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KFC’s radical approach to china presentation - 21.3.2013


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Kfc’s radical approach to china presentation

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KFC’s radical approach to china presentation - 21.3.2013

  1. 1. KFC’s Radical Approach to China David E. Bell&Mary L. Shelman Presented by Melih Torlak
  2. 2. 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?
  3. 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. 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. 5. 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
  6. 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. 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. 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. 9. 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.
  10. 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. 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. 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.