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KFC’s Radical Approach to China
- Mary L. Shelman
To succeed, the fast-food giant had to throw out its U.S. business model.
Global companies face a crucial question when they enter emerging markets: How far should they go to localize their offerings? Typically they try to sell core products or services pretty much as they’ve been sold in Europe or the United States, with headquarters calling all the shots—and usually with disappointing results.
The authors, both of Harvard Business School, examined why KFC China has been able to find fertile ground in a market that is notoriously challenging for Western fast-food chains. KFC’s executives believed that the dominant logic behind the chain’s growth in the U.S.—a limited menu, small stores, and an emphasis on takeout—wouldn’t produce the kind of success they were looking for in China. KFC China offers important lessons for global executives seeking guidance in determining how much of their existing business model to keep in emerging markets—and how much to throw away.
Global companies face a critical question when they enter emerging markets: How far should they go to localize their offerings? Should they adapt existing products just enough to appeal to consumers in those markets? Or should they rethink the business model from the ground up?
- David Bell is a Harvard Business School professor and chairs its marketing unit.
- MS Mary L. Shelman is the director of the Agribusiness Program at Harvard Business School.
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Home » Management Case Studies » Case Study of KFC: Establishment of a Successful Global Business Model
Case Study of KFC: Establishment of a Successful Global Business Model
By 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 had 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 New York Stock Exchange. During 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 emphasised 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 per cent share of $18.5 billion, U.S pizza segment. Taco Bell held 75 per cent of $5.7 billion Mexican food segment, and KFC held 49 per cent of the $7.7 billion, U.S chicken fast food segment.
Japan, Australia, and 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 the 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 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. 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 its 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, and 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 meal for kids at Rs. 60, 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. You 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 For Discussion
- Analyse the case and determine the factors that have made KFC’s a success global business.
- Why are cultural factors so important to KFC’s sales success in India and China?
- Spot the cultural factors in India that go against KFC’s original recipe; KFC Fried Chicken.
- Why did Kentucky Fried Chicken change its name to KFC?
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How KFC Changed China and How China Changed KFC
This is the first of several historical case studies that illustrate how important aspects of Chinese political economy have evolved over the first 40 years of the country’s Reform and Opening policies . Later this year Two Fen will publish a series of in-depth essays on China’s economic transformation to commemorate this 40 th anniversary.
Just south of Tiananmen Square in Beijing is Qianmen, a stately imperial gate from the Ming dynasty. Just west of Qianmen is China’s first Kentucky Fried Chicken. The flagship restaurant, opened on November 12, 1987, stood three stories high, sat over 500 customers, and, at the time, was the largest KFC anywhere. Thousands of Beijingers braved the two-hour wait in freezing weather when it opened, and the store had to call in police to help maintain order. That day , KFC sold 2,200 buckets of chicken and made 83,000 yuan.
By 1988, the Qianmen branch was already KFC’s top-selling location among the restaurant’s 9,000-odd outlets. Average daily revenue at Qianmen exceeded 20,000 yuan, doubling to 40,000 yuan on busy days. The People’s Daily at the time quoted a KFC executive who said the company’s success “shows that China’s reform policies are good” and “Chinese people’s living standards are really improving.” Since then, KFC has become one of the most recognizable American brands in China, boasting over 5,600 restaurants in 1,200-plus cities and generating $5 billion in revenue in 2017. China is one of the few countries where KFCs outnumber McDonald’s.
Today, the first floor of that Qianmen restaurant still operates as a KFC, but much else has changed. KFC China is now owned by Yum China (Yum Brands was the parent company from 1997-2016 and PepsiCo had owned it previously) and is operated separately from other KFCs. Although Yum China is listed in New York and headquartered in Texas, it’s virtually a Chinese company.
The history of American fried chicken in China is a prism through which we can examine a key aspect of China’s reform and opening over the last 40 years—the dramatic changes in consumer markets and the services industry. That KFC was one of the first major experiments in China’s opening to the West has not been lost on the Chinese government. In commemorating the various milestones in China’s progress since reform and opening began in 1978, the official Chinese media proudly touts KFC as one of the many important “firsts.”
Indeed, KFC enjoyed significant first-mover advantage when it kickstarted China’s fast-food restaurant industry in the 1980s. It beat out local Chinese competition in the 1990s because of its increasingly sophisticated management techniques. And when faced with rising domestic competition and maturing consumer tastes in the 2000s, KFC adapted with significant localization efforts to avoid obsolescence.
