Yum!

Brands, Pizza Hut, and KFC

Adam Ohanesian December 2nd, 2011 GSB-725 Marketing Strategies

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Yum! Brands, Inc., was the worlds largest fast-food company in 2004 operating more than 33,000 KFC, Pizza Hut, Taco Bell, Long John Silvers, and A&W restaurants worldwide. It was the market leader in the chicken, pizza, Mexican, and seafood segments of the U.S. fast food industry and operated more than 12,000 restaurants outside the United States. KFC and Pizza Hut combined for more than 96% of the companys international restaurant base and managed restaurants in 116 countries.

Problems/Opportunities: 1. Should Yum! Brands continue growth in China where they have been the fastest growing quick service restaurant, or focus on correcting the issues in the United States where sales are slowing relating to a smaller market share? 2. Should Yum! Brands penetrate other new growth markets before competitors such as France or Germany or stay focused in China where there is an established brand recognition and rapid expansion? 3. Should Yum Brands maintain their current nutritional values which are poor, or increase the number of health conscious menu options?

Relevant Facts: 1. Only two of Yum Brands five brands were U.S. market leaders in 2003, Pizza Hut and KFC. 2. Pizza Hut had approximately 5 billion in sales with a -1.3% growth rate. 3. KFC had approximately 4.9 billion in sales with a 2.8% growth rate. 4. Taco Bell had approximately 5.3 billion in sales with a 2.8% growth rate. 5. Long John Silvers and A&W had 777 million and 200 million in sales respectively. 6. Costs of chicken increased dramatically from 2001 to 2003 from $1.20 per pound to $2.50 per pound. 7. Long John Silvers was the only Yum! Brand not on the worlds 35 largest fast food chains in 2004. 8. KFC has more success in Asia and Latin America where chicken is a traditional dish. 9. 57.1% of KFC restaurants are internationally based as of 2004. 10. Mexican countries were already accustomed to the fast food concept.

Recommendations: Yum! Brands should employ different strategies in its Unites States Division, International Division, and China Division in order to improve performance and continue expansion. First, as a general strategy, Yum! Brands should continue to focus on its Chinese and international markets. Although Yum! Brands could attempt to capture a larger market share in the United States, it seems that the United States fast food industry is already well established and difficult to penetrate. Not only has McDonalds been able to maintain the largest share of

the fast food market for years, but the industry itself is already oversaturated with thousands of different other brands. Focusing on the United States division, Yum! Brands should make efforts to sustain its position as the second leading brand in the United States market. It should focus on continuing to build its brand reputation. Domestic sales have been declining in recent years, possibly due to the current economic situation. Yum! Brands is bouncing back from the recession fairy quickly. To maintain and increase its revenue, it is vital that the company focuses on sustaining its position in the fast food industry rather than driving aggressive growth. Investing in fast expansion in the domestic market may actually hurt Yum! Brands. In terms of geographic location, there would not be a benefit to increasing the number of restaurants in any given area of the United States as most Americans already have a McDonalds, KFC, Pizza Hut, or Taco Bell within a few miles radius of their residence. In the China market, Yum! Brands should employ a different strategy. The company should strive to maintain dominance in China as the number one, largest and fastest growing fast food brand in the country. Compared to the United States, where Taco Bell is the leading brand, KFC and Pizza Hut are the branches that have been thriving in China. Yum! Brands also have a first mover advantage as it was the first corporation to introduce quick service, pizza, pizza delivery, and casual dining to China. It must maintain its competitive advantage by continuing to grow at a rapid rate. It seems they have already kept this in mind by pursuing nonstop expansion. Because China has a huge population, the potential for building a strong customer base is substantial. By introducing a new brand that sells traditional Chinese cuisine, Yum! Brands can capture the older generation of Chinese consumers. Although the companys strategy in the United States has shifted towards targeting an older crowd and the working population, consumer tastes in China may be had to alter from traditional Chinese cuisine. Therefore, Yum! Brands will have more success by focusing on a new generation of consumers. KFC and Pizza Hut need to establish a strong reputation with the younger population, which has greater exposure to and knowledge of Western culture. This will help the company to build up its brand reputation and recognition in China. A solid brand reputation will allow Yum! Brands to continue to push forward with rapid expansion and development. Yum! Brands are able to maintain control over its Chinese restaurant units by limiting the number of franchised stores. The number of franchises has actually decreased in the past few years, possibly so that the company can better control its brand impression in a relatively new market. The company should continue this strategy until it is well established as a leading brand so that it can maintain the continued expansion of the Chinese market. In the international realm outside of China, Yum! Brands should continue to push forward into new growth markets. I recommend India as it represents a significant opportunity for the corporation. Although it may take a large initial investment and some losses for the company to penetrate the country and establish a strong brand name, in the long run, India could be a very important and profitable market. From a religious view, Yum! Brands have a large advantage over McDonalds in India because its main food products in its leading brands do not focus on beef products. Since followers of the Hindu religion considers the cow as a sacred animal, Yum! Brands can potentially maintain a very large market share from this advantage and block McDonalds from becoming a top competitor.
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Regarding all of Yum! Brands divisions, one of the biggest challenges are health concerns such as obesity. To counter this, Yum! Brands should introduce a variety of health conscious options into its menus. Although steps have already been taken towards this objective, Yum! Brands needs to maintain and expand the health conscious options. For example, I know Taco Bell over the past few years has added a Fresco menu which offers products with less than nine grams of fat by substituting a mixture of vegetables for cheese and sauces. Also, I know KFC has added a grilled option for its chicken.

