IntroductionFueled by increased free trade, regional economic integrations and overall trends of globalization, business environment is intensely competitive today. Therefore companies need to be tuned to the environmental developments as well competitiveness of the industry within which they operate. This paper provides an analysis of the US Fast Food industry and the current corporate, functional and operational level strategies of KFC. The paper will also provide recommendations aiming to improve growth and profitability of KFC in the face of dynamic US and international market conditions. 1.1External Analysis - Porters Five Force Analysis.
For organizations such as KFC, which operates on a global environment, the industry conditions become diverse from market to market. However, USA provides the largest fast food restaurant market with Americans spending over 55% of their food dollars in restaurants and being well disposed towards quick service fast food concept. Therefore the analysis focuses on US fast food industry. In Porter’s view, the intensity of each force will indicate how restrictive or less attractive the industry is in terms of industry players being able to maintain high prices and thereby earning greater profits. 1.2Threat of New Entrants The entry barriers can be in the form of legislature requiring licensing or in the form of natural monopolies or oligopolies.
The entry to industries can be also in the form of heavy capital intensity naturally restricting new entrants. The existing barriers are more of natural ones such as the high capital intensity of setting up a chain of outlets with outlet setting up cost are as high as US$ 1.7 million per unit. The market is structured similar to an oligopoly where top-ten restaurant chains now control more than 55 percent of all fast-food sales.
Competing against well established industry giants such as Mc Donald, KFC, Taco Bells, and Pizza Hut. However there is no legislature, which restrict entry in to the industry, license requirements are not too restrictive. Thus new entrants, especially from foreign markets that possess fast food service experience and presence outside USA may enter the market with sufficient financial strength. Therefore this competitive force is moderate for the industry. Rivalry among competitors When rivalry among the competition is high in industries, the pressure on pricing increases and the profitability in the long run erodes.
Cost of promotions and differentiation strategies adds on to the operational costs, further affecting the profitability. Boston Market and Kenny Rogers and McDonalds have introduced fried chicken, nuggets and chicken sandwiches in their menus where chicken was traditionally the forte of KFC. Hardees have acquired Roy Roger's outlets which gives them high reach and chances to incorporate chicken in their menus. There is also cross promotions as being done by Taco Bells and KFC given the common ownership.
These factors indicate that rivalry among industry players are very high. 1.4 Bargaining Power of CustomersWhen customers are fragmented and mostly individuals, there is no collective bargaining or bargaining from a stronghold position. However, given the majority of options and easy accessibility etc of the alternatives, customers are able to demand value for money and high standards by way of switching brands. In certain industries, customers are few and very large scale, providing them with a very high degree of bargaining power which they use in forcing down prices, demanding better payment terms and shorter lead time etc such as the case of large retail chains such as Tesco or Wal-Mart.
Thus, the bargaining power of customer is low in the Fast food industry.