1980s: First-Mover Advantage
KFC was not only the first foreign fast-food purveyor in China but, more importantly, it was also a pioneer of the fast-food restaurant experience . In the mid-1980s, most Chinese still ate at home or in the dull “socialist canteens” of their work units, where meals were either free or subsidized. Eating out was reserved for rare celebratory occasions like wedding banquets. The “American fast-food” concept was so foreign that when the Qianmen KFC opened, some Chinese customers waited for table service, asked servers for chopsticks, or brought their own pots for carry-out.
Still, the novelty and the aspirational “Western lifestyle” were highly appealing, convincing Chinese customers to dole out more than 7 yuan for a combo meal of two pieces of fried chicken, mashed potato, coleslaw, and a dinner roll—even though the average monthly wage in Beijing was just 100 yuan in 1987. Crucially, in comparison to other dining options back then, the Qianmen KFC was spotless, cheerfully decorated, air-conditioned, and had excellent customer service—much better than what the average Beijinger was used to.
This kind of quality control was embedded in KFC’s business model. It insisted on retaining ownership of most of its China restaurants rather than franchise (even today only around 10% of China’s KFCs are franchises). It’s essentially the difference between maintaining internal control versus outsourcing to others to run different restaurants—and the result was a consistency in standards that won over Chinese customers.
KFC grew quickly and attracted urban consumers—particularly women, children, and young professionals—and became a magnet for tourists and out-of-town visitors. Fried chicken became so popular that dark humor went around that KFC laced its chicken with opium to get Chinese hooked on foreign products again. The Qianmen KFC restaurant was such a sensation that every Sunday, its third floor would be booked for weddings . In his book KFC in China: Secret Recipe for Success , Warren Liu, a onetime KFC executive, believed that the company’s foresight, despite the risks, to enter the Chinese market so early continued to generate “substantial competitive advantage” for decades.
It was also important for KFC’s China management, particularly its East Asia regional manager Wang Dadong, to make a point about opening their first store in Beijing, China’s political and cultural capital. Rather than locating in the more economically and socially liberal cities in southern China, which was what McDonald’s did in 1990 in Shenzhen, Wang wanted to show that even the more conservative and staid political capital could accept Western food.
As an early testament to KFC’s sterling brand in China, it weathered the Tiananmen Square crackdown in June 1989. In fact, the Qianmen location served as both a gathering place for the student demonstrators to hold meetings and later as a makeshift barracks for PLA soldiers who were ordered to “clean up the square.” Soon after the upheaval, the Qianmen restaurant was one of the first Western businesses to reopen, citing “contractual obligations” (KFC had paid upfront for a ten-year lease). This came at a time when most American businesses decided China presented too much political or reputational risk. But KFC’s business appeared neutral, and both sides of a bitter political dispute were happy to appropriate its space.
KFC China bet big and early by expanding rapidly outside of major cities, whereas competitors like McDonald’s tended to focus their initial efforts on the key metropolises. This national expansion helped achieve economies of scale and locked in cheaper domestic suppliers for 97% of inputs. That the company was able to build a domestic supply chain so quickly is quite remarkable, demonstrating to other late entrants that this was possible in China.
Beyond the supply chain, KFC’s early foray into second- and third-tier cities meant that it could easily secure prime real estate for its restaurants. It was also an easy sell politically. During the heady days of reform and opening, ambitious local officials eagerly embraced the “arrival” of a Western brand to demonstrate that their province or city was connected to the global market. KFC’s national strategy paid off. As the Chinese economy grew and household incomes rose, more and more Chinese became KFC customers (see Figure 1).
1990s: Outcompeting Domestic Rivals
The jovial Colonel’s spectacular early success also meant that KFC had a bullseye on its back, as homegrown imitators sprung up to cash-in on a rapidly growing fast-food market in China. This shouldn’t have been a surprise, as local competitors had their own advantages. They often could achieve lower costs and were intimately familiar with local market conditions. And because intellectual property enforcement was basically non-existent back then, local competitors could replicate KFC’s business model and branding in some respects. Moreover, the Chinese state also got behind the domestic players as it sought to bolster the domestic services sector, incorporating the fast-food industry into its economic planning in the Eighth Five-Year Plan (1991-1995) and issuing Fast Food Development Guidelines in 1996.
