseven decades in business. Moreover, it is the most experienced firm in chickenproduction. Therefore, experience curve might provide some barrier to entry anddecrease threat of entrants.

Government Policy



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There are certain government regulations pertaining to the fast food franchise industry inPakistan. Some of the requirements include Halal food production and selling, CorporateSocial Responsibility, standardization checks, a test to prove quality before entering themarket, renovation after every 8 to 10 years as mentioned per contract, tax dutyandnumerous other certifications, especially if operating on a large scale. In general, thisbarrier is moderate, since nearly all the companies in Pakistan produce Halal food andcontribute to some extent to the local sales; they also fulfill other requirements sinceentering the franchise industry. Therefore, entry is not highly difficult, and new firms canenter the industry making the competition fierce and increasing the threat of entry. KFCcomplies with both of the requirements and provides Halal food and contributes t

o thelocal sales up to 95%. Food and packing material used in KFC Pakistan is procuredlocally, which sums up to a purchase of over Rs.35 million per month.

Expected retaliationIn past, retaliation shown by established firm has been quite low. For instance,recententries like HFC, AFC, Subway and Hardees show the ease with which they entered.Also, no major moves against them have been observed from existing firms, because they

are already well established or reaping profits. No doubt, all firms will compete againsteach other to grab the better share in the market, but sever retaliation has notbeen usuallyobserved. Hence, expected retaliation is low and threat of entry is high.

Entry-deterring priceThe prevailing price structure of huge companies like KFC is a balance of the valueprovided with the associated cost. Entrants will either have to come up with a similarstructure, which suggests providing quality product for a high price. However, m

ostproducts already exist in the market and so anything provided by the entrant would haveto be well differentiated to motivate customers to pay the high price. Since KFChad inhouse baking facility and an efficient value chain network, it can afford to offer productsat a reasonable price; now targeting the middle class as well. In contrast a developing


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business cannot afford to offer similar prices for equally good products, hencewill suffera loss. The entry deterring price is thus high and imposes a major barrier to entry. Thethreat of entry hence becomes low.

3.6.3 Bargaining Power of BuyersKFC as a buyer or the customers of KFC can compete in the industry by forcing down prices ordemanding higher quality and more incentives. The following factors determine the bargainingpower housed by the buyers:Concentration of buyersKFC has a large customer base. Its revenues are not dependent upon the buying power ofa single customer. Hence, the customer buying power is low unless a major actionof thecompany causes distress to a group of buyers like the incident of opera coupons,where

the customers got upset by the non-functioning of the coupons and KFC has to reimbursethem along with a public apology. Buyers always hold sufficient power to bargainwiththe firm. However, if the customer base in large, the sales and profitability isnot affectedby retaliation by a small group. If the group is large however, the bargaining powerincreases.Price sensitivityThe population in Pakistan is price sensitive; people would rather go for similar productselling for fewer prices than buying an expensive one. Also, there are lots of a

lternativesto within and outside the fast food industry as a whole. While a brand loyal customermay pay whatever price KFC asks for a customer looking for just good fast food wouldgo to a place where his need is satisfied with the least amount of cost incurred. Hence,price sensitivity gives a lot of power in the hands of the buyers.Products are undifferentiated

Products in the fast food remain undifferentiated, as discussed before. Marketing effortshelp differentiate the products a bit and build brand awareness; it does not hel

p customers



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lock up with the firm as they can find similar products elsewhere. There are some firmsoffering a different range of products, like Subway, who have managed to differentiatetheir products from the rest of the industry, targeting the health conscious people.

