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KFC in China

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Charles Durkin

on 4 December 2013

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Transcript of KFC in China

KFC in China
KFC - How it Started
Harland Sanders opens his first store in 1930, in Corbin Kentucky
First franchised store was opened in 1952, in Utah
KFC popularized chicken in a hamburger dominated fast food market
In 1964 he sold the company to a group of investors
In the mid 60's KFC expanded globally
KFC - How it Started cont.
In the early 70's KFC was sold to the spirits distributor Heublein
Heublein was taken over by R.J. Reynolds who then sold KFC to Pepsi Co.
In 1997 Pepsi Co named its restaurant division Tricon Global Restaurants
In 2002 changed the name to YUM! Brands
Today KFC has over 18,000 outlets in over 120 Countries with 4,400 outlets in China
KFC in China - Beijing
First KFC in China opened in 1987 in Beijing
Could fit 500 customers
The restaurant became a success, serving 9,000 people daily
The company was able to recoup investments within one year of opening the restaurant
KFC in China
KFC opens in Shanghai in 1989
In 1992 KFC expansion increased dramatically
In 1997 YUM! created it's own distribution company in China
In 1999 YUM! Brands had opened it's 300th outlet with almost all of the 300 being KFC's
KFC in China cont.
YUM! was opening around 100 new outlets per year until 2002, with roughly 85% of them being KFC's
KFC opened it's first drive-through in China in 2002 as well
By 2008 100 restaurant openings rose to 500+ per year
In 2010 there were an estimated 3,033 KFC's in China
Today over 4,400
KFC in China - Sam Su
First joined KFC in May 1989 as Regional Marketing Director for North Pacific
In December doubled as Acting General Manager for China when KFC had only 4 units
As KFC China started growing in early 1990's Mr. Su shifted his focus to managing
Was named first President of the China Division in 1997
Today, Mr. Su is the CEO of Yum! Brands China Division and vice chairman of Yum! Brands, Inc.
Investing in a Supply Chain
In most countries, Yum! relied on third-party food service companies and logistics providers for its restaurant supplies
These third-party providers did not exist in China in the 1990s.
To meet demands of its rapidly spreading network of restaurants, Yum! established its own distribution company in 1997
It found local raw material suppliers and worked directly with them to improve quality, ensure food safety, and increase compacity
Organization and Culture
A combination of formal training, coaching, and cross/functional committees was used for management development
Committees, which included a mix of senior and junior managers, played an important role in training and also in building know-how and spreading it throughout the organization
Senior managers also used the committees to spot upcoming talent
"Yum! China's whole organization is organized around learning"
In the first 10 years, the primary marketing focus for KFC was on families. Special mascot, "Chicky", was introduced in children's meals.
Many restaurants had a play area, and hostesses organized activities to entertain children while their parents ate
KFC outlets were popular venues for birthday parties, where Chicky often made appearances
In 2002, some KFC's began opening for breakfast
Sourcing and Logistics
Yum! sourced products from 500 to 600 suppliers
In 2010, it bought everything from chicken to lettuce to paper goods locally except for cheese
Yum! actively promoted food safety and adoption of practices including risk-based management processes, for all Chinese food companies
Yum! was having the most advanced and integrated cold-chain system in China, "... distribution system is second only to the Chinese Army's...".
The deliveries were made at night, the trucks were smaller and with three compartments
in winters, Yum! was renting temporary warehouses and the supplies to be airlifted if needed
Store Operations
Yum's operations group also had to make sure that trained staff was available for new restaurants the moment they were ready to open
Restaurants general managers (RGMs) managed the store's front end (service customers) and back end (producing fresh and safe food) as well as overseeing the ordering of supplies, equipment maintenance, and scheduling staff.
Most crew members (restaurant staff) were part-time employees; so many young college students was a necessity but that was also a major challenge to understand how to integrate them
All restaurant staff members were trained extensively in Western service standards and the way restaurants functioned
Problems with KFC in China
Bad Publicity
1. Suppliers
2. False Advertisement
3. Avian Influenza
Trouble with Suppliers
Suppliers have used illegal hormones and antibiotics in chickens
KFC markets itself as a family restaurant - need to emphasize the safety of its food

