KFC’s radical approach to china presentation - 21.3.2013
KFC’s Radical Approach to China David E. Bell&Mary L. Shelman Presented by Melih Torlak
Two Main Questions?Global companies face a critical question when theyenter emerging markets: How far should they goto localize their offerings? Should they adapt existingproducts just enough toappeal to consumers inthose markets?
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.
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.
Five Radical Elements1) Infusing a Western brand with Chinese characteristics (Repositioning KFC in China)2) Expanding rapidly3) Developing a logistics network4) Training employees in service5) Focusing on ownership ratherthan franchising
1. Infusing a Western Brand with Chinese CharacteristicsCustomer 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.
2. Expanding RapidlyOne 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.
3. Developing a Logistics NetworkIn 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.
4. Training Employees in Service KFC China is one of the first companies to promote excellent customer service. New employees at KFC Chinaoften have to learn basiccommunicative skills tointeract 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.
5. Focusing on Ownership rather than FranchisingMain 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.
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
A Confident, Dynamic CompanyIn 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.