However, if we talk only about KFC and other chicken specialists, the products remainmore or less the same. Taste, in the Pakistani market does matter, but the prospect is notstrong enough to stop people from switching. Everyone is willing to go and try food froma new comer. Therefore, as the differentiation itself, the bargaining power alsoremainsmoderate.Switching costs or substitution costsThere is no monetary cost associated with switching from KFC. As discussed earli

er,switching costs depend upon buyer behavior: their extent of price sensitivity orinclination towards preferred taste etc. Those emotionally connected with it might sufferswitching cost of psychological nature concerning their emotional attachment with thebrand. However, that does not necessarily decrease their bargaining power as they stillcan switch to other brand at their discretion.Therefore, the bargaining power of a single buyer is not much, but on the wholethey have gotbargaining power based on their buying behavior, price sensitivity and low switc

hing cost3.6.4 Pressure from SubstitutesSubstitutes are the products that can perform the same function as the industryproduct. For fastfood the substitutes are home-made-meals, ready-to -cook meals offered by Knorr,Mon Salwa,K & Ns Chicken and local vendors, other restaurants as they could choose anyone of thesefoods over fast-food. Moreover, increased health consciousness has lead people to switch fromfast food to health oriented food as offered by Subway or made at home.Switching costsWhen a customer switches from a product to its substitute, then he has to bear a

switching cost. If the cost is high then the probability of customer to switch will be low.In the industry, there is low switching cost as customers do not have to incur any



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additional cost to switch from a product. Therefore, there is increased pressureofsubstitutes because customers can easily switch from products on the basis of low prices.In the market there are numerous substitutes available for fast food. Firms likeK&Nsand Menu offer Ready-to-Cook meals. The long range of products offered by thesefirmsprovides best substitutes for KFC. In price sensitive market like Pakistan, products ofcomparable quality with low price attract customers. Same is the case with KFC;thesubstitutes available have low price, comparable quality and long expiry life than theproducts of KFC. Moreover, local restaurants and cafs also deal as substitutes ofKFC.Health and obesity issues keep rising which again push people towards healthy eatingand fast food is not considered to be one. On the whole, the switching cost rema

ins lowand pressure from substitutes high.

Buyer inclination to substitutes

Buyers have greater inclination towards substitutes because they are consideredhealthierand more health conscious people would rather move to other substitutes. KFC faces thisthreat, because it can lose its loyal customers as health consciousness and obesity issuesincrease. It has made efforts by advertising and launching its trans-fat meals which have

low fat content. Nevertheless, fast food remains as such and people refrain fromeating itespecially if advised by a doctor. The buyer inclination towards substitutes thusincreases, increasing the pressure from substitutes too.

Substitutes price-quality trade-off

Analysis of substitutes shows that most of the products have attractive price-qualitycombination. Also, range of products at different prices is available. Hence, price-qualitycombinations offered by substitutes may tend to motivate customers to shift, esp

eciallywith increasing health concerns. So, KFC has to face the pressure from the substitutesavailable in the industry it belongs to. Although, KFC claims that it provides qualitychicken based on secret recipe that no else has it, has already been replicatedto an extent,



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by its competitors. So, it can increasingly lose its customers due to above mentionedfactors. The pressure from substitutes hence rises.

3.6.5 Bargaining Power of SuppliersSuppliers of KFC include K & Ns, Pepsi Co, Hilal, Nescafe and bread and buns areproducedinternally. Marination is imported from California, India and Dubai. The suppliers withinPakistan can compete in the industry by raising prices or reducing quality of produced goods orservices.Supplier concentrationIn Fast food industry there are lots of suppliers available as the raw materialsneeded forthe end products are widely available across Pakistan. Firms can easily switch suppliers.Overall, supplier concentration of chicken in Pakistan is low, but drinks suppliers are

concentrated. So, the bargaining power differs across different vendor industry.However,KFC produce bakery products in-house. However, Suppliers of KFC chicken is K&Nsand drinks are supplied by Pepsi, in Pakistan. As for chicken other alternativessuch asZenith and Menu are there. KFC has to rely solely on Pepsi for drinks because there is noother quality supplier except Coca-cola that is the major supplier to McDonalds.Hence,the bargaining power of Pepsi is high. It is difficult for KFC to find an equivalentsupplier. However, both being multinationals benefit from each other. K & Ns too,being

certified for quality and Halal food possesses some bargaining power but optionsareavailable and in the case K & Ns is the beneficiary; to be associated with a hugecompany like KFC. Amongst all the suppliers, maximum bargaining power is with Pepsi,also it is strongest multinational. K n Ns come second. Recently, a firm is saidto launchwhich will provide chicken to the restaurants at a much convenient price than Kn Ns,and at the same quality. If the firm is successful, it might hurt the bargainingpowerwhich K n Ns possesses.