Ronghua Chicken , formed in 1991 and backed by a Shanghai state-owned enterprise, became KFC’s chief rival in the early “chicken wars.” It offered a cheaper, more localized menu, promising that “wherever there is a KFC, we will be there!” Ronghua recorded strong sales in the early 1990s and expanded rapidly across the country. Many Western firms faltered in the early days of reform and opening— Jeep’s ill-fated joint venture (JV) is a well-documented example—because they failed to adapt their production to local conditions, underinvested in their local labor force, or did not know the market as well as domestic firms.
Rather than KFC faltering in the face of domestic competition, it was Ronghua that folded by the early 2000s. According to the head of Ronghua at the time, it failed because of “a lack of the kind of well-developed system that KFC possesses which oversees every detail of the business, from making the product, to service, to site, to staff training and management.” This was possible in part because when foreign investment regulations relaxed further in the early 1990s, KFC decided to abandon its Chinese JV partners and struck out on its own. Meanwhile, KFC had already established a distribution network, built a cold-chain system, assembled a truck fleet, and perfected an operations structure that enabled the chain to increase turnover while opening hundreds of stores. Processes and supply chains are much harder to copy than logos and slogans.
This management and systems advantage helped KFC establish a leading position in the China market (see Figure 2). According to CCTV, the introduction of KFC to China not only “popularized the idea of ‘fast food,’ it also transformed thinking about dining concepts, management methods, and more.” Last year, the People’s Daily credited Western fast-food chains with the introduction of “standardized management” to the Chinese restaurant industry and celebrated how reform and opening allowed Chinese chains to “draw lessons” from foreign brands.
That KFC stood victorious was a validation of its model of internal control and imposing strict standards across all of its operations, from the supply chain to the brick and mortar stores. It was a system perfected in the United States and successfully transplanted to the China market. While not exactly technology transfer in the pure sense, this kind of knowledge transfer is of equal importance in building successful operations in new markets. Moreover, KFC showed that low cost alone does not necessarily win the market—Chinese customers were willing to pay a premium for a superior product and a unique experience.
2000s: Deeper Localization
KFC couldn’t keep its business model under wraps for too long, however. Once the basic ingredients of an operational model have been figured out, they can be applied by any number of fast-food enterprises. And that is exactly what happened in the mid-2000s, when local upstarts like Lihua and Zhen Gongfu that made quick Chinese meals, as well as foreign entrants like the Taiwanese fried chicken brand Dicos and the Japanese noodle chain Ajisen, began to develop their own supply chains and efficient operating systems in China. Slowly but surely, KFC’s first-mover advantage faded as domestic firms figured out the secret sauce of their operations system and restaurant experience. Competitive threats began to multiply.
Few competed with KFC head-on in fried chicken, but China’s fast-food market was fast maturing, leading to a plethora of choices that would eat away at KFC’s market share. The company also faced another challenge in shifting consumer perceptions: As Chinese consumers became wealthier and worldlier, their perception of KFC moved closer to that of Americans. The novelty was wearing off.
The American brand had lost some of its luster, which meant that KFC had to further localize to adapt to these new dynamics. Localization wasn’t new to KFC, given that it already relied on a predominantly domestic supply chain and hired local labor. But localization is more than simply understanding Chinese consumer preference for dark thigh-meat over white breast-meat , for example. In this new environment, deeper changes were needed. Sam Su, a KFC China executive from 1989-2015, described the strategy as KFC “would not be seen as a foreign presence but as part of the local community…Our opportunity was to take the best ideas from the US fast-food model and adapt them to serve the needs of the Chinese consumer.”
As part of that strategy, KFC went through several iterations of its slogan to establish a different identity. For instance, in 2004, the brand said it was “based in China, integrated into life,” and in 2008, it said it would “make new fast-food, change for China.” Breakfast is an important part of Chinese daily life, so in the early 2000s, KFC began introducing a wide variety of breakfast products tailored specifically to Chinese customers : soymilk drinks, savory fried dough ( youtiao ), and congee. Later the company also introduced rice-based meals to its lunch and dinner menus. The company also experimented with “micro” localization to account for specific regional palates and taste preferences. For example, KFC spicy chicken is a touch spicier in chili-loving provinces like Sichuan and Hunan. Chinese KFCs were also early adopters of now-ubiquitous offerings like home-delivery and 24-hour service.
