KENTUCKY FRIED CHICKEN

CASE STUDY OF KFC:

ESTABLISHMENT OF A SUCCESSFUL GLOBAL BUSINESS MODEL

By the mid 1950s, fast food franchising was still in its infancy when Harland Sanders

began his cross-country travels to market “Colonel Sanders’ Recipe Kentucky Fried Chicken.”

He had developed a secret chicken recipe with eleven herbs and spices. By 1963, the number

of KFC franchises has crossed 300. Colonel Sanders, at 74 years of age, was tired of running the

daily operations and sold the business in 1964 to two Louisville businessmen—Jack Massey and

John Young Brown, Jr.—for $2 million. Brown, who later became the governor of Kentucky,

was named president, and Massey was named chairman. Colonel Sanders stayed in a public

relations capacity.

In 1966, Massey and Brown made KFC public, and the company was enlisted on the New

York Stock Exchange. During the late 1960s, Massey and Brown turned their attention to

international markets and signed a joint venture with Mitsuoishi Shoji Kaisha Ltd. In Japan.

Subsidiaries were also established in Great Britain, Hong Kong, South Africa, Australia, New

Zealand, and Mexico in the late 1970s. Brown’s desire to seek a political career led him to seek

a buyer for KFC. Soon after, KFC merged with Heublein, Inc., a producer of alcoholic beverages

with little restaurant experience and conflicts quickly arose between the Heublein management

and Colonel Sanders, who was quite concerned about the quality control issues in restaurant

cleanliness. In 1977, Heublein sent in a new management team to redirect KFC’s strategy. New

unit construction was discontinued until existing restaurants could be upgraded and operating

problems eliminated. The overhaul emphasized cleanliness, service, profitability, and product

consistency. By 1982, KFC was again aggressively building new restaurant units.

In October 1986, KFC was sold to PepsiCo. PepsiCo had acquired Frito-Lay in 1965, Pizza

Hut in 1977 with its 300 units, and Taco Bell in 1978. PepsiCo created one of the largest

consumer companies in the United States. Marketing fast food complemented PepsiCo’s

consumer product orientation and followed much the same pattern as marketing soft drinks

and snack foods. Pepsi soft drinks and fast food products could be marketed together in the

same restaurants and through coordinated national advertising.

The Kentucky Fried Chicken acquisition gave PepsiCo the leading market share in three

of the four largest and fastest growing segments in the U.S., quick-service industry. By the end

of 1995, Pizza Hut held 28% of the $18.5 billion, U.S. pizza segment. Taco Bell held 75% of &5.7

billion Mexican food segment, and KFC held 49% of the $7.7 billion U.S. chicken fast food

segment.

Japan, Australia, and the United Kingdom accounted for the greatest share of the KFC’s

international expansion during the 1970s and 1980s. During the 1990s, other markets became

attractive. China with a population of over 1 billion, Europe and Latin America offered

expansion opportunities. By 1996, KFC had established 158 company-owned restaurants and

franchises in Mexico. In addition to Mexico, KFC was operating 220 restaurants in the

Caribbean, and in Central and South America.

Many cultures have strong culinary traditions and have not been easy to penetrate. KFC

previously failed in German markets because Germans were not accustomed to take-out food

or to ordering food over the counter. KFC has been more successful in the Asian markets,

where chicken is a staple dish. Apart from the cultural factors, international business carries

risks not present in the U.S. market. Long distances between headquarters and foreign

franchises often make it difficult to control the quality of individual franchises.

In some countries of the world, such as, Malaysia, Indonesia, and some others, it is

illegal to import poultry, a situation that has led to product shortages. Another challenge facing

KFC is to adapt to foreign cultures. The company has been most successful in foreign markets

when local people operate restaurants. The purpose is to think like a local, not like an

American company.

As KFC entered 1996, it grappled with a number of important issues. During the 1980s,

consumers began demanding healthier foods, and KFC’s limited menu consisting mainly of fried

foods was a difficult liability. In order to soften its fried chicken chain image, the company in

1991, changed its name and logo from Kentucky Fried Chicken to KFC. In addition, it responded

to consumer demands for greater variety by introducing several new products, such as Oriental

Wings, Popcorn Chicken, and Honey BBQ Chicken as alternatives to its Original Recipe fried

chicken. It also introduced a dessert menu that included a variety of pies and cookies.

Soon after KFC entered India, it was greeted with protests of farmers, customers,

doctors, and environmentalists. KFC had initially planned to set up 30 restaurants by 1998, but

was not able to do so because its revenues did not pick up. In early 1998, KFC began to

investigate the whole issue more closely. The findings revealed that KFC was perceived as a

restaurant serving only chicken. Indian families wanted more variety, and the impression that

KFC served only one item failed to enhance its appeal. Moreover, KFC was also believed to be

expensive. KFC’s failure was also attributed to certain drawbacks in the message it sent out to

consumers about it positioning. It wanted to position itself as a family restaurant and not as a

teenage hangout. According to analysts, the ‘family restaurant’ positioning did not come out

clearly in its communications. Almost all consumers saw it as a fast food joint specializing in a

chicken recipe.

