KFC is a world famous QSR brand of chicken. The company which was originally founded by Colonel Sanders is now a world-famous QSR brand and operates across 131 countries. Yum brands which also owns Taco Bell and Pizza Hut owns KFC. Now, KFC is operated mainly by franchisees. By the year end 2017, it had around 21.5 thousand restaurants running worldwide. Of all its restaurants, around 97% were being operated by the franchisees. Apart from fried and non-fried chicken items, the company also serves a variety of entrees and side items suited to local preferences and tastes.
The headquarters of KFC are located in Plano, Texas. KFC is also the largest source of revenue for the part brand Yum! In 2017, KFC alone earned a revenue equal to 3.1 Billion dollars, out of 5.9 Billion dollars. Revenues of Yum Brands declined from 2016 to 2017 which was mainly due to refranchising. Refranchising led to an estimated loss of around 1.1 Billion dollars in 2017. However, KFC is a very popular brand. It is the leading QSR brand in the chicken category. Read a SWOT analysis of KFC highlighting the strengths, weaknesses, opportunities and threats.
Brand equity is a main strength of KFC. In the QSR industry, brand equity can be a major strength, leading to higher sales and revenue. The customers want not just good quality food but also a nice customer experience and great service. KFC’s performance has been great in most of these aspects. The brand is well known around the world for its delicious chicken. The flavour of KFC chicken is the main reason behind its popularity as well as high level sales. Apart from good quality food, marketing and customer service have also helped the brand gain higher equity and popularity. QSR industry is markedly very high-level of competition and in this situation building brand equity is important for both attracting and retaining customers. KFC has retained strong focus on brand equity which has resulted in high sales and profits.
KFC is a global QSR chain. It operates across 131 countries where its restaurants serve chicken items both fried and non-fried as well as a variety of entrees and side items suited to local taste. Its number of restaurants around the globe has grown to around 21.5 thousand, of which around 20.8 thousand are run by the franchisees. A large part of the company’s revenue comes from the emerging markets which account for around 60% of its profits and unit count (number of restaurants). The brand continues to refranchise and grow its international presence. It plans to retain the number of company owned restaurants under one thousand. Global presence is a key strength and with a high number of outlets, the company’s been successful at acquiring high level sales and profits.
While in the past, KFC faced several complaints related to food quality, its focus in this area has grown. It has a large customer base which means a very large number of customers from around the world rely upon KFC. Apart from responsible sourcing, it has also focused on hygienic storage and other aspects of food quality both down the supply chain and inside the stores. Good food quality is an essential for the QSR brands. It is because apart from being well informed, the customers are now increasingly health conscious and want only good quality food in their plate. They are interested in knowing how and where the food is sourced from, how it is cooked and kept inside the stores. QSR brands have to maintain higher transparency and apart from customer’s preferences, food quality is also a priority for them. KFC has managed its supply chain well. While a few issues have still come to light in the recent years, overall the brand has been able to manage food quality successfully to a large extent.
Customer service is now increasingly important in the context of business. Apart from products/services, customers are also careful about the kind of customer experience brand offers. It is why not just KFC but its major competitors including the leading QSR brands like McDonalds and Burger King are all focusing on improving the customer experience by providing very good customer service. KFC has also kept the level of customer service high. Apart from good looking interiors of restaurants, it has trained its staff well to provide very good service. The overall result is impressive sales and profits due to high popularity.
Innovation has become more important than ever in the QSR industry and apart from using technology for a better customer experience as well as marketing, sales and supply chain, menu innovation has also become important for customer retention. Yum, the parent company of KFC spent around 22 million dollars on R&D in 2017. Apart from other things the brand is investing in digital technology as well as marketing. It has also improved its menu a lot, making it more diverse and attractive.