In today's information age, KFC should no better than "trying to pull a fast one"
An apology should have been made, and portion sizes corrected
Again, a family restaurant should market itself as being honest
False Advertisement
Avian Influenza
Bird Flu scares decrease sales at KFC and other restaurants that specialize in Chicken
KFC should design a marketing campaign to educate consumers about Bird Flu
Similar situation occurred with "Swine Flu" (now more commonly known as H1N1)
Suggestions for Yum!
KFC needs to design a marketing campaign that reaffirms its values of clean food and a safe place for families to eat
Most of the decreases in sales have resulted in bad publicity
Taco Bell posed to increase USA sales to $14 Billion by 2021
Bottom Line: KFC is still the category leader in China, and Taco Bell is rapidly growing in USA

U.S. Operations Decline
1. Sales begin to drop
2. Resturant upkeep worsens
3. YUM gives in to franchisees
Sales begin to decline
4% decline in same store sales during the 2012
YUM brand begins shifting its responsibility in current U.S. operations to its franchisees.
Plans to do this by “reducing company ownership” in its U.S. chains from 35% to 5% by the end of 2012.
U.S. Sales have been in a free fall as YUM attempted to “stop the bleeding” by building combination stores with KFC, and Taco bell.
Failure to change
Early - Mid 2000’s Trans fat is linked to heart disease, national push to stop the use of it in food products begins.
2007 - All KFC restaurants switch to more expensive but healthier Trans fat-free soybean oil.

Failure in Marketing
2009 - failed launch of “Kentucky Grilled Chicken”
2010 - Announces value menu with cheaper, healthier options.
Launch comes after Chick-fil-A, and Popeye’s gain significant market share.

YUM focuses on Global
KFC parent YUM has begun focusing on emerging economies across the globe.
U.S. operators face a significant challenge as YUM decides not to use the same business plan in the U.S. “Localization”
YUM feud’s with its KFC franchisees and damage’s it’s brand

Threats to KFC China
Country Style Cooking Restaurant Chain
Hua Lai Shi
"Localization" Business Plan works too well.
Cultural Challenge
Chinese Eating behavior
Emphasis on social interaction
Preference of shared dishes
Appreciation of variety of dishes
We don’t go out to get chicken
– We go out to get lunch!
Preference of shared dishes

Small savings instead of “super-size”
Introduction of different appetizers

Appreciation of variety of dishes
Broader menu
Customized dishes
Frequent innovations
Business operations
Eating occasions
Stressing different eating occasions
Different dishes throughout the day
Breakfast, Lunchtime, Afternoon Tea, Dinner

We want KFC to be a place to come with your family
Target: Youth market
Family friendly environment
Children dining area
Special Events

Pleasant dining atmosphere
bright, clean, elegant
refreshing feeling

High quality Service
"service is an extension
of product quality"

"It's not the same thing as know-how.
You must have the ability to ask the right questions. That's where our own backgrounds come in."
Why would you want to bring
junk food to china?
“New Fast Food”
Delicious and safe
High quality and fast
Nutrious and balanced
Healthy living
Rooted in China

We are telling our customers that a balanced meal, a variety of foods and moderation are most important, rather than pushing them to eat more chicken

Variety of dishes
Eliminate “super-size” items
Small servings and combo basis

Customer Perception
KFC in the U.S. KFC in China
Fast-Food restaurant
Prompt Service
Cheaply Priced
Mostly unhealthy
Usually tasty
Dining Restaurant
Staff courtesy
Many dining options
“Western Fast Food is clean and delicious”
KFC Success Formula
Pioneering Team “Taiwan Gang”
Speed as a factor of success
Natural advantage of Chicken preference
Localization across the board
“KFC went native”
"We are targeting different parts of the day by understanding what people want at those times"
Diversity of People in China
Consumer needs not homogenized
Differences in prefered tastes across China

"We have to change the recipe to suit the region instead of trying to have one recipe everyone likes"
Localization Strategy
4.0 Yuan
4.5 Yuan
9.5 Yuan
23.5 Yuan
17.5 Yuan
1 Yuan = 17 Yen
Lunch - Main Menu
7.5 Yuan
7.5 Yuan
9.5 Yuan
17.0 Yuan
81.5 Yuan
28.5 Yuan
14.5 Yuan
15.5 Yuan
24.0 Yuan
Dessert & Beverages
jiu zheng guo zhi
"the 9 treasures juice"
10.0 Yuan
7.0 Yuan
7.0 Yuan
8.5 Yuan
36.0 Yuan
Recent Threats
Dec 2012 - Excessive antibiotics found in chiken supply.
April - May 2013 -Avian bird flu outbreak is reported.
July 2013 - Ice cubes found to be 12 times dirtier than toilet water reported by CCTV.
Nov 2013 - KFC reports a 5% decline in SSS.
Full transcript