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Size of supplierIn industry there are suppliers of different sizes. Smaller the size of certainsupplierlowers the bargaining power of the supplier. Pepsi is huge and wont be affected if KFCstopped buying. KFC on the other hand cannot afford to let go of Pepsi, especially whenCoke is already serving McDonalds and various other competitors. Not that Coke willrefuse to supply to KFC, the firm itself will prefer to be different from its majorcompetition. KFC is major buyer of K&Ns which would not want to lose partnershipwith KFC, especially when new chains like Zenith and Menu are coming up. Also,affiliation with KFC makes it more acceptable to people. On the other hand, KFCdoesnot have an option to buy from a well known and certified chicken supplier. Zenith isnew and Menu is also not as large and popular as K n Ns. Thus, suppliers overall

dopossess bargaining power.

Uniqueness of service/ProductThe products and services offered by the suppliers are alike as the products they supplyare naturally produced that they do not produce artificially. So, the uniquenessof theproducts and services is not there. However, KFC have choice to buy from big chickensuppliers like Zenith, Menu and Knorr, they are not perfect alternatives for KFC

suppliers, because K&Ns have better standard and it is HACCP, it helps build KFCsimage as Halal, and it also got brand of the year award in 2009. All these factors make itbest for KFCs brand image. These factors can make K&Ns stand apart and give it somebargaining power. Pepsi too, of course, is unique in what it offers. Halal on the otherhand has no uniqueness in service. KFC could easily shift it for Knorr or National.Hence, the suppliers providing some uniqueness have more right to bargain than theothers.

Switching costs to KFC



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KFC faced the issue of not providing halal chicken some years back, which deterioratedits image. But due to its present supplier, K & Ns, which is largest Pakistan-basedcompany and known for best practices for slaughtering but also follow stringentqualitystandards has regained the trust of public. Indirectly KFC has based its halal chicken onK & Ns brand name. So, switching cost for KFC can be higher if it switches from K&Nsand even Pepsi, for both brands complement each other. These factors raise bargainingpower of its suppliers.

Threat of forward integration

Forward integration by suppliers can pose a major threat to the company to whichit issupplying, especially when not many alternatives are available. K & Ns can start

theirown restaurant and fast food chain. This may pose a threat to KFCs supply of chicken inPakistan and thus gives some bargaining power to the supplier.



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3.7 Value Chain AnalysisPrimary activities are the sequence of activities through which raw materials are transferred intobenefits enjoyed by customers. While support activities provide inputs that allow the primaryactivities to take place which in turn improve coordination across and achieve efficiency withinthe firm (Hill and Jones, 1998).

C.H.A.M.P.S. stands for cleanliness, hospitality, accuracy, maintenance, productquality andspeed of service. It is found that KFC has its core competence in its C.H.A.M.P.S. operatingsystem to ensure food quality, service standard to earn customers smile with more value,improved service and better facilities. In addition, by using Colonel Harland Sanders to build upits distinctive brand image makes KFC be one of the well-recognized brands in fast food

industry.Primary activities.Inbound LogisticsIn Pakistan to ensure the quality of products, most of ingredients of KFC are imported fromother countries instead of Pakistan. When the chickens have been seasoned, theywould betransported to the branches in a daily basis. Fresh ingredients are provided tothe branchesand hence it would ensure the quality of the food. However, outsourcing of logistic service, itmay increase the transportation cost and in turn would be added into the cost of

food. It leadsto an increase of the food cost.