KFC tried to revamp its menu in India. Cole slaw was replaced with green fresh salads.

A fierier burger called Zinger Burger was also introduced. During the Navaratri festival, KFC

offered a new range of nine vegetarian products, which included Paneer burgers. Earlier, KFC

offered only individual meals, but now the offerings include six individual meals, two meal

combos for two people, and one family meal in the non-vegetarian category. For vegetarians,

there are three meal combos for individuals, along with meals for couples, and for families.

KFC also changed its positioning. Now its messages seek to attract families who look not

only for food, but also some recreation. Kids Fun Corner is a recreational area within the

restaurant to serve the purpose. Games like ball pool and Chicky Express have been introduced

for kids. The company also introduced meals for kids, which was served with a free gift.

Over the years, KFC had learned that opening an American fast food in many foreign

markets is not easy. Cultural differences between countries result in different eating habits.

For instance, people eat their main meal of the day at different times throughout the world.

Different menus must also be developed for specific cultures, while still maintaining the core

product—fried chicken. One can always find original recipe chicken, cole slaw, and fries at KFC

outlets, but restaurants in China feature all Chinese tea, and French restaurants offer more

desserts. Overall, KFC emphasizes consistency and whether it is Shanghai, Paris, or India, the

product basically tastes the same.

Questions to consider:

1. Analyze the case and determine the factors that have made KFC a successful global

business.

2. Why are cultural factors so important to KFC’s sales success in India and China?

3. Spot the cultural factors in India that go against KFC’s original recipe.

4. Why did Kentucky Fried Chicken change its name to KFC?

5. What PESTEL factors contributed to KFC’s positioning?

6. How does the SWOT analysis of KFC affect the future of KFC?

KFC Case Study link

https://www.mbaknol.com/management-case-studies/case-study-of-kfc-establishment-of-a-successful-

global-business-model/

Running head: BUSINESS ANALYSIS CASE STUDY 1

Business Analysis Case Study

Student Name

BA690 – Business Strategy

BUSINESS ANALYSIS CASE STUDY 2

Abstract

The Campbell Soup Company was begun in the late 1860s as a partnership for canning

vegetables, especially tomatoes. The company continued to grow, and it was an early adopter of

radio and magazine advertising, which helped to promote Campbell Soup to new heights as one

of the most well-known and loved American brands. After the turn of the millennium, there was

a slowdown in growth. Over the past decade and more, despite the company’s giant size and

revenues of $8 billion per year, revenues were lagging, losses were becoming the main return on

investments in new strategies, and new products were failing. This situation did not occur

overnight, but rather it was a changing environment along with discoveries of unethical behavior

by the company. The turning point for Campbell Soup, and its downfall, was the repeated use of

deception in marketing the taste, freshness and health of its products. This paper provides an

overview and analysis of the case.

BUSINESS ANALYSIS CASE STUDY 3

Introduction

The Campbell Soup Company was begun in the late 1860s as a partnership for canning

vegetables, especially tomatoes (Shea & Mathis, 2002). Anderson & Campbell set up their

operations in Camden, New Jersey, where there was a significant manufacturing presence, but

their marketing was focused on images of gardens and fresh food (Shea & Mathis, 2002). In

1876 Anderson left the partnership, and many of Campbell’s relatives joined the venture (Shea &

Mathis, 2002). Canned foods were still an emerging product form in America, however their

popularity was growing as was the capacity to transport and distribute products over a vast area,

even nationally (Shea & Mathis, 2002). The company continued to grow, and it was an early

adopter of radio and magazine advertising, which helped to promote Campbell Soup to new

heights as one of the most well-known and loved American brands (Shea & Mathis, 2002). The

company went public in 1956 (Shea & Mathis, 2002). Campbell Soup continued to grow and

expand it s product lines int eh latter half of the twentieth century, including the introduction of

meals that could be prepared using soup as a base, rather than just selling the soup for soup (Shea

& Mathis, 2002). After the turn of the millennium, there was a slow down in growth. Over the

past decade and more, despite the company’s giant size and revenues of $8 billion per year,

revenues were lagging, losses were becoming the main return on investments in new strategies,

and new products were failing (Wiener-Bronner, 2018). Shareholders, of which descendants of

the original founders represented about half of all shares, were at odds with more focused activist

investors, and efforts were diverted into board level debates and battles, rather than corporate

needs (Wiener-Bronner, 2018). The turning point for Campbell Soup, and its downfall, was the

repeated use of deception in marketing the taste, freshness and health of its products.

