According to Michael Porter, in order to survive in a dynamic and competitive world, a firm must be able to gain competitive advantages over its competitors by understanding itself and the environmental changes. A firm with wealthy resources may not be able to sustain the competitive advantages if it does not have a well effective management. An effective management should be able to come out with different strategies to deal with different situation based on the remote and industry environment.
This is because it enables a firm to sustain competitive advantages and gain market share even thought the industry is unattractive. This report is regarding the internal and external analysis of KFC (Malaysia) Holding Bhd which includes their unique resources, core competencies, strategic issues and etc. This report will show us an in-depth view on current situation and issue of the fast food industry. 2.
...0 REMOTE ENVIRONMENT The remote environment comprises factors that originate beyond and usually irrespective of, any single firm's operating section: social, political, economic, technological and ecological factors.
By using PESTEL framework, we would able to analysis many different factors in the fast food industries. Political (Threat & Opportunity) Based on the fast-food industry, some political constraints are placed on firm through fair-trade decision, tax programs, pollution, pricing policies and government policy. In Malaysia Budget 2010, Islamic Development Department of Malaysia (JAKIM) intensifies HALAL certification by collaborating with international institutions to obtain standards certification such as HACCP and GMP.
These changes may restrict and affect some of fast food industry getting it licensed. Furthermore, the service tax may replace to goods and services tax (GST) i
Malaysia Budget 2010. The GST rate to be imposed will be lower than current services tax rates. As a result, some of the fast-food industry like KFC, McDonalds able to gain benefit in lower their tax charge to consumers and increase their profits. Economy (Opportunity) Economic factors concern the nature and direction of the economy in which a firm operates.
Based on Malaysia Budget 2010, Malaysia economy in 2010 will expected to grow 2 to 3 percent. This show recession in Malaysia is slowly recovered. As a result, it may reduce the price of raw material and purchasing power from fast food industries will increase. Fast food industry may reduce their price and attract more consumers. Social (Threat) As we all know, one of the major issue for fast food industry concern is for individual health. The fast-food industry has been the target of a great deal of public concern over the relationship between obesity and health.
As the fast food industry caught in the middle of this new social concern, its menu consisted principally of high-calorie, artery-clogging foods. Besides that, fast-food industry causes rise in obesity claiming that companies like KFC and McDonald’s created an environment that encouraged overeating and discouraged physical activity. Next, the consumers are very concentrate with the food hygiene, so the environment inside and outside for any food production or marketing establishment shall kept clean and tidy. It is because once food poisoning to the customer, it will lead removed the business license.
Technology (Opportunity) Fast food industry having competing technology development like modern cooking machine, packing, credit card payment and so on in order to perform
more efficiently in timely manner. In addition, fast food industry having very fast replacement technology due to only replaced or updates the technology able to compete with each others. For example, KFC is the first who introduce the baking system in front of customer to satisfy the customer which means that all the cooking, baking and all other work that is involved in the preparation of the fast food.
Fast food industry also must be very innovative and creative in the way like creative advertisement in order to achieve competitive advantage. For example, KFC latest advertisement about a guy eating KFC Hot Rods and he image in the wrestling rings. It will attract the consumer to buy the product. Ecological (Threat) Based on fast-food industry, their main ecological factors are their cooking oil usage whereby water pollution is created by dumping the wastage cooking oil. Based on our research, majority of the fast food companies consume their cooking oil as their main resources in order to produce the food to the customer.
Once they finish produce the food, they will either use the cooking oil again or neither dump the unwanted cooking oil to drainage causes water pollution to the environment. Legal (Opportunity) Malaysia is place having different race and region, so one of the legal factor is HALAL Policy due to some of the products are serving and satisfied to Muslim only. In addition, fast food industry also needs to comply with Franchise Act 1998 in order to apply for franchise license in order to protect the firm as well. 3. 0 INDUSTRY ENVIRONMENTAL
Industry environment is the general conditions for
competition that influence all businesses that provide similar products and services. By using Porter Five Forces, it helps strategic managers to link remote factors to their effects on a form’s operating environment and whether the industry is still profitability. There are five forces will be mentioned as below: Threat of New Entrants It depends on whether there are any barriers to entry. The barriers are: a) Capital requirements • The size of the major competitors in this industry is likely to require many years of heavy investments. This because it is required for nrecoverable expenditures in upfront advertising or research and development. In addition, capital is not only for fixed facilities but also included absorbing startup losses and inventories. b) Product differentiation • Large established companies with strong brand identities such as McDonald’s and KFC do make it more difficult to enter and succeed within the marketplace. Also, there is already a large variety in the numerous fast food restaurants in Malaysia such as KFC, McDonald’s and Pizza Hut; therefore, any new fast food entrants would just be providing something which are very similar with them. ) Economies of scale • The new entrants to Malaysia market could find that they are faced with price competition from existing chain restaurants. Conclusion, since there are high barriers, so threat of new entrants is low. Products Substitute The substitutes for fast food can be divided into three categories: • Major competitors in fast food industry such as Pizza Hut, McDonald’s and Kenny Roger. Though they are competitors but their primary products differ greatly from each other. • Dining restaurants and street vendors with ready-to-eat foods are counted
as substitutes.