.Operation

The foundation of KFC relationship with franchisees is built up by the partnership pact. Itstates that it gets franchisee inputs and involvement before decisions are made.It isalways mindful of franchisee economics in all it recommend by establishing clear,customer-based system performance standard and providing opportunities first and

foremost to its current partners. In order to ensure the consistent food qualityand servicestandard, it also builds a one system mentality at its restaurant support centers.



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KFC has a product excellence system to ensure quality raw materials, packaging,equipment and new products that delight customers. In order to ensure consistentquality,KFC also executes ingredient and equipment specifications. Food is freshly cooked andfried chickens that are not sold for more than 45 minutes would be withdrawn from saleto ensure the food quality. It also has its brand standard product designs, suchasdistinctive packaging of the Bucket of chicken. The system with clear instructedprocedures would effectively guide the staff to do operational work, hence it ensurequality consistence in each KFCs branches.

.Marketing and SalesBrand excellence system of KFC helps to ensure continuing high Yum! Brands monitors

and promotes the value of its brand in the market by clearly communicating thepersonality of KFC. By using animated Colonel Sanders to market the brand, it builds upa brand image of American style chicken expert in Hong Kong and adheres to its primaryconcept with friend chicken as core products. The slogan used is now We do chickenright and appears on poster advertising in newspapers and magazines. The websiteprovides KFC with an additional marketing avenue to promote KFCs extensive productsand specials on offer. The site will allow KFC to further strengthen its icon and continueColonel Sanders and the companys spirit and heritage. KFC also creates a discipli

nedpositioning strategy. It positions itself as an up-scale, eat-in and quick service restaurantthat targets customers from 16 to 39 years old with emphasis on young age groupincluding office workers and young executives. KFC usually advertise specific productswith consistent campaign to pull those products together. Integrated marketing strategieswould enhance effectiveness of promotion.

.ServiceKFC commits to delight every customer on every visit in every restaurant. For it

scustomers, it is obsessed to go the extra miles to make them happy. In order todeveloprestaurant excellence system, Yum! Brands provide supporting programmes needed torun a restaurant and satisfy customers. KFC has to follow global operating standards,

C.H.A.M.P.S. to define the restaurant excellence.GIFT Business School


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Support activities.ProcurementThe franchise agreement provides for buying approved equipment, service ware andthecooking spices from KFC approved suppliers. With Centralized distribution of foodpurchasing and ware provider, this gives KFC great strength as quality could beensured.Cost control could also be achieved as KFC purchases their supplies in bulk directly.

.Human resources managementAlthough human resources management is carried out on a decentralized basis forrecruitment and hiring operational staff, KFC does provide training for the managementteam. They would be hired in a centralized basis by the Head Office in Karachi a

ndLahore. KFC trains management for people planning process to identify and plan staffingand development needs. Restaurant human resources tool kit assists managers forhumanresources issues at restaurant level. The training program would provide practicalpractices and useful information to staff. It could ensure quality staff to provide qualityservices. In its mission, KFC believes in people, trust in positive intentions,encourageideas from everyone and actively develop a workforce that is diverse in style and

background. It celebrates the achievements of others, coach and support employees. Italso executes with positive energy and intensity within the company and stay away frombureaucracy. Team together, team apart indicates that it practices teamwork aftercollaborative debate. In each branch, there is a C.H.A.M.P.S board to recognizeemployees who are able to perform up-to-standard services.

.Infrastructure



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In order to assist the restaurant planning and management practices, KFC startswith astrategic analysis of the opportunity by market development strategic plan. KFCmapsdemographics to determine where to develop and identify restaurant locations and

provides asset management to determine the optimum concept mix and number oflocations. Construction and project management by Yum! Brand helps to design andbuild individual restaurants. With market development system of Yum! Brand, thatKFCwould try to locate in convenient location (Steele, 1996).1. Stakeholder Analysis1.1 Internal Stakeholders of KFCManagersManagers of KFC want the company to succeed Better chance of promotion. They know

that Successful Company may reward them by paying them higher salaries, giving them abonus, Better fringe benefits and if company fails they could lose their job.EmployeesEmployees of KFC want the company to succeed more likely to get better pay, chance ofpromotion, Better facilities. Because they know if the KFC fails, then company willthreaten their jobs, Freeze their pay, and possibly cut their wages.SuppliersKFC has numerous suppliers among which K & Ns supplies the major chicken to KFCand those chickens are further processed to serve into their chain of restaurantall over the

