Kfcs Business Expansion Strategy Over

KFCs Business Expansion Strategy

Over the last several years, KFC has been engaging in an aggressive marketing strategy to rebrand its image and help maximize profits. Where, the company has been trying to shed the conservative, unhealthy persona they have created in the past and are focused on showing themselves as: hip, young, affordable and healthy. Evidence of this can be seen by looking no further than, the company President's attempt to rebrand the image. Where, sales have remained stagnant for the fast food chain between the 1970's and the 1980's. To fix this problem, Gregg Dederick (KFCs President) implemented a new strategy that would redesign the image of the company. This would involve changing the focus of the product lines and redesigning the different stores, to transform the overall atmosphere for customers. To achieve this objective, Dederick would completely scrape the old model that had been used and began implementing radical changes at company stores to include: offering new products on the menu, redesigning the outside / inside of the stores, improving service and redesigning the image of the Colonel. (Horwitz 2005) This is significant, because it shows how KFC has been aggressively redesigning their business model, to adapt to changes that are taking place in the food service industry. Where, executives have been attempting to augment the strategies that were utilized in the past, with these changes, to provide a unique product and experience to customers. An example of this can be seen, with the company trying to build off of the international exposure, it created when it first opened location in Australia in 1968. This strategy proved to be effective, as the company would be able to diversify its businesses outside of the United States. (Dixon 2002, pg. 134) As a result, the company has been aggressively embracing strategy of opening a number of different locations around the world. Where, they are focused on those markets that can deliver high amounts of growth, to the company's overall bottom line. In China, the economic growth that is being seen, has presented KFC with a unique opportunity to aggressively expand into these markets. Where, company currently has 1,400 stores and they have seen 50% growth, every year for the last 18 years. (Liu 2008, pg. xxi) This is significant, because it shows how a shift is occurring in the business model of KFC. Where, they are more focused on redesigning their image, to help increase the overall profit margins of the company. Yet, when you look a little further, it is obvious that the company has been focusing the majority of their efforts, on increasing their overall profit margins in China as much as possible. To understand the full implications of this strategy requires conducting a literature review that will examine: existing business strategies, strategies that are used in the Chinese market, an examination of the food service industry in China and the historical contexts for KFC. Together, these different elements will provide the greatest insights, as to how KFC is adapting their business model to reflect the changes that are taking place.

Literature Review

To determine the how KFC is adapting their business model for the Chinese market requires looking at: existing business strategies, strategies that are used in the Chinese market, an examination of the food service industry in China and the historical contexts for KFC. These different elements are important, because they will highlight the strategy that has been utilized by the company in the past and what they are doing to address these challenges. Once this takes place, it will provide a basic background as to the overall growth strategy that the company is using, to increase its levels of profitability in China.

Existing Business Strategies

Boone, K, 2010, 'Global Business Strategies,' Contemporary Business, Wiley, Hoboken, pg. 128

In this piece of literature, the author discusses the impact that standardization is having upon a variety of multinational fast food corporations. Standardization is when a company will sell the same products through a variety of markets. For example, McDonalds uses standardization to sell an assortment of the food and beverage products around the world. Where, they will sell the same products in China and the in United States such as: the Big Mac. This is a common formula that is often utilized by all of the fast food chains, as they are seeking to take the basic strategy that worked for them and duplicate it around the world. The problem with using this approach is: that tastes will change from one culture to the next. To account for these differences, most fast food restaurants will adapt their menus for the various countries and regions that each restaurant is located in. Evidence of this can be seen by looking at some of the menu options for KFC at their restaurants in China, with the company offering a number of different products that are geared towards local tastes such as: spinach, egg and tomato soup. This information is important, because it highlights how KFC has adopted their existing business strategy to the culture and traditions of the country each restaurant is located in. This has allowed the company to be able to incorporate the standardized menu with local tastes and customs. Once this takes place, is when the company can be able to increase their overall profits by encouraging consumers to try both. Where, many will enjoy the local foods that KFC is selling. Then, over the course to time, many people will begin to eat the standard menu with the local dishes that are sold. This allows the company to see an increase their overall profits, by adapting the menu to the customs and traditions of each county.

The information from the source is useful, because it provides insights, as to the overall existing business strategy that is being utilized by KFC. Where, the company is adapting its menu to: the tastes and customs of the countries of each country that restaurants are located in. This is significant, because it can be used to highlight the strategy that KFC is taking to increase profit margins in China. Where, they are combining the traditional menu with local foods, to increase the exposure and popularity of the restaurant. At which point, they can begin building the brand in a particular country. In the case, of China this strategy has been used for many years, to increase sales and profits.

Ireland, R, 2007 'International Strategies,' Understanding Business Strategy, Thomson, Mason pp.195 -- 196.

In this piece of literature, the author discusses why a variety of companies will utilize various forms of standardization with their business model. This is because they are trying to reduce their operating costs, by using standard procedures and strategies. In the case of fast food restaurants, this means that the menu will often follow a standard format, for a variety of restaurants around the world. However, this problematic because it is taking a one size fits all approach when it comes to consumer tastes. At the same time, many different slogans that worked effectively in one market, may not work in another. A good example of this can be seen with the KFC slogan, "Finger licking good." In the North American and European markets, this would be effective at describing the tastes of the different products. However, in China the translations would mean, "Eat your fingers off." Given the fact that the company is not trying to instill this image upon Chinese consumers, means that they would need to rephrase their slogan, as it could be seen as offensive or turn off. This information is significant, because it highlights how the KFC and other fast food restaurants must: customize their marketing materials along with the way they present the restaurant. Where, these perceptions are having a dramatic impact on profits, based upon the image that they are trying to instill in the minds of consumers. As a result, the company will often utilize strategies to maintain this favorable image, by customizing how the company presents itself.