Another challenge for Yum! Brands is the prevalence of diseases and health risks that are associated to food preparation such as E. coli and Avian Flu. The company should take further steps to assure consumers that they are buying food products that will not make them sick. Yum! Brands has already implemented a supplier system to guarantee animal welfare and food safety. Yum! Brands formed the KFC Animal Welfare Advisory Council, which researches ways to improve practices towards animal treatment and advises its suppliers in humane procedures. Also, suppliers are carefully chosen, evaluated, and rewarded through an internal tracking system. This system sets and tracks standards of conduct across suppliers to ensure strict food quality and safety. It focuses on pest control, operations and facility management, sanitation, manufacturing practices and product protection. In response to the outbreak of Avian Flu, Yum! Brands has installed strict guidelines in the handling and processing of their poultry. All of the poultry purchased in China and the United States has not had contact with migratory birds. The company has also placed biosecurity measures on their suppliers, and currently conducts regular quality and food safety audits with almost all of its suppliers. Consumers are probably not aware of the extensive actions taken to ensure food quality and safety. To make them known to consumers, Yum! Brands should find a third party sanitation company to conduct random audits at its restaurants. The results from these evaluations would then be advertised in its restaurants and incorporated into their advertising campaign so that the consumers can be assured that the food is safe and clean. Looking forward, Yum! Brands is in a strong position to maintain foreign expansion and capture a large share of international market. Despite certain challenges it faces in the domestic market, the company is financially healthy and should be able to sustain a stable position within the global fast food industry. SWOT Analysis:

Strengths: Continuous rapid overseas growth and expansion, with a focus on China. KFC is the first, largest, and fastest growing quick service chain in China. Strong domestic and international brand recognition and image. Product diversity across different brands. International company. Brand recognition.

Weaknesses: Trying to strengthen position in international markets while developing new markets. Relatively small market share in the Unites States fast food industry. o Taco Bell #5 in Sandwich chains. o Pizza Hut #1 in Pizza chains. o KFC #1 in Chicken chains. o Long John Silvers #2 in Other Dinner chains. Older United States restaurants losing sales annually.

Opportunities: Increase and maintain growth in a rapidly expanding Chinese market. Penetrate other new growth markets such as India. Target the youth to build up brand awareness. Increase the number of health conscious menu options.

Threats: Food safety outbreaks and diseases hinder sales and growth through negative publicity. Nutritional value concerns on publishing nutritional information. High reliance on China allows the company to be subject to any relevant changes in the Chinese market. Changes in foreign currency exchange rates affect sales and profit.

Five Forces Model: Porters Five Force Model includes the following: in the center is competition, on the left are suppliers, on the right are customers, on the top is substitute products, and on the bottom is entry barriers. Competition: First movers have gained significantly in the competition segment and it mainly is because of brand recognition and loyalty. There are so many fast food chains, often located in the same area so competition is hard. To this end, fast food chains are constantly offering promotions, games, toys, or new menu items. Lots of advertising is a must in the fast food industry. All of these considered makes the competition aspect a strong force. Suppliers: This industry offers many suppliers so fast food chains have the option to shop around and find the lowest costs available. There are many different suppliers that are needed to run a fast food establishment so I would classify the suppliers as a weak force because of the bargaining abilities.

Customers: Customers are the most important part of a business so I would immediately classify this as a strong force. Customers who purchase fast food mostly are price conscious and have limited time. Therefore, they want convenience, choice, and quality food and want it cheap. Substitutes: Some of the substitutes are pizza shops, delis, full service restaurants, and quick and easy products from the supermarket such as frozen meals. Entry Barriers: This is a weak force because this a maturing market. The costs associated with market entry are very high and brand loyalty for most customers has already been established.

References: Yum! Brands, Pizza Hut, and KFC Case Study, Krug, Jeffrey, Appalachian State University, 2004