Pakistan. Proper steps and methods are applied to evaluate the suppliers and theirproducts as suppliers largely affect the overall operation and business of KFC.Suppliers



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must want the company to succeed to get more orders for them and more success for theirbusiness, as KFC is the suppliers main buyer of their chickens in huge mass.

1.1External Stakeholders of KFCCustomersCustomers do have a say in the working of the brand they are so loyal to. No companycan afford to lose its customers. Although, the customer base is huge and one singlecustomer does not have much bargaining power, KFC tries to listen to each and everybuyer via feedback and opinion cards. Mass customization is what KFC is trying to do tomake all customers happy thus it makes it a point to do whatever is possible tocater tothe needs of the customers. Customers continue to return to the KFC because of the good

quality and same taste of their food products. KFC has many fans and continue togo toprovide better customer services. KFC provides their customers best quality, goodservices and they always introduce innovative products to attract their customers. Thatswhy customers of KFC are loyal. KFC has high emotional barriers as presently ithasprovided employment to approximately 7000 individuals who will lose jobs in thecase ofKFCs exit from the industry.



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Government

Government is the external stakeholder of the KFC i.e. when a KFC business succeeds;the more profit the business makes the more taxes it pays. The Government of Pakistanreceives over Rs.10 to 11 million per month from KFC Pakistan as direct taxes. But if thebusiness of KFC drop off then workers are made unemployed. Presently KFC hasprovided employment to over 1200 Pakistanis, which adds up to approximately 6000individuals directly dependent on KFC Pakistan.



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1. RecommendationsProduct Differentiation

KFC faces a lot of threat from its substitutes, especially with growing health concernsamong its customers. Health and obesity issues associated with KFC food have dilutedthe trust people once had in them. Hence, the reason, substitute pressure is there. KFChas tried launching salads and promoted production using vegetable oil in the past inforeign companies. It should expand its product line and add variety into its served itemsto cater the demands of this market in Pakistan.KFC chooses differentiation strategy by emphasizing the preparation of food withhighquality ingredients as well as unique recipes and special seasonings to provideappealing,tasty and attractive food at competitive prices. As the diversity of products of

itscompetitors, it is suggested that KFC should provide more innovative food products inorder to gain its competitiveness in the fast food industry. It may increase thevariety ofmenu products and give customers more choices. Different packaging of its menu mayalso increase the variety of menu.So, KFC should try and differentiate its products on other lines than only chicken tocapture other segments in the fast food industry. Product differentiation in thefast foodindustry exists but is not quite high and generally the products are perceived a

scommodities so their choice largely depends on price and service so the pressuretoensure competitive price and service escalate. Also, switching costs are quite low, ascustomers do not have to incur any cost for not buying from a firm. This industryscustomers are characterized as highly price sensitive so they can easily switchto aproduct that is like in quality and service but offered at lower price. Productdifferentiation means that established firms have brand identification and customerloyalty. In Pakistans fast-food franchise industry, product differentiation does

play a rolein the growth of a business. Potential entrants will have to differentiate slightly to capture