Another benefit of KFC’s localization strategy was the ability to mitigate political risk. Western brands are susceptible to boycott and slander during surges of economic nationalism, which tends to be inflamed by uncontrollable events. When the Chinese embassy in Belgrade was bombed by the United States in 1999, anti-American protests spread across China, and mobs trashed two KFCs in the city of Changsha. An executive at the time said local managers at KFC’s other outlets defused further retaliation by arguing that they were basically a Chinese company, using local suppliers and labor. Again in 2016, following the ruling by the International Court of Arbitration against China’s territorial claims in the South China Sea, groups of “patriotic” Chinese unfurled banners outside a dozen KFC outlets urging a boycott. But both state and commercial media tamped down these protests and urged nationalists to redirect their anger. In both cases, KFC’s sales picked up after only a blip.
Localization also helped KFC overcome more serious business-related issues. In 2005, KFC’s China operations suffered two unprecedented negative events—the discovery of a carcinogenic dye in two of its chicken products and a dip in poultry consumption resulting from an avian flu outbreak. Yet KFC still managed to increase its profit while opening hundreds of new stores in China that year, a positive outcome that its parent Yum Brands attributed to not only KFC’s operational and supply chain expertise in China, but also to its China-specific advertising spend.
Challenges of a Maturing Market in the 2010s
Localization has certainly helped KFC fare better in China than it otherwise would have. But KFC China has lately experienced a difficult few years of uneven growth due to intensifying competition, rising labor costs, and growing health-consciousness among Chinese consumers. Figure 2 above shows how KFC gradually lost market share over the late-2000s and 2010s. The increasingly mature Chinese fast-food market meant that, compared to 2005, KFC experienced more fallout and took longer to recover from major food safety scares regarding chicken-growth hormones in late 2012, another avian flu outbreak in mid-2013, and suppliers that delivered expired meat in late 2014.
As a result, same-store sales for Yum Brands’ China Division (of which KFC represented around 75% of the operating profit) declined 13% in 2013 , 5% in 2014 , and 4% in 2015 . Yum attributed this dip to short-term consumer concerns, and demonstrated its long-term commitment to the China market by continuing to open hundreds of new stores each year.
KFC China’s fortunes began to turn around in 2016, when Yum China spun off from Yum Brands to focus entirely on the continued expansion of KFC and other restaurant concepts in the China market. Its current strategy is to aggressively expand into fourth-tier or even smaller cities with populations of around 2.5 million people or fewer—where costs are low, incomes are rising fast, and its brand retains greater consumer appeal because it’s still considered novel.
This focused approach to China reaped dividends. KFC China’s same-store sales stopped declining and instead grew 3% in 2016 and 5% in 2017 . In 2017, Yum China recorded revenue growth from $4.7 billion to $5 billion on the back of 408 new store openings (with a 9% increase in system sales). Last year, KFC also decided to go more upscale and opened KPRO in Hangzhou, a restaurant that offers healthy premium food aimed at affluent young professionals and hipsters rather than families with children.
But gone are the halcyon days when KFC sat atop the Chinese fast-food chain. Figure 3 below compares the last three years of KFC China revenues. It’s clear that KFC’s revenue as a proportion of total industry revenue has declined but looks to be stabilizing. So, while KFC will likely continue to record absolute year-on-year growth, a mature market and new entrants mean that it is unlikely to experience much improvement in its market share.
Seen in the context of 40 years of reform and opening—during which KFC transformed from an expensive novelty to a market trailblazer to a localization pioneer to a first-among-many-equals in an intensely competitive industry—the latest spin-off of Yum China seems to simply signify the increasing, and perhaps inevitable, convergence of Chinese and American business.
KFC’s success in China must also be couched in the successful policies associated with reform and opening. China’s fast-food market would not be as developed without opening to KFC, and KFC’s business would not be as profitable without entering China. Trailblazers like KFC imported to China best practices on how to manage a restaurant chain, build a nationwide supply chain, and maintain high levels of customer service and dining experience. KFC also showed other American restaurants—like McDonald’s—that China’s market was possible to crack.
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Case Study: KFC Uses Zenput to Create a Consistent Customer Experience
Of the Top 25 restaurant chains in America, KFC stands out as the brand with the longest history. It’s also a brand that now faces aggressive competition in the chicken restaurant category. Multiple fast-food players and also major fast-casual restaurants are competing with the Colonel’s original recipe. When KFC wanted to up its game, it turned to Zenput’s mobile solution. Ensuring the quality of fried chicken and a consistent customer experience were KFC’s top priorities when the brand began using Zenput’s mobile task management platform last year. Prior to Zenput, managers were looking to do more than just fill out current forms on a mobile device; they wanted the ability to schedule audits and tasks, automatically communicate and resolve issues, and track work to get insights. That’s when they found in Zenput. The platform allows them to instantly schedule work at the field and store level, configure automated corrective actions when issues are found, track the work to ensure completion, and analyze the data to uncover areas for improvement. Time saved on administrative tasks has been redirected to what matters most—the customer experience and the final product. Using Zenput, KFC franchisees have implemented a structured food preparation process and verified execution with regular audits, including photos and temperature readings. As outlined in a newly published case study , KFC’s implementation of Zenput is paying off with fewer customer complaints.