They do not constitute a high threat when it comes to breakfast and lunch meals where convenience plays a major role, especially for dining restaurants. • Eating at home is considered as medium threat to fast food industry because of limited of lunch time. Besides, convenience also plays a major role in this factor due to most people are not living closely to their working place. Conclusion, the threat for product substitute is high. Powerful Buyers The bargaining power of customers is high considering that they have lots of choices to be made.
The existent of other fast food restaurants do increase the bargaining power of customers. Customers can go to any fast foods restaurant that offered more affordable prices especially for students like us. Besides that, the switching costs are low for the buyer as there are many choices of fast food in this industry and not much affected to them. Therefore, the buyer is powerful. Powerful Suppliers In this fast food industry, the suppliers for the raw material can said are not as powerful as there are a lot of suppliers that the firm can dealing with.
The firm can always seek for the low prices as how the firms negotiate with the supplier to supply their goods as they want. The firm always can find another supplier if they unable to satisfy with the current supplier they deal with in order to get lower price and high quality of raw material as the same time. Besides that, the switching cost are low as there is not much can affected if they want to switch to others vendor.
Conclusion, the supplier is not powerful. Jockeying for Position (Intense Rivalry)
Malaysia fast food industry is medium rivalry due to their core products is different and they are selling different kinds of fast food with very different taste and styles. In addition, these restaurants have different target customers that the fluctuation of price for one restaurant is not going to affect the others. However, this also indicates that several of competitors are vying for a piece of the consumer’s disposable income; therefore, each seller will design different kinds of set meal and offer a lower price and focus more on advertising in order to attract more customers.
Conclusion, the rivalry among the existing competitors is moderately strong. 4. 0 COMPETITOR ANALYSIS There are many competitors for KFC in this fast-food industry such as McDonalds, Burger King, Wendy’s, A&W, Kenny Roger and etc. We had randomly chosen two main competitors which are McDonalds and Burger King by understanding their background and evaluate their strength and weakness in order for KFC to expose new opportunities to against their weaknesses. 4. 1 McDonalds’
McDonalds is one of the main competitor faces by KFC and also one of the famous fast food chains in the world which ranked second in Malaysia. Product Characteristics McDonald's menu concentrates on five main ingredients: beef, chicken, bread, potatoes and milk. The company's main menu lists its basic food offering: the Big Mac, which still exists as a major seller; other standard product names come from the McDonald's convention of adding a 'Mc' to a particular item. So, a chicken sandwich becomes a 'McChicken' sandwich and chicken nuggets become chicken 'McNuggets'.
style="text-align: justify">This idea has been extended to their dessert range, with the creation of the 'McFlurry' ice cream as well. We had determined their strength and weakness: |STRENGTH |WEAKNESS | |Widely Recognized Market Leader. |High employee turnover | |- Global company operating more than 23,500 restaurants in |- It leads to more money being spent on training. |109 countries. |Lack of product innovation. | | | | |Strong Brand Name and Reputation | | |- 85% of McDonald’s restaurant businesses world-wide are | | |owned and operated by franchisees. | |- Global locations in all major airports and cities. | | |Good Customer Service. | | |- Provide customer with nutrition information which is printed| | |on all packaging and more recently added to the McDonald’s | | |internet site. | | . 2 Burger King Burger King is also one of a main competitor faces by KFC and is second largest fast food hamburger restaurant (FFHR) in the world. Besides that, Burger King also is a global chain of hamburger fast food restaurants headquartered in unincorporated Miami-Dade County, Florida, United States. Product Characteristics Burger King’s major product lines include sandwiches, hamburgers, and cheeseburgers, salad, hash browns, coffee, juice, cookies, soft drinks, pies, shakes, fries and onion rings.
