KENTUCKY FRIED CHICKEN

Mission To sell food in a fast, friendly environment that appeals to pride conscious, health minded consumers (www.KFC.com). Organizational Structure History Since its inception, KFC has evolved through several different organizational changes. These changes were brought about due to the changes of ownership that followed since Colonel Sanders first sold KFC in 1964. In 1964, KFC was sold to a small group of investors that eventually took it public. Heublein, Inc, purchased KFC in 1971 and was highly involved in the day to day operations. R.J. Reynolds then acquired Heublein in 1982. R.J. took a more laid back approach and allowed business as usual at KFC. Finally, in 1986, KFC was acquired by PepsiCo, which was trying to grow its quick serve restaurant segment. PepsiCo presently runs Taco Bell, Pizza Hut, and KFC. The PepsiCo management style and corporate culture was significantly different from that of KFC. PepsiCo has a consumer product orientation. PepsiCo found that the marketing of fast food was very similar to the marketing of its soft drinks and snack foods. PepsiCo reorganized itself in 1985. It divested non-compatible units and organized along three lines: soft drinks, snack foods and restaurants. PepsiCo Worldwide Restaurants was created to create synergism between its restaurant companies. By the end of 1994, KFC was operating 4,258 restaurants in 68 foreign countries. KFC is the largest chicken restaurant and the third largest quick service chain in the world. Due to market saturation in the United States, international expansion will be critical to increased profitability and growth. Present Situation The organization is currently structured with two divisions under PepsiCo. David Novak is president of KFC. John Hill is Chief Financial Officer and Colin Moore is the head of Marketing. Peter Waller is head of franchising while Olden Lee is head of Human Resources. KFC is part of the two PepsiCo divisions, which are PepsiCo Worldwide Restaurants and PepsiCo Restaurants International. Both of these divisions of PepsiCo are based in Dallas.

Financial Analysis Introduction PepsiCo acquired KFC in 1986 to add to their diversified restaurant segment, which included Pizza Hut and Taco Bell. PepsiCo produces yearly-consolidated financial statements, which includes this restaurant segment, but does not separately identify KFC, Pizza Hut, or Taco Bell. Therefore, the amount of financial information is very limited.

Top 10 Leading U.S. Fast-Food Chains U.S. Sales ($M) (Exhibit 2) 1995 McDonald's Burger King Pizza Hut Taco Bell Wendy's KFC Hardee's Subway Little Caesar's 15,800 7,830 5,400 4,853 4,152 3,720 3,520 2,905 2,050 1994 14,951 7,250 5,000 4,200 3,821 3,500 3,511 2,518 2,000

Annual report:Financial Highlights:Average US Sales per System Unit :(In thousands) Year-end growth (b) KFC 1% Pizza Hut Taco Bell 3% Financial highlights:2009 2008 $ 960 786 1,229 2007 $ 967 854 1,241 2006 $ 994 825 1,120 2005 $ 977 794 1,176 5-year $ 954 810 1,168

(In millions, except for per share amounts) Year-end 2009 2008 Company sales $ 9,413 $ 9,843 Franchise and license fees and income $1,423 Total revenues $ 10,836 Operating profit $ 1,590 Net income Yum! Brands, Inc. $ 1,071 Diluted earnings per common share $ 2.22 Cash flows provided by operating activities $ 1,404 1,461 $ 11,304 $ 1,517 $ 964 $ 1.96 $ 1,521

% B/(W) change (4) (3) (4) 5 11 13 (8)

SWOT Analysis of KFC:Strengths Strengths can be found internally in a company and can be used to the companys advantage. The strengths identified are as follows: 1. KFC's secret recipe. The secret recipe has long been a source of advertising, and allowed KFC to set itself apart. 2. Name recognition and reputation. KFC's early entrance into the fast-food industry in 1954 allowed KFC to develop strong brand name recognition and a strong foothold in the industry. The Colonel is KFC's original owner and a very recognizable figure, both in the U.S. and internationally, in their new logo. 3. PepsiCo's success with the management of fast food chains. PepsiCo acquired Pizza Hut in 1977, and Taco Bell in 1978. PepsiCo used many of the same promotional strategies that it has used to market soft drinks and snack food.