Want to know the average time KFC operators save by using Zenput and how much their chicken quality failures decreased? Read the KFC case study here to learn more .
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KFC Case Study and Success Story
If you are a non-vegetarian, odds are high that you are a huge fan of KFC already. We are pretty sure that you visit your nearest KFC restaurant at least once or twice a month?
Don’t you? Oh, come on! Don’t lie!
Although KFC offers a wide variety of non-veg products in India, it is best known for its fried chicken and zinger burgers. In this case study and success story, we will go back in history and see how and where KFC started, the methods that lead to its success and the hurdles faced by the company in its journey thus far. So let’s begin with this finger lickin’ good story right away.
Table of Contents
The background of KFC Founder
KFC was founded by an entrepreneur named Harland Sanders. Some biographies suggest that Sanders was born in the year 1890 and spent his childhood on a farm in Indiana.
Reports suggest that his father died when Sanders was only 6 years old, leaving the latter with the responsibility of taking care of a younger brother and a sister. Sanders’ mother spent days working for long hours; however, her profession is still debated. According to a report in the The New Yorker , Sanders was a decen t enough chef by the age of 10.
His mother remarried when he was 12 years old. However, the kids’ stepfather wasn’t kind enough to them; as a result, Sanders was sent for work on a farm 80 miles away, while his younger brother was sent to live with an aunt.
Dropping out of School
Sanders soon realized that he was not the right fit for school. So, he dropped out while in se venth grade and a few years later started taking up jobs such as operating a ferry boat, selling insurance, marketing tyres, stoking the steam engines of trains and making lighting systems.
Setting up a Restaurant
With the money made from all the above-mentioned jobs, Harland Sanders bought a small place at a service station in Corbin, Kentucky in 1930. Here, he started to serve classic southern dishes to travellers.
The place soon became popular for its cuisine and Sanders started to make a decent sum of money through quality food preparations . Soon, he acquired the complete service station and expanded his restaurant.
In the year 1939, he carried out a small experiment with a new kind of pressure cooker – not what we use at our home s these days . He fried his chicken with as many as 11 herbs and spices and found that this new pressure cooker was capable of delivering the ideal taste that he was looking for.
Thanks to this new mode of cooking, his restaurant enjoyed an overwhelming success for the next decade or so. The governor of Kentucky was so impressed with Sanders’ effort and hard work that he decided to confer the title of “Colonel” – the highest title a state can offer – upon the latter in 1950.
Two years later, in 1952, Sanders signed a deal with his friend, Pete Harman, who was willing to sell Sanders’ dish as “Kentucky Fried Chicken” through his own restaurant. Sanders received a 4-cent royalty on every successful sale. The success of this deal prompted him to sign similar contracts with several other restaurants .
A stumbling block
By this time, Sanders had two means of making money ; first, through his own restaurant; and second through royalties f rom local restaurants with whom he had shared his recipes. In 1952, however, the construction of a new highway rendered his restaurant with almost no customers. As a result, he sold the location, though at a loss, and started to re consider his future plans with a $105 monthly social security and small ro yalties from local restaurants.
After careful consideration, Col onel Harland Sanders decided to follow a complete franchise model, rather than set ting up new outlets of his own. So he packed his stuff including a few pressure cookers, flour, spices and herbs and hit the road with his wife accompanying him.
On the journey, he would stop and offer to cook free fried chicken for the restaurant owner/manager. If they liked the taste they could make a deal straightaway. Proceeding with this strategy, Sanders managed to get nearly 600 restaurants to serve Kentucky Fried Chicken – from both the United States and Canada – over the course of a few years .
Selling off franchise rights
In October 1963, a young lawyer named John Y. Brown and a venture capitalist, Jack Massey approached Colonel Sanders with an offer for full-fledged franch ise rights. Sanders was a little hesitant at first; however, after weeks of persuasion, he agreed to sell the franchise rights for a sum of $2 million (roughly equivalent to $16 million in today’s currency).