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the attention of the customers. It is hence not very easy to enter and operate profitably.KFC has differentiated its products on the basis of Food, fun & Festivity, providingnumerous variants of its special recipe in the form of chicken meals. It also offers variousdeals to differentiate its products from its competitors. Apart from the products it offers,KFC differentiates itself on the basis of the experience it provides: the rightchicken, theright place and the right celebration! Hence the emphasis on we do chicken right.However, the entire positioning is based upon one single secret recipe which ifeluded byone of the competitors can cause serious damage to the brand. Therefore, the businessthough profitable is risky.Products in the fast food remain undifferentiated, as discussed before. Marketing effortshelp differentiate the products a bit and build brand awareness; it does not hel

p customerslock up with the firm as they can find similar products elsewhere. There are some firmsoffering a different range of products, like Subway, who have managed to differentiatetheir products from the rest of the industry, targeting the health conscious people.However, if we talk only about KFC and other chicken specialists, the products remainmore or less the same. Taste, in the Pakistani market does matter, but the prospect is notstrong enough to stop people from switching. Everyone is willing to go and try food from

a new comer. So KFC should do differentiation. They should also try the local desi tasteaddressing the desi food lovers, thus it will help to increase their market share.

Better communication channel

Lack of communication in the operation would lead to many problems. Inconsistency ofproducts and services may occur due to misunderstanding of different internaldepartments. It is therefore recommended that KFC should provide more communicationchannel for gathering opinion so as to improve the service quality. Daily briefi

ngs maybe held by branch managers in order to keep crewmembers knowing up-to-dateinformation in a timely manner about the operation, promotion and direction of KFC. Itmay help to improve the communication between marketing and operation and henceminimize inconsistency of service in the restaurant chain. Informal tasting of new



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products for employees may also help to gather opinion on how to promote the productsas crewmembers directly contact with customers. They may be the direct source togathercustomers opinion about products. It therefore may save marketing budget to promoteon unpopular menu items and concentrate on public accepted food products and inturnenhance sales.

Enhancement on value of product and servicesAs shown in the strategies of KFC, it tries to minimize the costs, the decentralizedtrainings for crewmembers, the bulk purchase of production ingredients and materialsand so forth. However, as the costs of food products are high, KFC may not be able todecrease price of its food products to maintain its competitiveness in the fast

foodmarket. In the other words, cost leadership is not a business strategy that it mainly takes.Instead of competing on price, it is suggested that KFC should enhance the valueandmaintain the quality of its products and services. Bigger portion of food may eliminatethe expensive impression for its products. Quality is always something that customerslook for. With unique recipe and tasty chicken as well as other innovative menuitems,KFC may have more sustainable competitiveness achieved by its differentiation strategy.

Adopt different pricing strategy to attract the customersPrice is always a primary concern for the customer; therefore, they should adoptcertainstrategy to attract the customers. And it can only be done by lowering the prices. It couldbe by introducing some discount packages for families, employees, students or regularcustomers. The membership card can be used to provide certain extra value to thecustomer. It can gain sustainable competitive advantage by either cost or differentiation.

If you have cost advantage you can cut your prices which will generate high sales volumeand this will ultimately result in higher profits. You can get cost advantage because ofeconomies of scale. If firm achieves differentiation, it can charge premium prices andgain higher margins.



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Environment friendliness

It can develop a competitive advantage for itself by introducing environment friendlinessconcept as it has been introduced in Northampton USA. The restaurant is designedtoenvironmental goals that include cutting energy and water consumption by 30% andreducing CO2 emission. Other than this is an effort to reduce its packaging by 1400 tons,KFC is now switching from cardboard to recyclable and biodegradable paper wrappingfor some its products. It can start producing its own biodegradable paper and reduce costdue to economies of scale.

Geographic Incumbency

As far as placement of the products is concerned, it is an important factor, for

a companyto increase its market share, by targeting the right customer. KFC needs to havemoreoutlets, at commercial areas. It will help to target the actual as well as the potentialcustomers. Mobile outlets may be an effective addition as well. Geographic incumbencycan be another strategy by which it can gain advantage. Pakistani fast food market is stillunsaturated and there are some urban an most of rural areas where there is no outlet toserve this need so KFC can use geographic incumbency advantage here and open upoutlets in these areas, fulfill the demands of this market and increase its mark

et share.

Promotional Campaigns

KFC has large customer equity, but being a market symbol, a company should strive forhaving more actual customers. KFC should work for having more solid marketingdepartments. They should organize and run the proper advertisement campaign. Itwoulddefinitely be an incremental factor for their sales. They can also use the brandpromotions. They can set up the promotional campaigns. All they need is an effective

marketing department to facilitate t he promotional activities.