4. Traditional employee loyalty. "KFC's culture was built largely on Colonel Sanders' laid back approach to management" (Wright, p.433). This kind of "personal" human resources management makes for a loyal workforce (Wright, p.434). 5. Improving operating efficiencies by reducing overhead and other operating costs can directly affect operating profit. Due to the strong competition in the US, the fast-food chains are reluctant to raise prices to increase profit. Many of the chains are turning to operating efficiencies to increase profit.. Weaknesses Weaknesses are also found internally like strengths. Weaknesses, however, can limit a companys potential. The weaknesses for KFC are identified as follows: 1. The many sales of KFC lead to a confusing corporate direction. Between 1971 and 1986, KFC was sold three times. The first two sales, to Heublein, Inc and to R.J. Reynolds, left the company largely autonomous. It wasn't until the sale to PepsiCo in 1986 that changes in top management started to take place. 2. KFC has a long time to market with new products. Because of the nature of the chicken segment of the fast food industry, innovation was never a primary strategy for KFC. However, during the late 1980's, other fast food chains, such as McDonald's, began to offer chicken as a menu option. During this time, McDonald's had already introduced the McChicken while KFC was still testing its own chicken sandwich. 3. Conflicting cultures of KFC and Pepsi Co. While KFC's culture was largely based on the Colonel's laid back approach to management, while PepsiCo's culture is more of a "fast track" attitude. 4. Turnover in top management. PepsiCo bought KFC in 1986. By the summer of 1990 PepsiCo's own management had replaced all of the top KFC managers. However, by 1995 most of this new PepsiCo management had either left the company or been moved to a different division. In addition, Kyle Craig, who was named president of KFC's US operations in 1990, left in 1994 to join Boston Market (Wright, p.434).

5. Recent contractual disputes with franchisees in the United States. This is also an example of the conflicting cultures of KFC and PepsiCo. KFC's franchisees had been used to little interference from corporate offices. In 1989, the CEO announced new contract changes - the first in thirteen years. Opportunities Opportunities represent external finding which can enhance a companys performance. Opportunities that KFC can take advantage of are as follows: 1. The Mexican market, which offers a large customer base, lesser competition, and close proximity to the US. The growth in the fast-food industry is limited due to the aggressive pace of the growth in the 70s and 80s. As a result, the market is saturated and "the cost of finding prime locations is rising." 2. Peso devaluation has made it less expensive for US to buy assets in Mexico. US companies are able to invest less money in buying assets in Mexico due to favorable exchange rate. This opportunity gives the companies a reduced risk in investing in Mexico. 3. "Dual branding" helps to appeal to the wider customer base and also provide higher profit. This strategy helps to "improve economies of scale within its restaurant operations." For many companies that own more than one fast-food chain, "dual branding" is an ideal way to expand quickly and increase profit. 4. New franchise laws in Mexico give fast food chains the opportunity to expand their restaurant bases. In January 1990, Mexico passed a law that favored franchise expansion. The law provided for the protection of technology transferred into Mexico. The law also allowed royalties. 5. Australian opportunity Growth in international profits were highest in Australia, which is now KFCs largest international market. 6. New distribution channels offer a significant growth opportunity.

Especially in the last few years, consumers are demanding fast food in nontraditional locations, such as shopping malls, universities, hospitals, and other high-traffic areas. Threats 1. Saturation of the US market. According to the National Restaurant Association (NRA), food-service sales in 1995 will hit $289.7 billion for the U.S. restaurant industry. The NRA estimates the sales in the fast-food segment of the food industry will grow 7.2% to approximately $93 billion in the United States in 1995, up from $87 million in 1994. 2. Increasing competition and rising sales of substitute products. Faced by slowed sales growth in the fast-food industry, other segments of the industry have turned to new menu offerings. McDonalds introduced its McChicken sandwich in the US market in 1989. Jack in the Box has introduced chicken and teriyaki with rice. Dominos has introduced chicken wings to its menu. Pizza Hut has tried marinated, rotisserie-cooked chicken. 3. Changing preferences of consumers. During the 1980s, consumers began to demand healthier foods and KFC was faced with a limited menu consisting mainly of fried foods. In order to reduce KFCs image as a fried chicken chain, it changed its logo from Kentucky Fried Chicken to KFC in 1991. 4. Obstacles associated with expansion in Mexico. One of KFCs primary concerns is the stability of Mexicos labor markets. Labor is relatively plentiful and cheap in Mexico, though much of the work force is still relatively unskilled. Problems Through an analysis of the strengths, weaknesses, opportunities, and threats of KFC, the following potential problem areas were identified: 1. No defined target market. The advertising campaign of KFC does not specifically appeal to any segment. It does not appear to have a consistent long-term approach. The U.S. has enormous changes in its demographics. Single-person households have increased from 12% in 1970 to 25% in 1995. With this kind of dramatic change, KFC does not have a proper approach to its target market.