According to a report published by Bu sinessInsider , under the franchise contract, it was agreed that Kentucky Fried Chicken (KFC) would set up restaurants across the globe and will, under no circumstances, compromise the original recipe.
The Colonel was to have a lifetime salary of $75,000, a place on the board, a major share in the Canadian KFC outlets and the opportunity to serve as the company’ s brand ambassador.
Many business experts believe that Sanders should have asked for a better deal . But, it seems that Sanders was never after money and was just looking for global fame for his quality food preparations. This can be validated by his constant grumbling of the poor quality gravy that the “new” KFC was offering. He spent the latter years of his life appearing in KFC commercials, talk shows and interviews.
Up until his death in 1980, Colonel Sanders maintained an active lifestyle, travelling long distances to promote the brand and taking feedback from patrons. The University of Houston has honoured him by featuring his name in the University’s Hospitality Industry hall of fame.
The present rules for KFC restaurants across the globe
Colonel Sanders wrote down a few rules before handing over the rights. Over the years some more additions have been made. So all KFC restaurants must follow these rules:
Only a pressure cooker should be used to cook the chicken. No other utensil is allowed.
Once the chicken has been cooked, it should not be removed from the cooker for at least 15 minutes.
All chicken pieces should be 8cm wide and must weight roughly 300g
All chickens shouldn’t be younger than 60 days or older than 70 days.
The chickens must remain marinated overnight before undergoing any sort of process
The Modern- Day KFC
KFC now has outlets in more than 120 nations and is, in fact, the second-biggest restaurant chain after McDonald’s. Due to the COVID-19 Outbreak many KFC outlets in the US and Canada removed the tagline “Finger lickin’ good” from its
banners, posters and commercials. KFC’s parent company, Yum! Brands, also operates Pizza Hut and Taco Bel l in India.
The story of Colonel Sanders is an inspiring one in its own right. It shows us that one can be of any age in order to run a successful business. It also inspires us to value quality more over money. We hope that you find this KFC success story useful and highly motivating .
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JUST-IN-TIME (JIT) INVENTORY Harvard Case Solution & Analysis
Home >> Harvard Case Study Analysis Solutions >> JUST-IN-TIME (JIT) INVENTORY
JUST-IN-TIME (JIT) INVENTORY Case Study Solution
Implementing Just-in-time Inventory
Before implementing the suggested plan of Just in time inventory, the small business owner must make sure that specific elements are helping them out, which will further contribute to the better implementation of the JIT strategy.
Healthy Owner-Supplier Relationship
A strong relationship between the two parties; owner and supplier is a must for continuing with the establishing of the JIT inventory management system. The owner relies on the last minute delivery from the supplier to fulfil the last minute order. The Supplier is entrusted by the owner that all the orders will be delivered on time as soon as the owner will place an order. For that, the owner and suppliers’ bonding has to be strong with better communication between the stakeholders. The company which has decided that it will change its inventory processing system will also have to good suppliers, the ones that has the ability to provide the raw material or inventory in a short notice. A weak supplier will be of no use to the company and may cause friction between the two parties.
Proper Medium of communication
Despite a strong owner supplier relationship, what will actually happen if the company can’t tell the supplier about the new orders to its supplier? The phone line may stop working or the internet service may go down, causing greater trouble for the owner to communicate its supplier. A time being wasted is equal to an order being wasted, hence the JIT system has to be perfectly fine and efficient. The other thing, owner has to keep in mind is to properly provide the details of the orders to avoid any confusions.
Taking help from the Technology
An accurate measure of supply and demand can never be successful when handling the inventory manually. The chances of errors and wrong estimations are always at the higher side of the scale, damaging the business’s profitability. Now, an owner can choose from variety of affordable softwares and Enterprise Resource Planning (ERP) systems is one of them which is completely integrated and will help the small business owner to manage its inventory. The only problem arising from the sophisticated software is the ability to buy them because they can be a bit costly. Including this, manual counting may often become the reason of miscounting at the delivery stage. The increased number of workers may add up to this problem as they may forget the number of supplies counted or may even miss some of the items from counting. To stay away from this problem, using bar code scanning and electronic data interchange (EDI) can help get rid from the manual counting of the inventory and can remove the data entry errors completely.
Hiring an expert
Are there good enough people in your company that can manage the just-in-time inventory system? To answer the question, the company would look towards the experts of the JIT inventory system, the one who can look after the production process along with managing the supply chain processes.
