internal and external business environment of two fast food giants, McDonald's and KFC. The major sections of the paper include introduction to the companies; the competitive analysis of the fast food industry using five forces model; the Balanced Scorecard and SWOT analysis of the companies; and a set of recommendations in the light of these analyses.
The purpose of this paper is to present an analysis of the Global fast food industry using Michael Porter's Five Forces Model and then evaluate the past, current, and projected performance of two companies from the industry using Balanced Scorecard approach. The paper also presents SWOT analysis of the companies and recommends strategies which can help them in moving forward in the industry in a more competitive and profitable way. The companies selected for this research paper are McDonald's and KFC which are the top market leaders in the Global fast food industry. McDonald's is the number one brand with respect to customer base and market share whereas KFC enjoys the market leadership in chicken restaurant chains.
The paper starts with an ample introduction to both these companies and proceeds by discussing the competitive environment in the fast food industry using Michael Porter's Five Forces Model. After analyzing the business environment, the paper presents an analysis of the companies' past, present, and future performance using Balanced Scorecard. The four major areas where these companies focus are: customer services, internal business processes, learning and growth, and financial performance. This analysis is followed by SWOT analysis of both these firms which can help them in evaluating the core strengths and major weaknesses in their internal business processes as well the potential threats and opportunities in their external business environment. These companies can use their strengths to avail the potential opportunities, overcome the weaknesses, and encounter the possible threats which can impact its business operations and profitability in a negative way.
The final section of the paper recommends strategies to both these firms which they can use to beat the competition from both direct and indirect competitors and grow in the industry in the most tactful and effective way. The research paper concludes by summarizing the whole discussion and the recommended strategies for these companies.
McDonald's is the world's leading fast food chain currently operative with more than 34,000 restaurants and outlets in 119 countries. It is an American multinational corporation headquartered in Oak Brook, United States. Since its inception, McDonald's has spread its business network in all the potential markets of the world. At present, McDonald's enjoys a huge customer base with an average serving of 69 million customers every day (McDonald's, 2013). McDonald's is ranked among the top fast food brands in the world which have established their strong brand image through highest quality products and highly efficient customer services. The major products offered by McDonald's include hamburger (Big Mac), Chicken McNuggets, Quarter Pounder, chicken sandwiches, French fries, soft drinks, soups, desserts, milkshakes, breakfast items, coffee, and salads. McDonald's currently employs more than 1.7 million people in all its outlets, restaurants, production units, and offices around the Globe (About McDonald's, 2011).
McDonald's has grown its business network through self-ownership and franchising agreements. More than 80% of the McDonald's restaurants and outlets are franchised to private businessmen from the local and international markets. It is the world's largest and the fastest growing drive-through and counter service fast food restaurant chain. Since its expansion into the Global market, McDonald's has introduced a large variety of fast food products in order to meet the consumers' expectations and keep itself innovative and competitive in the industry. McDonald's has implemented the latest plants and machineries at its production units and the most advanced enterprise management systems in its offices like inventory management, customer relations management, strategic human resource management, etc. McDonald's is also the winner of various quality and favorite brand awards and recognitions at International levels (McDonald's, 2013).
2. KFC (Kentucky Fried Chicken):
KFC (Kentucky Fried Chicken) is a multinational chicken fast food restaurant chain. It is operative with more than 17,000 restaurants and outlets in 115 countries. KFC is the subsidiary of Yum! Brands -- the leading brand in the Global restaurants industry. It was founded in 1930 by Harland Sanders in North Corbin, Kentucky. The operational headquarters of KFC are situated in Louisville, Kentucky. KFC operates with a total workforce of around 190,000 employees. The successful expansion of KFC in the Global market can be attributed to its continuous growth strategy which enabled it to expand its business operations internationally with a rapid pace through franchising and licensing. The main product offerings by KFC include fried chicken (drumstick, breast, thigh and keel, etc.) and its different variations like chicken burgers, chicken wraps and sandwiches, crispy chicken strips, French fries, as well as other fast food products like salads, coleslaw, soft drinks, juices, and desserts. The most successful product of KFC is pressure fried chicken pieces which are made with original recipe seasoning mix (KFC, 2013).
KFC is ranked number one in the list of chicken restaurant chains in the world whereas number two in the overall fast food restaurant chains after McDonald's. It is also one of the most liked food brands in the world. The takeover of KFC by PepsiCo International gave it a competitive advantage as well as various strategic benefits like extensive supply chain and distribution network, strong brand image, and financial support by a large beverage supplier. Like other top fast food brands in the world, KFC also relies on private investors for its business expansion strategies. Currently, more than three-fourth of KFC outlets and restaurants are run by private businessmen from the home and Global markets (KFC, 2013).
Michael Porter's Five Forces Model for the Global Fast Food Industry
The Five Forces Model of Competition was presented by Michael Porter which helps in analyzing the competitive environment in a particular industry. Companies use this model to analyze the intensity of competition in their industry and design their operational, financial, and marketing strategies accordingly. The five forces analyzed in this model are: rivalry among existing competitors, competition from new entrants, threats of substitute products, the bargaining power of suppliers, and the bargaining power of customers (Kotler, 2010). These forces are now discussed for the Global fast food industry in the following section:
a. Rivalry among existing Competitors:
The Global fast food industry is concentrated with a few large fast food giants and numerous small scale fast food manufacturers. The top market leaders in this industry are McDonald's, KFC, Pizza Hut, Wendy's, Burger King, Starbucks, Dunkin Donuts, and Yum! Brands. The industry is dominated by McDonald's and KFC with the highest market shares and customer base. These top brands are famous for the menu variety, quality, and taste of their products (KFC, 2013). The industry has a perfect competition where a large number of small scale manufacturers have also taken a significant portion of the total market share. The top market leaders like McDonald's, KFC, and Pizza Hut are pursuing growth strategies in order to maintain their market position and remain in the row of top Global fast food brands (Blythe & Megicks, 2010).
b. Competition with New Entrants:
The fast food industry has a perfect competition with very low barriers to entry for new entrants. Therefore, more and more businesses are entering this industry to become famous and develop their brands. These new entrants are direct competitors for the existing industry leaders. They use different marketing tactics to attract potential customers like low price strategy, discounts on special events, free coupons and memberships, etc. (Kurtz, MacKenzie, & Snow, 2010). These new entrants get successful in snatching potential customers from the market leaders by offering their products according to the lifestyles and eating habits of these customers. McDonald's and KFC are able to beat this competition from new entrants on the basis of their product quality and extensive distribution network. However, they are unable to win the price war with these new entrants due to their high manufacturing costs and premium-priced products (Pride & Ferrell, 2012).
c. Threat from the Substitute Products:
Although McDonald's, KFC, and other market leaders offer an extensive range of fast food products; there are various other products which can be used as substitute against these products. Therefore, these market leaders also face an indirect competition from these substitute product manufacturers. For example, McDonald's offers milkshakes and soft drinks which have to compete with Starbucks, Coca-Cola, Pepsi, and other well-recognized brands (McDonald's, 2013). Similarly, KFC's pizza and fried chicken range competes with numerous local and global fast food brands which offer fried beef, beef burgers, vegan pizzas, etc. (KFC, 2013).
d. The Bargaining Power of Suppliers:
Suppliers are one of the most important stakeholders in the fast food industry. They provide the necessary raw material like wheat, chicken or beef meat, oil, vegetables, and other ingredients which are used in the production processes. However, due to the presence of large number of fast food manufacturers,…