2. Saturation of the U.S. Market. There has been an increase in the overall number of fast-food chains. Access to restaurants is now easier due to non-traditional locations, for example in airports and gas stations. Also, the age of Americans tends to change the frequency of eating out. 3. Health Conscious Consumers. There has been a trend toward an increasingly healthy diet in America. This put KFC at an extreme disadvantage due to its fried product offering. 4. Increased Start Up Costs. Prime locations have increased in cost due to limited room for expansion. New technology has increased efficiencies, but resulted in greater increased start up costs. Restaurant and equipment packages range from $500,000 to $1,000,000.

IMC OF KFC--Integrated Marketing Communication:Communication tools:An organization finds most of its meanings and survival through promotion. At KFC, Promotion is the main tool to bring all chicken lovers attention towards its delicious one-of-a-kind product, the Fried Chicken. 1. Personal selling:KFC do not use any type of personal selling method. 2. Sales promotion:KFC uses the following tools to further enhance its sales. Premiums Exhibits Coupons Entertainment Sales Promotion:-All KFC outlets offer its customers with various forms of incentives to buy its Chicken. Using coupons that one can acquire after spending a particular amount over a period of fixed time, customers can enjoy the benefits of free meals or free add-ons. Additionally they provide meal vouchers and exciting offers in their print ads, which the customer must cut and bring along.

3. Advertisement:The logo of the smiling Colonel is probably one of the most recognized faces in the world and instantly brings the image of fried chicken to one mind. KFC and its new company jingle, finger lcikin good is a frequent announcement on televisions, billboards, flyers and radio. The concept of showing a normal customer deeply involved in devouring his piece of chicken usually turns on the drool factory in everybody mouth and makes them rush to the nearest KFC. InIndia where chicken lovers are plenty abound these ads featuring normal people connect instantly and create a rush at their outlets. Using the following methods KFC spreads its message of finger licking good chicken. Advertising :-Using Reminder advertisements KFC stimulates repeat purchases of its products. The company anthem finger linkin good is just a wakeup call to the consumer to remind them how good they felt the last time they ate KFC chicken. Sponsorship is another tool to strengthen an organizations image. KFC is currently the sponsor of the Australian Cricket Team and the colonel logo can be seen on their uniforms throughout the matches. News reports:1. By 2011, KFC will reduce its use of foam by 62% and total plastic use by 17%. 2. December 16, 2010 Yum! Brands Issues 2010 Corporate Social Responsibility Report: Serving the World; Provides Updates on the Company's Global Social, Environmental and Economic Goals
3. December 15, 2010 Yum! Brands World Hunger Relief Raises Record.

4. KFC college scholarship contest.

5. September 21, 2010 Muhammad Ali Center Peace Gardens Established to Teach

Underprivileged Children
6. September 03, 2010 KFC India Receives Recognition in Top Food Service

Brands. Corporate Social Responsibility Social

There's more to KFC than great food. We promote education, diversity and animal welfare in a number of positive ways. The KFC Colonels Scholars Program is about you, your dreams and aspirations, and the perseverance to succeed. This program is offered to high school seniors planning to attend a public in-state college or university.

Diversity is more than a philosophy at KFC, it is part of our founding How We Work Together principles. Our global culture is actively developing a workforce that is diverse in style and background, where everyone can make a difference.

Yum! Brands is committed to conducting business in an ethical and responsible manner. To encourage compliance with all legal requirements and ethical business practices, Yum has established a Supplier Code of Conduct for it's U.S. suppliers.

KFC is as committed to the environment as we are to our food and customers. Read more about the steps we have taken to reduce our environmental footprint and plans for improvement moving forward.

Yum! Brands, parent company of KFC, is committed to the humane treatment of animals.