Training the staff
Apart from hiring an expert, the small business owner would dearly want its employees to get a hold on the new technology and to get along with the new system. Due to changed strategies, workers tend to follow the track and gets left behind the process. In this case, the management has to come forward and take full responsibility of guiding the employees about the policies and procedures. A well trained employee would know what should be done when the order is placed. The knowledge of the employees can be monitored by constantly having a closer look at the time of procedure and reaching out to them at times of difficulty.
Key Points of JIT inventory procedure
In this section, the key features of Just-In-Time Inventory system’s key features will be analyzed thoroughly:
- Minimal Warehouse Cost
As the owner would restrict ordering larger quantities of stock, there wouldn’t be a need to have a large storage house for that. Additional to this, the handling cost will automatically get strangled with the low inventory as there would be less labor and minimal effort required to manage the inventory. As said, the business owners wouldn’t hire much labor and they may also rent or buy a much smaller warehouse and thus rein in the fixed cost.
- Less Wastage
Inventory managers have been struggling with the continuous headache of inventory wastage. Small businesses doesn’t want to right off the stock that was initially brought in with the invested capital. In these kind of situations, JIT strategy implementation controls down the wastage and causes less spoilage hence proving to be beneficial for the company’s profitability.
- Better control over manufacturing process
The business owner can closely monitor all the aspects that are related to manufacturing after using the JIT procedure. In times of quick orders or change in customers’ demand the management can respond quickly and deliver the product according to the customers’ needs.
Olympia textiles did the same thing when they stopped focusing on a plain jeans and shifted their focus towards ripped jeans as they saw the change in customers’ taste towards ripped jeans. They could only do so when they had complete control over their manufacturing department and they handled their inventory with greater efficiency after using JIT technique.
Learning JIT process from other companies
Toyota Motor Company
JIT inventory process was initially introduced by Toyota Motors in the 1970s and it took almost 15 years for the company to completely get a hold on to the process. The Toyota Manufacturers only bought production parts from its trusted supplying partners only when they received new orders.
The company has always relied on its set of trusted suppliers which it believes can deliver the product on the required time and as soon as ordered. Neither they have compromised on the quality of their workers nor they let their machines slowdown the process and maintain them on the daily basis. Efficient labors was always in demand when using the JIT system so that he could work well in the assembly line with larger affectivity.
Most of the Kellogg’s items are perishable goods, it should be obvious that they are one of the companies to implement Just in Time inventory management method to manage their stock with higher efficiency. The company only places limited stock in its inventory basket just enough to fulfil orders.
The brand feels that piling up too much inventory is equal to their business’s death so it designs about half of its clothing items just in the middle of the season rather than locking in complete clothing line just at the beginning of the season.
The Just-in-time inventory management system is the new of its kind which was begun by the Toyota Motors in an attempt to lower down its wastage and handling cost. The small business owners can implement the JIT system helping them to enhance their control over the inventory of their business which will allow them to order the stock only when its order is received by the customer. The less inventory would means minimal wastage helping the company efficiently utilizing the country’s depleting natural resources . Lower inventory also doesn’t eat up much space allowing the owner to get a smaller warehouse and bringing down its handling cost.
Though, the company would need to hire expert individuals who can take care of the complete process and doesn’t allow any mishaps from the workers perspective. With this, there would be a constant need to train the employs that won’t be completely following the new JIT procedure. Well trained staff combined with high technology will be extremely useful in implementing the new JIT system. The new technology would allow the company owner to get rid of the manual counting of the goods shunning the chances of data entry errors. Therefore, it is highly recommended for a small business owner to implement Just in time inventory system as soon as possible because the greater the delay the greater will be the impact in the company’s bottom line............
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- KFC Case Study: How KFC is building a winning culture where people grow & thrive
In an interaction with Özlem Kalaca Yurdakul, Chief People Officer, KFC Middle East, North Africa, Pakistan, and Turkey shares her thoughts on great resignation, the importance of learning and development opportunities, and building a culture where talent thrives. Read on to know some of the strategies to build a culture to win talent.