BUSINESS ANALYSIS CASE STUDY 4

Organization Type and Strategies

Campbell Soup Company is a multinational manufacturer of household products, with a

focus on ready to eat soups. Despite its large size and the wide distribution of products,

manufacturing takes place in the United States, and the primary market is the domestic American

household consumer market (Shea & Mathis, 2002). The most popular products, chicken noodle

soup, tomato soup and cream of mushroom soup, account for a majority of sales (Wiener-

Bronner, 2018). The industry is currently undergoing a massive upheaval driven by cultural

change and emerging preferences (Cardello, 2018). While overall the ready-made food market is

growing in America and globally, multinational food manufacturing companies are getting a

smaller and smaller share of this market while emerging small producers of fresh or non-mass

produced foods are taking this share while expanding the market (Cardello, 2018). Assumptions

have held for decision makers in the food manufacturing for decades, such as the idea that people

go to supermarkets, and to some extent “blindly toss their products into the grocery cart”

(Cardello, 2018, n.p.). This true of Campbell Soup Company, but also their major competitors

One important reason for the failure to adapt is that the competencies of ready-made food

manufacturers is mass producing food, and this cannot work with the distribution needs of fresh

prepared and small-batch ready-to-eat food (Cardello, 2018). The industry is in crisis, with most

of the chief executive officers (CEOs) including the CEO of Campbell Soup Company,

terminated in just the last few years (Cardello, 2018).

BUSINESS ANALYSIS CASE STUDY 5

Table 1: Sales trends in decline (Singh, 2018)

Key Players and Industry

There were many kinds of stakeholders in the ready-made and condensed soup market.

These include regulatory bodies like the Federal Trade Commission and the Food and Drug

Agency, consumers of soup, competitors, distributors and retailers. Organizations that are not

usually considered central to the industry that have been gaining importance are the public health

agencies and authorities and non-governmental organizations (NGOs) involved with health

concerns (Phillips-Connolly & Connolly, 2017).

The industry itself is becoming less dense, and less dominated by established

multinational players (Phillips-Connolly & Connolly, 2017). There is an increasing number of

very small niche market soups with small regional distribution, and many of these become new

entrants at the national level. The main approach has been the use of fresh foods, with some of

BUSINESS ANALYSIS CASE STUDY 6

these requiring refrigeration of the soup and higher spoilage risks for retailers and consumers.

Because of this, the other large multinational such as Progresso and Lipton continue to be major

competitors, but the real threat has been the local and niche market substitutes.

Figure 1: Market share dominance in a declining market (Scout Finance, 2016) The Campbell Soup Company was begun in the late 1860s as a partnership for canning vegetables, especially tomatoes. The company continued to grow, and it was an early adopter of radio and magazine advertising, which helped to promote Campbell Soup to new heights as one of the most well-known and loved American brands. After the turn of the millennium, there was a slowdown in growth. Over the past decade and more, despite the company’s giant size and revenues of $8 billion per year, revenues were lagging, losses were becoming the main return on investments in

new strategies, and new products were failing. This situation did not occur overnight, but rather it was a changing environment along with discoveries of unethical behavior by the company. The turning point for Campbell Soup, and its downfall, was the repeated use of deception in marketing the taste, freshness and health of its products.

Competitors

Competition in the domestic ready-made soup industry includes corporate giants such as

General Mills, Unilever, Nestle and Kraft Heinz, as well as smaller producers that have becomes

established in niche areas, often with a health focus. One example of this is Amy’s Kitchen,

which has been making clean food with green characteristics such as vegan and GMO free for

about three decades. General Mills is the maker of Progresso soup, a leading canned brand that

competes directly with Campbell’s Soup brands. These companies also compete on the basis of

ready to eat snacks. Kraft Heinz is another major player in the ready to eat food category,

although it is dwarfed by the market share of General Mills, which is only a fraction of the size

BUSINESS ANALYSIS CASE STUDY 7

of the Campbell Soup Company market share. Unilever is a company based in Europe, with

dehydrated soups that compete as a substitute canned soups. Nestle is somewhat similar to

Unilever in that the soup brands are focused on a European market, and dehydrated. New niche

markets have developed in relation to canned soup, including the organic, GMO free line of

Amy’s Kitchen, which is small, but it has been growing for several decades.

Problems and Issues

False health claims

The American Heart Association (AHA) earns revenue to support their cause by selling

product endorsements (Messerli, Rimoldi and Bangalore, 2017). These endorsements are

intended for products that meet the criteria of heart healthy foods or meals (Messerli et al.,

2017). In 2013 the endorsement of the AHA resulted in claims of fraudulent activity and

deception by both organizations (Messerli et al., 2017). The issue was the sodium content of the

soups (Messerli et al., 2017). The AHA requirement for endorsement as a low sodium meal

required a maximum level of 140 milligrams (mg) of sodium, but the Healthy Request soups

which were endorsed under the program had over 400 mg per serving, and non-endorsed

Campbell Soup products had more than 800 mg of sodium per serving (Messerli et al., 2017).

