Kfc’s radical approach to china presentation

1. KFC’s Radical Approach to China
David E. Bell&Mary L. Shelman
Presented by Melih Torlak

2. Two Main Questions?
Global companies face a critical question when they
enter emerging markets:
 How far should they go
to localize their offerings?
 Should they adapt existing
products just enough to
appeal to consumers in
those markets?

3. Overview
 In 1987, KFC China was opened in Tiananmen
Square. (China was still in the Mao era)
 Western-style fast food restaurants were unknown in
China, KFC was a novelty, a taste of America.
 Extremely controlled market.
 Customers didn’t like the food much.
 The all-American business model was not good
enough.

4. Overview
 KFC China is opening almost one new outlet each day
(current base ~ 3300) and intends to reach 15000
outlets by 2015.
 To determine how much of an existing business
model is worth keeping in emerging markets and
how much should be thrown away.

5. Five Radical Elements
1) Infusing a Western brand with Chinese
characteristics (Repositioning KFC in China)
2) Expanding rapidly
3) Developing a logistics network
4) Training employees in service
5) Focusing on ownership rather
than franchising

6. 1. Infusing a Western Brand with Chinese
Characteristics
Customer sees KFC China as part of the local
community.
It is offering the variety of foods and the traditional
Chinese dishes.
Redesigning the menu (typically include 50
items, compared with about 29 in the US) and 50
new products are added every year.
Enlargement of outlets. (about twice the size of
those in US)
Offering of regional recipes.

7. 2. Expanding Rapidly
One factor – Presence of McDonald’s in China’s four
largest cities. (KFC China has decided to embrace smaller
cities)
In 2008, Yum! Brands’ annual
opening rate in China surpassed
500 restaurants. (most of them
KFCs—compared with 103 new
KFCs in the United States)
With KFC as its flagship chain, Yum! has become China’s
largest restaurant company today, with more than
250,000 employees and about 40% of the market for
fast-food chains.

8. 3. Developing a Logistics Network
In 1997, KFC China established a distribution channel
in order to compete with its competitors. Also, it has
built warehouses and run its own fleet of trucks.
Implemented a supplier rating system for selecting
the suppliers that perform the best.
Put emphasis on food safety.
Buying locally is essential to keep costs low. It
strengthens the parent company’s relationship with
the Chinese government.

9. 4. Training Employees in Service
 KFC China is one of the first companies to promote
excellent customer service.
 New employees at KFC China
often have to learn basic
communicative skills to
interact with customers.
 KFC China prides itself on being a “learning organization.”
Each team composed of new employees works closely
with experienced ones in outlets; after training they move
to a new location.

10. 5. Focusing on Ownership rather than Franchising
Main reason is to closely control every aspect of their
operation. (More than 90% of Yum!’s outlets in China
are company-owned, compared with 12% in the U.S.
and 11% in other international markets)
Franchising reduces investment costs and risks. Also
it enables rapid geographic expansion; however KFC
China’s model was more complex and evolving
rapidly.
Owning the outlets permit centralized
purchasing, which reduces costs, and gives the
company a larger share of outlet profits.

11. The Risk of a Backlash
 Chinese adults were overweight up from 6% in 1982 to 22.8%
in 2002.
 In 2005, KFC China developed the concept of a “New fast
food”:
 Nutritious and balanced
 Eliminated “supersize” items
 Added new food such as roast chicken, sandwiches, fish,
shrimp, and more fruit and vegetable dishes to its menus
 The information about nutrition is printed on every package
 Hostesses teach kids about nutrition to promote healthy living

12. A Confident, Dynamic Company
In the first half of 2011, sales at Yum! China locations
that had been open a year or more rose
16%, compared with a decline of 2% at U.S.
locations.
The restaurant’s profit margin for those six months
was 22% well above the U.S.’s one of 11%. Yum!
China’s revenues and operating profits in 2010 were
$4.1 billion and $755 million, respectively;
comparable figures for the overall company were
$11.3 billion and $1.77 billion. KFC China’s revenue
(more than $1.1 billion) surpassed KFC US revenue in
Q3 2010.