– High calorie menu –
Today’s customers are quality and health conscious. They do not just want good quality food, but low calorie and hygienic food. It is why brands have to spend a lot on maintaining transparency in the supply chain and on hygienic storage. However, KFC is a brand of chicken recipes and while it can maintain transparency, controlling the calories is the most difficult part. The result is that a large number of customers are gravitating towards brands that serve low calorie food. This could result in lower sales and profits for KFC.
Supply chain and logistics troubles:-
Managing a QSR brand operated mainly through franchisees can be difficult. Apart from the supply chain and business management related issues, other issues too can crop up from time to time. Recently, KFC had to face heavy chicken shortage in UK which was because of problems down the supply chain and logistics. Apart from investing in technological innovation for the supply chain and digitalizing, KFC needs to ensure that the suppliers and logistics partners are doing their part well. Otherwise, problems in supply chain and logistics can cause heavy losses and hurt reputation.
Marketing innovation –
Marketing is a key focus area for the QSR brands which is because of the growing competition in the industry. Apart from a large number of international QSR brands, several local brands are also competing for market share. The result is that the companies have to invest a lot in marketing. In 2017, Yum, the parent company of KFC invested around $245 millions in advertising. However, while marketing has evolved a lot the brand has great opportunities to manage the customer experience and promotions better. Several latest technologies including AI are helping brands manage their marketing strategy better. KFC must invest in the latest technologies as well as the digital channels of promotion for promotions and user engagement.
Customer Experience :-
Customer experience is now a most essential part of the marketing strategy of brands. Even for QSR brands it has become as essential as the core product. KFC can also focus on customer experience and invest in technology to provide more differentiated and better customer experience. This will not just increase the demand and popularity but also help with customer retention and make the brand grow faster. Apart from AI and digital technology, there are more which can be used for a better customer experience and higher customer engagement.
Logistics Management :-
Technological advancement has brought several new opportunities for the QSR brands in terms of supply chain and logistics management. Recently, KFC faced severe shortage of chicken in UK for the lack of good logistics management. KFC must use latest technologies for managing its supply chain and logistics better. Investing in these areas will ensure continuous supply of quality raw material and help KFC run its business more efficiently.
Competition in the QSR industry is growing leading to higher pressure related to marketing and sales on KFC. Apart from rising operational costs, heavy competitive pressure can also cause the sales and revenue to fall. Not just in US, but in the emerging markets too KFC is facing heavy competition from the rival brands.
Regulatory pressures in the QSR industry have increased and compliance costs can increase the operational costs of a brand. Apart from health concerns, there are other areas too where the pressure related to laws and regulations is higher. The QSR brands are being forced to adopt higher transparency while they are already under pressure due to a complex web of laws like the other businesses.
Rising operational costs:-
The operational costs of KFC have been on rise for several reasons including rising costs of raw material and labor. While the company has refranchised a large number of restaurants, its operating costs have remained high. Its operating expenses were around 3 billion dollars in 2017. The company has more than halved the number of owned restaurants from 2016 to 2017. The number of company owned restaurants has come down to 668 from more than 1400. However, this has reduced the operating expenses by only around 1.5 Billions. Apart from costs of raw materials and labor, marketing and increased competition are also adding to operating expenses.
Economic fluctuations also hurt the business and its profits. Currency fluctuations and economic turbulence in major markets can cause loss of sales and reduce profits. A stronger dollar is already affecting the profits of the international QSR brands.
KFC is a leading QSR brand with a global presence. Owned by Yum brands, KFC was founded by Colonel Sanders. The brand has grown into a famous QSR brand with operations in 131 countries. KFC is the leading source of revenue for Yum. Its presence in emerging economies has grown which account for around 60% of the brand’s revenue. One key thing about KFC to note is that around 97% of its restaurants are operated by franchisees. Now, there are more than 21000 KFC restaurants globally. While KFC is a strong brand, it also has several challenges before it. The company is facing intense competition from the rival QSR brands. Rising operational costs and regulatory pressures are also making the situation challenging. To find faster growth, KFC must invest in marketing and latest technologies to manage customer experience better.
Yum Brand Annual Report 2017.