- Anushree Sharma ,
- Updated On Nov 17, 2022 at 02:41 PM IST
- Flexibility at work: Even before the pandemic, when many companies were discussing and exploring mechanisms, we launched a hybrid way of working. We had a structure behind it, we expected our talents to be in the office for only communication, collaboration, celebration, and community days. We have a corporate calendar for this- 2-3 days we are in the office for these moments. During the pandemic, since working from home became a common practice, we added the WFH benefit, which supported them to have better wi-fi, a better headset, and ergonomic chairs. Also, during the pandemic as a distinctive approach, we launched the Work from Anywhere/Everywhere Policy. Our talents could work from “anywhere in the world.” This is a permanent practice now. 4 weeks a year, they can work anywhere in the world. We support them with a unique WFE monetary benefit so that they can ensure they have the appropriate distant working condition.
- Wellness & well-being: During the pandemic, on top of our wellness programs, we launched an advanced 360 Wellness program. We had many virtual sessions about wellness. After the pandemic, we elevated the program and now, we work with a vendor, to give our talents a menu so that they can choose and create their own recipes. From Yoga to Salsa Dances, from Spa to Table tennis they create their own wellness routine. Other than standard wellness programs we work with global experts in finance, and psychology who can take consultation when needed. We updated our benefit structure and fixed all the friction points from a fairness perspective. irrespective of their levels we included all employees in our health and life insurance. Families are included in yearly health check-ups. Families became an integral part of the KFC community. We have family offsites outside Dubai for families.
- Inclusion: We believe in ALL people. Our talents become their best selves when they feel that they are treated fair when they are included. Even during the pandemic, we kept our focus on diversity, inclusion, and belonging layers. We have 19 different nationalities in the office. Our gender parity ratio is 50%/50 same for advancements. Advt
- Employee Resource Group: We have Employee Resource Groups where we aim to have micro communities for a better feeling of belonging. From cooking to outdoor, language learning to photography our talents are sharing their passions. We have Special programs like Shine (globally selected programs) where we focus on underrepresented groups. Shine is a program to: a. S ponsor them to have a fair share in the ladder of opportunities, b. H elp them to equip themselves with the right light skills c. I nspire them to unlock their own potential, d. N arrate their Stories, road blockers, friction points in life and e. E ncourage them to have an impact with their full potential.
- By Anushree Sharma ,
- Published On Nov 14, 2022 at 09:00 AM IST
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A mega restaurant chain is on a mission to get half of China to eat KFC and Pizza Hut by 2026
- Yum China Holdings thinks it can get half of China's 1.4 billion people to eat KFC and Pizza Hut.
- The firm posted strong financial results in a Tuesday report, as the rest of China struggles.
- Yum runs KFC and Pizza Hut in China, and says it already has 470 million members for both chains.
Yum China Holdings, the company that operates KFC and Pizza Hut in China, said on Tuesday that it hopes to soon expand its customer base to half of the country's entire population despite an ailing national economy.
"Currently serving just one-third of China's population, our ambitious goal is to extend our reach to half of the population by 2026," Yum China CEO Joey Wat said in the company's latest quarterly results report.
Yum plans to fuel its growth through restaurants in China's "lower-tier cities," which host over half of the firm's stores, Wat said.
Cities in China are unofficially organized by tier based on their population size and the affluence of residents, with the highest tier including global hubs like Shanghai and Beijing.
Second-tier cities, such as Xiamen and Harbin, and third-tier cities, like Luzhou, are the most numerous and contain most of China's urban population.
The company said it opened more than 1,500 new KFC and Pizza Hut restaurants in 2023, with a total of 10,296 KFCs and 3,312 Pizza Huts in operation by the end of the financial year.
That's more than twice the number of KFC restaurants in the US , which has 4,293 stores, though only half of the around 6,750 Pizza Huts in the US.
Both restaurant brands also have 470 million members in China, Yum said, though it didn't say if this number accounted for any overlap.
Yum enjoyed a significant rebound after China's COVID lockdowns, with net profit for 2023 rising to $827 million in an 87% year-on-year increase, per its report. In 2022, as consumer spending nose-dived amid a series of stringent lockdowns and waves of coronavirus infections, Yum's net profit slumped 55% in 2022 to $442 million.
Its revenues for 2023 also rose 15% to $10.98 billion compared to the year before, it said.
The jump is a rare bright spot in China's gloomy economy, which has struggled to return to form and saw its stock market lose $6 trillion in value since the onset of the pandemic.
"2023 was a pivotal year for Yum China," Wat said. "Not only did we demonstrate strong resilience during the pandemic, but we also seized opportunities that arose from China's reopening."
Meanwhile, Yum said it's increasing dividends for investors by 23% to 16 cents per share in March.
Watch: How KFC became China's most popular fast-food chain and made nearly $5 billion last year
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