Again, we had determined their strength and weakness: |STRENGHT |WEAKNESS | |Second larger fast food hamburger restaurant in the world |Less control over franchise | | |- Difficult to control the franchisee over the world as there | | |is roughly 90% of the restaurants were franchised. | | | |Strong brand equity |Relies heavily on franchisees to execute its brand promise | |- Roughly 90%
of the company’s restaurants were franchised and| | |only 10% were company owned. | | | | |Strong financial performance | | 5. 0 MARKET ANALYSIS Core target market of fast food industry is youngsters who are enrolled in college and high school. Fast food restaurant became a place for them to meet and hang out after school.
Especially for college students, they tend to discuss their assignment in fast food restaurant due to free WIFI is provided and they can have their meal anytime. Our secondary market segmentation is young urban families. Most of parents will buy fast food because of their children love to eat fast food. Besides, parents also will give more money to kids and students to buy lunch. And fast food is naturally their first choice because of the branding effort that heavily targets in this age group.
In addition, eat at outside still remains as Malaysians' common habit of life. Parents do not perceive fast food is a luxury, and they enjoy it by bringing their family, especially if they have smaller kids, in the environment of the western-style fast food outlets. Furthermore, working adults are also included in fast food market segmentation, but they just have a small proportion. The reason they will consume fast food because they can serve them faster and let them back to office early.
As the result, the strategy customers of this industry are age within 15 to 40. In addition, the ultimate customers are the kids which are age within 4 to 14; although, they are consumed indirectly though their parents. 6. 0 KEY SUCCESS FACTOR FOR KFC For
an industry to be successful, unique resources and core competence plays an important role where it adds value to the company. So, our group will use Resource Based View (RBV) and Value Chain Analysis to analyze KFC unique resource and core competence. 6. Resource Based Valuation (RBV & Strategic Capabilities) | |Resources |Competences | | |Threshold resources: |Threshold competences: | | |- Financial resources like capital, cash or |- Provide friendly service, good quality food and| | |suppliers of money |clean atmosphere to the customer. |Threshold capabilities |- Physical resources like machinery, building and | | | |production capacity. | | |Capabilities for |Unique resources: |Core competences | |competitive advantage |Tangible asset | | | |Intangible asset | |
Based on the RBV analysis, the basic resources for fast-food industry to survive in the market is capital, cash, cooking machinery and outlet. The firm reputation will be enhanced by introduce more to that. 6. 2 Unique Resources First of all, KFC have created their own unique recipe consist of few flavor which are original recipe (pressure cooked), extra crispy (fried) and tender roast (roasted) which is one of their unique resources to sustain their competitive advantage.
Besides that, their secret recipe of 11 herbs and species has made it the leader in chicken for the last 50 years. According to their group structure (Appendix), KFC adopted vertical integrations whereby they acquired a lot of subsidiary which relevant to their business whereby top quality raw material from reputable suppliers such as Nestle, UBF, Kerry Ingredients, Lamb Weston, Simplot, McCain and Jomalina, as well as from their in house suppliers such as Ayamas, Region Food,
KFC Bakery and KFC Commissary.
This is also a unique resource for KFC whereby they will not seek for other supplier as they have their wholly owned supplier to sustain competitive advantages. In this case, the suppliers for KFC are not powerful as well. Besides that, they also invest in other subsidiary company including RasaMas and Kedai Ayamas Sdn Bhd which involved in marketing and promotion activities. These businesses bring substantial financial resources to company and help company to achieve competitive advantages by better handling of company resources.
Furthermore, KFC have well recognition of brand name in fast-food industry whereby they achieved a lot of awards due to their performance which enhanced its brand name. Some of this award includes, Brand Excellence in Product Branding for Fast Food Chicken Category, KFC People Excellence Award, Best Operations Excellence Award, Franchisee of the Year, Reader’s Digest Most Trusted Brands and etc (Appendix).
This high equity brand name and reputation of KFC is a unique resource that able to sustain competitive advantages. Besides that, KFC have been certified by few quality assurances whereby their chicken supplier Ayamas is monitored closely by Department of Veterinary Service and has obtained the VHM (Veterinary Health Mark) Logo and it is also an ISO 9001 certified company. All Ayamas chickens are slaughtered by personnel certified by Jabatan Agama Islam Selangor to ensure Halal procedures are met.