Campbell Soup Company was developing a distinctly sinister character in terms of the repeated

themes of deception and marketing false claims.

Previous deceptive practice scandals

This was not actually the first time that Campbell Soup Company had been caught in the

act of deception. In the late 1960s it was Campbell Soup Company that was targeted by the FTC

in relation to the use of marbles in the soup during marketing photography (Thorson & Duffy,

2015). The marbles were used to prop of the ingredients in the soup, which would otherwise fall

to the bottom. By having the ingredient chunks sit on the marbles, they were lifted out of the

BUSINESS ANALYSIS CASE STUDY 8

soup making it look healthier and heartier (Thorson & Duffy, 2015). This event was considered a

major turning point, and a landmark case in marketing standards and the identification of

deception marketing practices (Thorson & Duffy, 2015).

The Campbell Soup Company had also been caught before in relation to false health

claims, as previously this had occurred in the late 1980s. As part of their marketing efforts, the

company began making claims in relation to its soup as part of a healthy diet, and a means of

avoiding heart disease and cancer (Andrews, Burton & Netemeyer, 2000). In fact, these claims

angered the National Cancer Institute, who had never approved or endorsed the products but

were quoted in marketing material related to the description of a healthy lifestyle and diet

(Andrew et al., 2000).This caught the attention of the Federal Trade Commission (FTC), who

further investigated the claims in relation to preventing heart disease. Campbell Soup Company

had claimed that since the soups were low in fat, the soup met the healthy lifestyle guidelines

that were stated as part of a diet to avoid cancer and heart disease (Andrews et al., 2000). The

FTC did not agree, and specifically pointed to the high sodium content of the soup as evidence

that the soups were not healthy, and not part of healthy diet. This was in 1989, almost twenty

five years before, and yet the company was still continuing to try the same tricks and games.

Consumers, however, are far more sophisticated today, and they have a better understanding of

nutrition and nutrition labels.

Negative health impacts of product

Public health agencies such as the Centers for Disease Control and Prevention (CDC) and

local public health authorities have increasingly promoted healthier lifestyles, including a

healthier diet, as a means of promoting health and wellness (Rehm, Monsivais & Drewnowski,

2015). Campbell Soup Company products contain high levels of salt, monosodium glutamate

BUSINESS ANALYSIS CASE STUDY 9

(MSG) which has been implicated in allergies, sensitivity, blindness and child hyperactivity, and

often simply the word flavoring without further information. Campbell Soup products do not,

however do much to meet a persons nutritional needs, with no nutritional value being more than

5%, and that criteria being fat (Campbell’s, n.d.). Vitamins and minerals for nearly all soups are

zero, with the best ones having as much as 2% of the daily requirement for iron (Campbell’s,

n.d). This is not a product that can meet anything more than the calorie needs of an individual.

This is especially important in the context of the products that are marketed to children, of which

there are many, most of them adorned with Disney cartoon characters and attractive packaging

(Campbell’s, n.d).

Table 2: Nutrition information for Incredibles 2 soup

Nutrition Facts

About 2.5 Servings Per Container

Serving size 1/2 Cup (120mL) Condensed Soup

Amount per serving

Calories 60 % Daily Value*

Total Fat 2g 3%

Saturated Fat 0.5g 3%

Trans Fat 0g

Polyunsaturated Fat 0.5g

Monounsaturated Fat 1g

Cholesterol 5mg 2%

Sodium 480mg 21%

Total Carbohydrate 8g 3%

Dietary Fiber <1g 4%

Total Sugars 0g

Includes 0g Added Sugars 0%

Protein 3g

Vitamin D 0mcg 0%

Calcium 10mg 0%

BUSINESS ANALYSIS CASE STUDY 10

Nutrition Facts

About 2.5 Servings Per Container

Iron 0.4mg 2%

Potassium 60mg 0% *The % Daily Value (DV) tells you how much a nutrient in a serving of food contributes to a

daily diet. 2,000 calories a day is used for general nutrition advice.

(Campbell's, n.d.)

According to this nutritional information, a child would have to eat 50 servings of soup in

order to meet their recommended daily requirements of iron, but in so doing they would ingest

about ten times the daily requirement of sodium. This is obviously hypothetical, but a more

realistic situation where soup is provided for each meal, three times a day, would reveal that

soups such as this could contribute to the malnourishment of children, as well as nay health

impacts of the high level of sodium.

Changing consumer tastes

Today consumers do not want canned soup that looks like it came from forty years ago,

they want fresh food which i