The information from this source is useful, because it highlights another reason why KFC will customize their business model to each country. Where, they want to instill the right image and the correct message in the minds of consumers. As a result, they will adapt the way the restaurant presents itself, to have the greatest impact possible in each country. This information is significant, because it highlights the existing strategies that are currently being utilized by KFC in China. Where, they will customize the overall approach to have a positive impact upon consumers. As a result, this information could be used with the previous source that was discussed, to corroborate the current business strategy that company is using.

Business Strategy

Liu, W. 2008, Business Strategy, KFC in China: Secret Recipe for Success, Wiley, Singapore, pp. 37- 38.

This source discusses the various strategies that KFC was using in China to include: rapid expansion. The idea was: that as China was growing the company could be able to open new stores as quickly as possible, to seize upon the increasing number of consumers, who were benefiting from rapid expansion of the economy. Where, their focus was on streamlining the construction and the permit approval process, by establishing good contacts with local individuals. This would allow KFC to quickly construct a number of different restaurants throughout China. As they would grow, from: just one store in 1987 to opening it 1000th store in 2005. This information is important, because it highlights how the underlying business strategy that KFC would use in China (rapid growth), helped the company to become a major fast food chain in this newly developing market. Where, the faster they would open restaurants, the greater their profits would increase.

The information from this source is useful, in establishing the basic strategy that KFC was using in China. Where, once they had found a business model that would work for this market. They would quickly begin opening a variety of restaurants around the country. As a result, this information can be used in conjunction with other sources, to highlight how the business model was customized to China. Where, the company would figure out how to make the business model work with the first store. Then, once they had determined out how to maximize profits, is when they would begin opening stores as quickly as possible.

Liu, W. 2008, Developing a Structured Approach to Restaurant Growth, KFC in China: Secret Recipe for Success, Wiley, Singapore, pp. 38-40.

In this piece of literature, the author discusses the overall business strategy that was utilized by KFC in China. Where, they would concentrate on establishing a distribution center outside of the major cities. The reason why, is because placing them in close proximity to the various cities, would allow these centers to be resupplied quickly and they would serve as the support center, for all of the stores that would be built within a particular area. At which point, the various restaurants would be constructed in different locations throughout the city. At the same time, the company would focus on establishing restaurants throughout the urban centers in Eastern provinces and then rapidly expanding into other areas. Where, they would follow the same basic formula of establishing distribution centers and then building the different restaurants. This is important, because it shows that the company's basic strategy for expansion into China was to create circles of support in particular areas. As each store would be in close proximity to the distribution centers, creating a network of independent supply chains; that are responsible for resupplying particular locations.

This information is useful, because it highlights the overall strategy that KFC was using to expand in China. As a result, this could be used with some of the previous sources, to highlight how the company's strategy took into account the unique geography of China and then was augmented, with a proven strategy for establishing / resupplying different stores.

Chinese Restaurant Industry Review

Liu, W. 2008, China's Restaurant Industry, KFC in China: Secret Recipe for Success, Wiley, Singapore, pg. 15.

In this source, the author discusses the overall size of China's restaurant industry. Where, it accounted for a total of $100 billion in sales for 2005, as the sector has continued to deliver consistent increases of 45% per year. In the future it is estimated that annual growth rate for the next several years will be 27% per year. This information is important, because it can be used to establish the overall size of the Chinese market and why so many fast food chains are building restaurants throughout the country. As a result, this can be used to ascertain the potential for increasing profitability.

The information that was presented is useful, because it identifies why KFC has been utilizing such an aggressive strategy in China. With executives determined to keep up with these increases, through the opening of a variety of locations around the country. This can be used to with the other sources of information, to provide an overview of the basic strategy that is being used by the company, to fuel growth in China. In many ways, one could take this information and make inferences about possible challenges the company will face in the future. As they must find a way, to be able to keep up with the consistent growth rate, while not over saturating the market. This is the biggest challenge that executives will face, as they need to keep the number of locations in balance, to prudently keep up with the changes.

Parsa, H, 2002, Western Impact on the Chinese Restaurant Industry, Quick Service Restaurants, Franchises and Multi-Unit Chain Management, Routledge, New York pp. 168-170.

In this piece of literature, the author discusses the impact that fast food restaurants are having on the Chinese restaurant industry. Where, they have: brought new levels of quality / taste to China, they have forced Chinese companies to improve their management / marketing and they have brought the franchise system to the country (which can serve as model for the industry in the future). Then, the literature discusses the overall impact that these companies are having on the industry. With them causing, the majority of companies to focus on keeping prices low and maximizing profits through high volume turnover. Next the author discusses what the future of the industry will look like. Where, the establishment of Western fast food restaurants will help to foster the development of a trade association and it will encourage Chinese-based companies to follow a similar model. At which point, Chinese companies will begin to utilize the same kind of strategies that are be used by the major fast food chains. This information is important, because it discusses the impact that these restaurants are having upon the industry. Where, they have helped to redefine the sector, by introducing new quality standards to the China. This has caused the market to focus on delivering products at a low price that can generate high sales volumes. Over the course of time, these standards will help Chinese companies to begin establishing similar operations.

This information is useful, because it highlights the impact that KFC is having upon the restaurant industry in China. As the basic model that they are using, to fuel growth and expansion, is helping to redefine the industry by: increasing quality standards and providing a formula for being successful in the Chinese market. This can be used with the information from the previous source, to establish the impact that KFC is having on China and how the overall growth rate of the industry, is helping to fuel rapid changes for the better.