Kentucky Fried Chicken and the Global Fast-Food Industry
..., in that new entrants often have the potential to be quite threatening to incumbents. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing which it is not in the fast-food industry, additional capacity holds consumers¡¦ costs down, resulting in less revenue and lower returns for industry firms. Often, new entrants have substantial resources and a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions ƒÜ Direct competitors such as Boston Market, Popeye and Chick-fil-A pose significant threat to KFC¡¦s dominance in the near future. In the case of Boston Market, it differentiates it self from KFC by focusing on roast chicken meals, and gaining customers who do no frequent KFC. Bargaining power of suppliers ¡V Medium ƒÜ Increasing prices and reducing the quality of products sold are potential means through which suppliers can exert power over firms competing within an industry. If a firm is unable to recover cost increases through its pricing structure, its profitability is reduced by its suppliers¡¦ actions. A supplier group is powerful when: ƒå It is dominated by a few large companies and is more concentrated than the industry to which it sells. Tyson Foods in Mexico. ƒå Satisfactory substitute products are not available to industry firms; ƒå Industry firms are not a significant customer for the supplier group; ƒå Suppliers¡¦ goods are critical to buyers¡¦ marketplace success; ƒå The effectiveness of suppliers¡¦ products has created high switching costs for industry firms ƒÜ KFC being a major player in the industry, it has some bargaining power. Increase bargaining power enables KFC to negotiate lower prices from suppliers. ƒÜ Tyson Foods is the primary chicken supplier in Mexico, however, it also supplies KFC¡¦s competitors including McDonalds and Burger King in Mexico. Bargaining power of buyers ¡V Medium ƒÜ Firms seek to maximize the return on their invested capital. Buyers (KFC customers of an industry or firm) want to buy products at the lowest possible price, at which the industry earns the lowest acceptable rate of return on its invested capital. To reduce their costs, buyers/customer bargain for higher quality, greater levels of service and lower prices. These outcomes are achieved by encouraging competitive battles among the industry firms. Customers (buyer groups) are powerful when: ƒå They purchase a large portion of an industry total output; ƒå The product being purchased from an industry accounts for a significant portion of the buyers¡¦ costs; ƒå They could switch to another product at little, if any, cost; and ƒå The industry¡¦s products are undifferentiated or standardized, and the buyers pose a credible threat if they were to integrate backward into the sellers¡¦ industry. Substitutes ¡V High ƒÜ One of the main problems that face many companies today is the threat of substitute products. There main substitute products competitors include McDonalds, Burger King, Wendy, Domino, Chik-fil-A and Boston market, Popeye, etc. ƒÜ Threat of substitute products ¡V healthy alternatives. ƒÜ Fast food restaurant have been forced to change due to the growing income of consumers which provide them with better and affordable alternative such as a full services restaurant. Full Service restaurant differ tremendously with the fast food restaurant in atmosphere, ambience and food quality. Demand for healthier food among consumer is another driving force that prompts fast food chains to change. ƒÜ There has been a lower growth rate in the global fast food industry mainly because all the segments are chasing the same customers. Increased growth in any of the segments would mean a decline in the other interrelated segments. Drivers of Industry Change ƒÜ Declining margins in the fast-food chains reflected the increasing maturity in the US fast-food industry. As an alternative to domestic expansion, many restaurant began to expand into international markets to reap the benefits from international market. ƒÜ Low restaurant growth rate of 1% per annum in the US. ƒÜ Increased popularity of full service restaurants due to changes in demographics (See APPENDIX), and increase in the number of fast food chains, has resulted in many alternatives for customers. ƒÜ Entry of McDonald¡¦s owned Boston Market into the Chicken fast food market poses a large threat to KFC. ƒÜ Marketing innovation by KFC¡¦s competitors has reduced KFC¡¦s market share in the US. For example, Boston Market established most of its units outside of shopping malls instead of major city intersections. ƒÜ Globalization of the industry due to the difficulties in the domestic market has produced further competition in foreign countries where KFC has some presence. ƒÜ Increased costs due to demographics (see APPENDIX). The inability of KFC to increase prices due to competition has resulted in lowered profit margins. ƒÜ Emerging preferences for healthier alternatives has also resulted in a slow down of the industry. ƒÜ The NAFTA has eliminated tariffs between member nations, allowing better accessibility to Latin America, particularly Mexico. Although some drawbacks are evident such as political and economic instability in some Latin American countries, this market provides a great opportunity for KFC and its competitors to expand their operations in the region. 4.0 Criteria of Evaluation: Goals, Objectives, Performance Targets and Time Frames ƒÜ Increase KFCs market share in the domestic market. ƒÜ Penetrate new mar...