KFC Porter’s 5 Five Forces: (2022) Detailed Overview

Written by portersfiveforcesteam in Porter's Five Forces Analysis

Porter’s 5 Five Forces Analysis of KFC:

 

Key Facts

Name Kentucky Fried Chicken, Subsidiary of Yum Brands
Industry Restaurants, Retail Food Industry
Founded March 20,1939,1st Franchisee 1952
Headquarters Louisville,Kentucky ,US
CEOs David Gibbs
Revenues US $6.58billion,2021(Yum Brand),Fortune
Profit US$ 1.57 billion,2021 (Yum Brand),Fortune
Competitors McDonalds ,Chick-fil-A, Wendy’s

 

Company Overview:

The Yum brand also owns Pizza Hut, Taco Bell and Habit Burger Grill.It’s net assets valued at $ 5.96 billion as of December 31st, 2021. Its reported revenues are US$ 2.79 billion in Year 2021 and ranked 490th by Fortune 500.Its brand value is estimated at $ 5.4 billion in 2020, an increase of US$ 5.11 billion compared to previous year.

 

 

 

Porter’s Five Forces Analysis

Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to its Industry for better strategizing the companies’ operations for making higher profits andless exposure to competition. The model is defined by Professor Micheal E. Porter in 1979,at Harvard Business School.

 

KFC Rivalry among Existing Competitors

 

  • Yum BrandsGlobal Operations Yum brand gave a record revenue of US$ 6.58 billion including Company Sales, Franchise and Property Revenues and Franchise Contribution for advertising and other services with a net income of US$ 1.57 billion, in FY 2021. Yum brand consist of four major brands including KFC, Pizza Hut, Taco Bell and The Habit Burger Grill.
  • KFC Global Sales gave a record sales of US$ 2.79 billion with an increase of 23% from US$ 2.27 billion, compared to previous year, in Year 2021. KFC has largest presentation in China with 7437 company owned- restaurants, an increase from 5,872 from previous year almost 26% growth rate, at the end of Year 2021.KFC has 3,959 restaurants inUSA, being declared the largest chicken restaurant chain in USA by Statista, other regions included Japan, Russia, Africa ,UK etc.
  • KFC Global Operations: KFC Division is operating with 26,934 units globally, 85% are international units and out of USA, in 149 countries with 99% franchising. KFC is the biggest brand of Yum brands and almost consist of 50% of its business, while Pizza Hut is the second largest business segment consisting of 34 % of total operational units.
  • KFC Sales Segmentation: KFC gave a US$ 31.36 billion System Sales which is 54% of Yum brands total System Sales(Company-owned and franchised restaurant both)of US$ 58.18 billion.Further Segmentation of KFC Division Sales is US$ 0.6 billion is generated from Company Sales and US$ 30.76 billion generated from Franchise Sale, which are 2% and 98% respectively.
  • McDonald’s is the largest fast food restaurant chain and giving tough competition to KFC by generated a record sales of US$ 23.22 billion, having 40,031 restaurants globally , with a brand value of US$154.92 billion, in Year 2021.McDonald’s has largest presence in US, which generated a reported revenue of 8.71 billion,37.5% of total revenue, in Year 2021. Other regions including Europe, France, Australia, Canada and UK are also major revenue contributor of McDonald’s total revenue.
  • Other Major Competitor’s The other competitors present in the market are Chick-fil-A, Subway, Starbucks, BurgerKing, Wendy’s and various others.
  • Delivery Aggregators KFC mentioned that they are facing tough competition from grocery stores, which started offering easy meals like pizza, sidedished, preparedand ready to eat meals, FY 2021 Annual Report.
  • New Technologies & Developers- Digital Relationship: The company is seriously focusing to develop new technologies for a better customer drive and satisfaction, devising polices and strategies to attract such developers and replace them by third party technology solutions, mentioned by KFC,YUM brands in their Annual Report ,FY 2021. The newly developed digital relationship with customers after COVID is also giving a raise in industry competition.
  • Global and Local Competition-Government Rules and Regulation-Import Tariffs: KFC faces global and local competition both, only for USA operations the company needs to abide by all laws and regulations for it’s operations including franchisees at national level, for other territories the company has to bear the imported duties and subject to different tariffs. More over strict labour laws and increasing labour cost is also a concern for developed economies.

 

KFC Threat of New Entrants

 

Following challenges are present for a new entrant and current industry and KFC restaurant chain practices:

  • Huge Capital Investment: For retail food industry huge capital investment, standard product development and product differentiation are the initial requirements .Evento achieve standardization in product development with efficient supply chain to enjoy economies of scale can’t happen in a short span of time.
  • Product Differentiation: This is a basic factor to make a mark in the retail food industry not only for new launchers but also for keep competing better market share and delight the consumers.