Furthermore, they have also established a Hazard Analysis Critical Control Point (HACCP) Programme for KFC restaurants whereby HACCP is a management system for the assurance of food safety. The process includes identifying, evaluating and controlling hazards i. e. physical, biological and chemical
to ensure food safety. It is applied from receiving of raw materials at their restaurant until serving to their customers. This is one of the unique resources for KFC as it provides quality assurances that serve to every customer. 6. 3 Value Chain Analysis
Now our group will use Value Chain Analysis to analyze KFC core competence which has successfully satisfied the key success factors. The activities that KFC undertakes which add value include: CORE COMPETENCES |General Administration ( Risk Management by identify threats | |(Formal Organization Structure with outlined of authority, responsibility and accountability. | |Human Resources ( Employee training along with company philosophy to improve skill and knowledge. |Technology ( Systematically improvement on operation whereby enhance machinery for production efficiency | |Procurement | |Inbound Logistics |Operations | |Marketing & Sales |Services | |(Ayamas Poultry |( Processing Plant System | |(Marketing Strategies | | |Integration System |integrated with HALAL and | |Planning |( Customer Feedback Form | | |High Quality Standards. |Outbound Logistics |(Strong promotion and | | | | | |advertising | | 6. 3. 1 Primary activities i) Inbound Logistics KFC wholly owned subsidiary Ayamas Food Corporation Bhd is Malaysia's foremost poultry integrator and its operations consists of breeder farms and hatchery, feed mills, poultry farms, contract broiler farming and processing and further processing plants. ii) Operation -Primary processing involves the HALAL slaughtering and production of chicken and chicken parts to the required specifications. Secondary processing involves the processing of poultry products into convenience foods like burgers, nuggets, kiev, bologna, smoked chicken, satay, sausages, chicken balls, etc. to be marketed under the Ayamas brand name. -Their chicken supplier Ayamas is monitored
closely by Department of Veterinary Service and has obtained the VHM (Veterinary Health Mark) Logo and it is also an ISO 9001 certified company.
All Ayamas chicken are slaughtered by personnel certified by Jabatan Agama Islam Selangor to ensure HALAL procedures are met. iii) Outbound Logistics -Distribution is handled internally by a large fleet of refrigerated trucks. This direct delivery from plant to customer ensures the freshness of products as well as consistency of supply. iv) Marketing and Sales - KFC have very strong advertisement whereby we as the consumer can see every picture of the KFC through cinema, television and even though they have their own creation of theme song “Good Things Come Together With KFC” through the radio to get more attention from the public whereby KFC become more and more popular nowadays. v) Services Customer feedback is an important way for KFC to better improve their service. They would like to hear customer feedback in the form of suggestions, comments, complaints and any other information related to their company and their services. (Appendix) 6. 3. 2 Support activities i) GeneralAdministration - The main attributes for KFC excellence are CHAMPS to achieve company objectives. C-Cleanliness, H-Hospitality A-Accuracy M-Maintenance P-Product Quality S-Speed of Service All management and staffs committed their efforts in implement CHAMPS’ which these strategies not only boost brand equity but resulted of growth in both product capacity and sales as well. ii) Human Resources Management There are policies and procedures for recruitment, performance appraisals and promotion to ensure that suitably qualified and competent personnel across all levels of management are hired and retained -They also dedicated to continuously develop employees
with the relevant and appropriate skills by conducting regular training program. iii) Procurement - KFC have centralized and coordinated procurement function for major purchases of assets and inventory, project development and maintenance expenditure. - This able to leverage on economies of scale and ensures adherence to authority limits, policies and procedure. 6. 4 SWOT Analysis After our group had done PESTEL and Porter Five Forces analysis, we had come across with KFC evaluation by using SWOT analysis. STRENGTH |WEAKNESS | |Strongest brand in the fast food industry |Unhealthy method of cooking | |- pertinent to consumer loyalty, attracting the right sort of | | |franchisee and essential to the success of the franchise |- Mainly cooks its chicken in vegetable oil called trans fats. | | |- uses genetically modified chicken, which is highly | | |controversial amongst the educated and health conscience. | |Quality of food | | | |Lack of focus on Research & Development | |- The quality is defined by the YUM! nd controlled by the |- Did not focus so much on coming out new produce and keep on | |local franchisees. |concentrating on their main existing product. | |- Continual improvements in breeding and general rearing | | |technique | | | |No delivery services | |Strong trademarks recipes |- Currently no delivery services in Malaysia. |- allow for quick a processing time, which makes it all the | | |more convenient and more attractive to prospective clients. | | |OPPORTUNITIES |THREAT | |Introduce delivery services |Health trend away from fried foods | |Might consider providing delivery service to the customer to |- KFC food is very unhealthy and