Ways for gathering customer feedback



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As mentioned in marketing strategy, marketing team relies on customers feedback forchoosing their marketing promotion. Customers feedback means high sale volume andpositive sales revenue. It, however, may not reflect the positive customers feedback onsales. Whenever a new product is out in the market, it may lead to sudden salesincreaseof that particular product as customers may want to try something new. However,it maynot mean that the product is popular because product may be a fad. It thereforeissuggested that marketing team in KFC should carry out more comprehensive marketresearches on product development. Branch manager or public relation officers couldtake a chance to communicate with customers in the restaurant and collect theirfeedbacks on the products as well as services. To increase the response rate, coupons orother souvenir could be given to customers. Employees are always one of the sour

ces togather customers feedback. Informal meetings may be held for operation team in orderto gather the customers response on new products and services. It would lead to amuchmore clear direction for product development rather than keep introducing new productswith uncertain popularity.

Lack of Employee Training

Proper Training of Staff engaged in maintenance of service quality should be provided to

deal all such issues at local level. According to the manager, sometimes an issueregarding the services happens. At present they are not focusing on the trainingin theirsome outlets, so they should provide proper training to their employees becausein fastfood: the service is within the minute.

Defensive Tactics

Like every company KFC is also vulnerable to competitors so it can adopt the three types

of defensive tactics:

.Raising structural Barrier

.Increasing expected retaliation

.Lowering the inducement to attack


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.It can the raise the structural barriers by

1.Fill product or Positioning Gaps: They can fill these products gap byintroducing a variety in their menu. They should include healthy food asconsumers now a days are becoming health conscious. They can position theirproducts through advertisements by carefully selecting their target market andusing integrative marketing to fill the positioning gap.2.Defensively increase the scale of economies: They can increase their scale ofeconomies so that they can charge fewer prices to increase their sales volumeand achieve higher margins. Economies of scale help to take cost advantage.3.Defensively increase the Capital requirement: They can bring in moreinvestors and upgrade their outlets. Open outlets in markets which have yetnot been approached and take incumbency advantage there.4.

Foreclose alternative technologies: Its a technological era and technology canhelp you gain competitive advantage. They should find and implementalternative technologies to get cost advantage and do differentiation.Increasing Expected Retaliation by Establish blocking positions. (e.g.Price cuts) Price cuts can be done when you have cost advantage which can come from

economies of scale, Vertical linkages with the value chain of suppliers and channels ,geographic location and discretionary policies keeping in mind KFC.

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1.ExhibitsLoyal customersInteractive relationship marketingAdvantages of being a Multinational Organizationofu,customer focus and Increase delivery serviceThreatsCompetition from other international outletsEntrance of New competitorsHigh political instability/uncertaintyIncreasing inflation ratesHealth Trend away from fried foodsChanging customer demandsInternational events badly affectedDiseases like bird fluExhibit 1SWOT Analysis



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ModerategovernmentpoliciescostsoffHigh concentrationLarge to small sizeUniqueness ofproduct high tolowHigh switchingcostsHigh threat offorward integrationExhibit 2Michael Porters five forces



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Exhibit 3



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1.Referenceshttp://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+communication+problems+at+kfc/316329http://www.austrade.gov.au/Food-to-Pakistan/default.aspxhttp://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=92048http://paknet.net/expending-in-pakistani-food-sector/http://www.kfc.com/menu/salads.asphttp://www.kfcpakistan.com/http://www.jang.com.pk/thenews/investors/feb2003/if.htmhttp://www.psopk.com/media/news_detail.php?nid=96http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-Convention.htmlInterview with the Marketing Manager: Muhammad Kaleemwww.kfc.com



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Competing on the Edge, Strategy as the Structured Chaos by Shona L. Brown andKathleen M. Eisenhardt

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Kfc Proj Wrk

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