Strategic Analysis - YUM! Brand

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Transcript of Strategic Analysis - YUM! Brand


YUM! By Travis BookMarch 19, 2013

ContentsI.Core Problem / Issue3II.SWOT Analysis3A.Strengths3B.Weaknesses4C.Opportunities4D.Threats4III.Alternatives5IV.Recommended Strategy6A.Phase 1 : Now6B.Phase 2 : 1 3 years7C.Phase 3 : 3+ years7V.Appendix A : McKinsey 7-S Framework8A.Strategy8B.Structure8C.Systems9D.Shared Values9E.Style10F.Skills11G.Staff11VI.Appendix B : Financial Ratios11A.Liquidity11B.Asset Management12C.Capital Structure12D.Profitability13VII.Appendix C : Macro Forces14A.Economic14B.Political / Legal / Regulatory14C.Social / Demographic15D.Technological15E.Ecological15VIII.Appendix D: Porters 5 Forces16A.Rivalry16B.Barriers to Entry16C.Substitutes16D.Supplier Power16E.Buyer Power17Bibliography18

1. Core Problem / IssueSince Pepsi divested YUM! Brands from their operational strategy the company has had to manage the 4.6-billon dollars of debt and reinvent itself to assure that its brand identity is strong and growing. They are a company that is trying to define how to operate and provide products to feed the world in a competitive global landscape. At the point of divestiture the company was generating a significant amount of their revenue from their international markets. In 1997 approximately 20% of the companys profits came from international operations. (Siegel & Poliquin, 2012, page 1). The core problems facing Yum! Brands consist of the following: 1) How should the company continue to grow and gain new market share in other countries, 2) Properly evaluating the next market that will emulate their success in China and allow them to leverage their standardized business process and capitalize on the first mover advantage in new markets, 3) Continue to develop a strategy that enables the company to implement new product offerings, such as Taco Bell, in the Middle East, and 4) The continued execution and development of their existing international markets, which is driven mostly by their strong position in China and implement a strategy that will capture new market share domestically.SWOT AnalysisStrengthsYUM! Brands has done an excellent job in building shareholder wealth after the divesture form Pepsi. They have been very successful at establishing a strong, identifiable brand and position worldwide. In addition, the emerging countries continue to increase their appetite for fast service restaurants and industry consumption continues as new markets and products are launched. A successful company in a growth driven industry along with vibrant culture will make YUM! Brands a great employer. Other strengths include the following: YUM! Brands has articulated a clear, defined root strategy and operational strategy. They have successfully executed their root strategies through operational and organizational strategies using standardization to generate efficiency. They have strong product development allowing for continued growth in existing and new markets. A system of strength is their standardized operational message CHAMPs (Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed) (Siegel and Poliquin, page 5). Strong leadership program throughout the company has provided consistency. Financially, the company has strong earnings and continues to maintain a strong profit margin. They do an excellent job utilizing their assets and generating revenues WeaknessesThe company competes with very strong competitors in highly competitive markets both domestically and internationally. Though the company has a great deal of strengths, the company also has areas of improvement in an industry that is constantly evolving based upon consumer taste, price and health impact. Other weaknesses include the following: Strong leadership is important to a companys success but it can result in an autocratic style. The company declining market share domestically and lack of innovation to address the issue. Continuing to develop and manage the required human capital to encourage product innovation to adjust to changing consumer tastes in their international markets. Though the company is strong financially, they could do better in collections of accounts receivable and increase inventory turnover. Though low leverage of debt is good, it can also been seen as an opportunity to expand operations and increase revenues. Overleveraged could hinder strategic flexibility and limit future growth opportunities Underperforming Brazil markets. OpportunitiesThe biggest opportunity for the restaurant industry is that there is emerging economies and growing middle classes all across the world. This allows for a company that can capitalize on the first mover advantage to consistently grow their revenues. The key in taking advantage of this opportunity is understanding consumer taste and preferences, and translating this knowledge into product offerings that satisfy the evolving consumer need. Other opportunities include the following: Finding the next China. Consumer demand for other product offering in their established markets (i.e. China). Consumer demand for products in other emerging economies and additional offerings generated from market specific innovation (Middle East, Brazil and Africa). Continued operational efficiency, innovation from their large workforce, leveraging new countries presented issues related to their business model. Continued implementation of CHAMPS system to differentiate its customer service to build stronger global brand. Continued development of promotional programs that build Brand Loyalty. The restaurant market has high barriers to entry and leveraging this to continue its global expansion. Strong power of supplier of raw materials.ThreatsThere is currently a lot more pressure on industries that contribute negatively to public health care costs to be more transparent and conscientious with regards to the ingredients and the products they are offering domestically. There should be a concern and understanding that this could become a worldwide trend that could drastically affect revenues in the future. This idea has been supported by recent research and government reports on the increasing epidemic of obesity and diabetes in America. This has resulted in many governmental agencies considering steps to prevent and reduce consumption to prevent rising health care costs. Other threats include the following: Local, State, and Federal regulations and taxes to reduce consumption in the U.S. Changes in the Local regulatory environment that could enact regulations that limit the type of food consumers eat. Potential Federal and State fat tax to provide for increased state health care costs. Continue negative press on obesity and diabetes. Negative press regarding the health and ingredient quality of the products offered. Restaurant industry has a lot of substitutes, at which there are low switching cost. Not being able to control input costs and commodity prices could have operational impacts and affect their contribution and profit margin.AlternativesGrowthIn an industry that is very competitive and is going to continue to be due to emerging economies and economic stability, YUM! Brands must consider growth as a primary strategy. Growth may not be in existing markets but mostly in international. The company could look at an inorganic growth model and acquire more restaurants in the targeted countries to assure first mover advantage. The company could also purchase a domestic competitor to grow and eliminate the declining revenue in the united state. Another long-term growth strategy would be to develop popular product offerings that could be offered at grocery stores. This would be a product where the consumer could purchase and eat products in the comfort of the their home, and the product would be opened to a less capital intensive retail channel that is currently in existence. Status QuoStatus Quo would consist of only continuing to expand internationally, looking at ways to continue to cut costs both variable and fixed. The company would continue to offer the same products in the United States and not implement any innovation or inorganic growth to acquire additional market share. Also YUM! Brands would not address the recent changes in the political and regulatory landscape and or they would not concern themselves with a strategy that addressed the risk of regulatory agencies limiting consumption of unhealthy products. They would effectively stay true to their original root and operational strategy and continue to build their brand with the existing unhealthy products. This could present concerns with their public relations campaign since these foods have been linked by research to obesity and diabetes. Although this would be considered Status Quo, I am not sure that it would be a very successful option. A deviation of this option would be for YUM! Brands to remain in status quo centered around their root and operational strategies but continue producing their unhealthy products and also provide small selection of alternative healthy products. This will place the onus on the consumer and the market to decide if the they want to pay for the healthy alternative. This will prevent the company in having to revamp their menus and product offering. Also continue to evaluate their current position in the United States and reduce risk buy transitioning into the Franchise business model. CombinationA combination approach to strategy would include adopting a status quo around their current brand growth strategies in China in the short-term while reviewing the opportunities to grow into grocery products that can increase exposure and brand recognition. After achieving short-term status quo and implementing mid-term growth strategies, they could then develop and launch healthy product offerings in all their locations domestically to appease the political pressures. Recommended StrategyPhase 1 : NowThe first phase of implementing a recommen