cause obesity to the customer. | |earn potential profit. | | | | |Product Innovation |Changing consumer habits towards healthier food choices | |- Develop new product lines which |- Consumer especially aged person might choose healthier food | |focus on organic food and healthier food to gain competitor |rather than unhealthy food because they realize that consume a | |advantage |lot of junk food might cause obesity, high cholesterol, or etc. | | | | |Bird Flu Diseases | | |- The demand of the chicken decrease the sale of the KFC also | | |decreases in the business process. | 7. 0 STRATEGIC ISSUES Based on the remote environment of fast-food industry, our group found that there are several strategic issues faced by KFC. a) Unhealthy Food Producer. -One of the major issues whereby consumers are concerning for healthy food nowadays due to negative effect of junk food. However, KFC major products are unhealthy and therefore it may reduce the consumer consume the products. b) Powerful Buyer Buyers should take into account for strategy issue as they are powerful in this industry due to there are a lot of choices for the customer enjoy different kind of fast-food. -Besides that, not only these reasons but the product substitutes are high as well such as major competitor, dining restaurant and street vendor with ready-to-eat food and eating at home. c) High rivalry among competitors -KFC needs to consider the external environments in order to compete with their competitors. The competitors always having head-to-head competition and will affected the firm future growth. Top management should always look beyond the operation to successfully position them in
the competitive environment. )Changes of consumer habits towards healthier food choices -KFC needs to focus on research and development for product innovation in order to develop new product lines which focus on organic food and healthier food to sustain competitive advantages. 8. 0 CONCLUSION After conducting the analysis, we found that the fast-food industry is moderately unattractive according to Porter’s Five Forces as fast food industry has comes to maturity stage. Nevertheless, existing fast-food industry might still faced some unexpected changes of environment and strategy issues, to be a market leader or achieve companies’ objectives, they must create not only one but few unique resources and core competence in order to sustain competitive advantage and survive in the long run. APPENDIXES Summary of SWOT Analysis: STRENGTH |WEAKNESS | |Strongest brand in the fast food industry |Unhealthy method of cooking | |Quality of food | | | |Lack of focus on Research & Development | |Strong trademarks recipes |No delivery services | | | | OPPORTUNITIES |THREAT | |Introduce delivery services |Health trend away from fried foods | | | | |Product Innovation |Changing consumer habits towards healthier food choices | | | | | |Bird Flu Diseases | REFERENCES • PEARCE, J. A. , and ROBINSON, R. B. , 2009. Strategic Management: Formulation, Implementation & Control. 1th ed. McGraw Hill International Edition. • JOHNSON, G.. , SCHOLES, K. , and WHITTINGTON, R. , 2008. Exploring Corporate Strategy. 8th ed. Prentice Hall. • DAVID, F. R. , 2009. Strategic Management: Concepts and Cases. 12th ed. Pearson Prentice Hall. BIBLIOGRAPHY • KFC HOLDING (MALAYSIA) BHD. , (2009). Annual Report 2008 [online]. Malaysia. Available from:- http://www. kfcholdings. com.
my/English/Flashsite/InvestorRelations/annual_report. asp [Accessed 30 October 2009]. • QSR BRANDS BHD. , (2009). Annual Report 2008 [online]. Malaysia. Available from:- http://www. qsrbrands. com/English/FlashSite/InvestorRelations/AnnualReport. sp [Accessed 30 October 2009]. • KFC HOLDING (MALAYSIA) BHD. , (2009). Business Unit [online]. Malaysia. Available from:- http://www. kfcholdings. com. my/English/FlashSite/BusinessUnits/BizU_Poultry_Integration. asp [Accessed 30 October 2009]. • KFC HOLDING (MALAYSIA) BHD. , (2009). Awards & Achievements [online]. Malaysia. Available from:- http://www. kfcholdings. com. my/English/Flashsite/AboutCompany/AwardAchievement. asp [Accessed 30 October 2009]. • KFC HOLDING (MALAYSIA) BHD. , (2009). HALAL Policy [online]. Malaysia. Available from:- http://www. kfc. com. my/about-halal. html [Accessed 30 October 2009]. • KFC HOLDING (MALAYSIA) BHD. , (2009).
Quality Assurance [online]. Malaysia. Available from:- http://www. kfc. com. my/about-quality. html [Accessed 30 October 2009]. • BUSINESS TIMES, (2009). Malaysia Budget 2010 Highlights [online]. Malaysia. Available from:- http://www. btimes. com. my/Current_News/BTIMES/articles/20091023164903/Article/index_html [Accessed 1 November 2009]. • EXPATRIATE MALAYSIA, (2009). Fast Food Home Delivery in Malaysia [online]. Malaysia. Available from:- http://www. expat. com. my/Expatriate%20Malaysia%20-%20Fast%20Food%20Home%20Delivery. htm [Accessed 2 November 2009]. • ESSAY CLUB, (2008). KFC Marketing Research [online]. Available from:-
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