KFC has 18 food innovation teams with culinary expertise to develop creative recipes.

  • Standardized Product-Recipes&Brand Promise: All the established retail food chains like KFC, McDonalds and Subway are providing standardized product for a uniform experience. KFC strictly adhere to its 11 herbs and spices basic formula and maintains product standards, mentioned by Forbes.

 

KFC Bargaining Power of Suppliers

 

  • Basic Raw Material: The raw material used in KFC products is basic and identical like chicken, potato, rice etc., with no product differentiation so it weakens this threat. The producers or suppliers are farmers or wholesalers with limited knowledge so threat of forward integration is also low.
  • Vetted Supply Chain -Bulk Quantity Purchase: The popper scrutinized of a supplier with an assurance of continuous supply is important. It is being reported that UK KFC stores closed many running menus due to poultry shortage after contracting from a new supplier, in March 2018.
  • Industry Influencer: KFC is an industry influencer and educator both,so it further weakens the Bargain Power of Supplier.

 

KFC Bargaining Power of Buyers

 

  • Factors Influencing Buyer’s Bargain Power – Low Switching CostIn KFC scenario the factors deciding bargain power of buyers are low switching cost, substitute availability , large number of buyers, small buying quantity and scattered geographical segmentation.
  • Pricing Rivalry& Customer Satisfaction- Brand AwarenessClose pricing competition is present with in the industry due to nature and operations of retail food industry so customer satisfaction and experience is the key to focus.KFC holds a 97% of brand awareness, only in UK, mentioned by Statista.
  • Digital Presence Digital presence suddenly became very important for KFC as well specially after COVID-19 pandemic, earlier the company was using third party solutions. Now KFC is managing its own e-commerce website also available on all big deliveryplatforms, mentioned by Forbes.

The pandemic substantially changed the consumption pattern and influenced the business decisions, which will continue with the increasing digitalization.

The Digital Sales of Yum Brand reached US$ 22 billion in 2021,with a 25% growth compared to previous year.

 

KFC Threat of Substitute Products or Services

 

  • Local Restaurants: Any local restaurant and new trending in the local market or global market can be a substitution to KFC products and services.
  • Variety of Dishes and Services: The launch of any new dishes, product ideation or services will contribute to the threat of substitute products.
  • Healthy Eating – Post COVID World: Any new trending specially in Post Covid environment, may affect the consumption matters and divert the consumer base towards substitutions.It is suggested by a research conducted by Universiti Sains Malaysia, in June 2020 that KFC should add fruit juices in it’s menu to offer more healthier meal option.
  • “Recipe for Good “ – KFC,Yum Brand’s Corporate Social Practices – Brand Image: The company is working on social assignments under it’s “Recipe for Good “initiative, including environmental friendly policies with a target to decrease the greenhouse gas emission to approximately 50% by 2030 and keen to achieve a zero-emission by 2050.

 

References

 

  1. Statista (March, 22 2022).Revenue of Yum! brands 2014-2021, by brand| Statista. [Online]. Available at Statista.
  2. Statista (March, 22 2022).Number of Kentucky Fried Chicken restaurants worldwide 2010-2021 | Statista. [Online] .Availableat Statista
  3. Forbes (August 16, 2021) KFC U.S Expects To Achieve Net Growth This Year And It Will Do So With A More Diversified Portfolio Of Restaurants. Available at Forbes
  4. Forbes (June 22, 2019) A Look At the Menu Innovation Driving KFC Global’s Sales Momentum. Available at Forbes
  5. Statista (October, 18 2022).KFC brand awareness, usage, popularity, loyalty, and buzz among restaurant chain customers in the UK in 2022.Available at Statista.
  6. Yum Brands, Annual Report Available at
  7. Forbes, KFC Profile
  8. Research Gate,(June 2020) The Challenges of Healthy Lifestyle: A Study Case of Kentucky Fried Chicken, Available at Research Gate
  9. Food Processing Technology (March 15, 2018), What can suppliers learn from KFC’s supply chain disaster? Available at Food Processing Technology
  10. Statista (July 27, 2022) Number of McDonald’s restaurants worldwide from 2005 to 2021.Available at Statista.
  11. Statista (July 27, 2022) Revenue of the McDonald’s Corporation worldwide from 2005 to 2021.Available atStatista.
  12. Harvard Business Review, November 2011 ,KFC’s Radical Approach to China
  13. Statista (April 27, 2022) Number of KFC restaurants in China from 2016 to 2021, by mode of operation. Available at Statista
  14. Statista (August 26, 2022) Numberof units selected leading chicken restaurant chains in the United States in 2021.Available at Statista

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