KFC (Kentucky Fried Chicken) is a fast food restaurant chain with headquarters in Louisville, Kentucky, known for its fried chicken. After McDonald’s, it is the largest fast food restaurant chain in the world with reference to annual sales. It operates in 123 countries with more than 20,000 outlets. It was the first western fast food chain to enter China and now it is its largest market worldwide.KFC is a subsidiary of the Yum! Brand, a company that also owns Taco Bell and Pizza Hut chains. The founder of KFC was Colonel Harland Sanders in 1930.It started off with a different name and the name KFC was adopted in 1952. The products of KFC include fried chicken, fries, coleslaw, desserts, soft drinks, and breakfast. The annual revenue of KFC is more than $25 billion.
Following is a detailed Porter Five Forces Model Analysis of KFC:
Competitive Rivalry – High
The fast food business is one of the most competitive businesses today. KFC is also facing intense competition in its business from other players in the industry mainly McDonald which is taking it head on for the top position in the global market. Although there is product differentiation in some products, most of the products are common such as fries, soft drinks, coleslaw, salads etc. As a result, each competitor tries to come up with schemes to attract customers. KFC has introduced a membership card for kids that not only give them discounts at KFC but also at a number of other outlets such as Sunway Lagoon, Zoo Melaka, and MPH Bookstore (Smarau, 2013). Thus, the competitive rivalry for KFC is intense.
Threat of New Entrants – Medium
Fast food industry requires a large level of investments, marketing, and product development before a new entrant can make a place in the industry. The existing brands like KFC and McDonald have their brand image so strong that they have built up a huge loyal customer base. These customers avoid going to any other place than these particular restaurants. The ability of the existing brands to ensure same product taste, restaurant ambiance, and excellent customer service worldwide has made further raised the entry barriers to this industry. In 2008, Radix Fried Chicken was launched and has succeeded in gaining market share and attracting customers as it offers a fresh menu (Cornelius, 2010). Thus, the threat of new entrants is medium for KFC.
Bargaining Power of Suppliers – Low
The main raw materials of KFC include chicken, soft drinks, and potatoes. Due to the very frequent and bulk orders, there are a large number of suppliers who are ready to agree to the terms of KFC and supply it with its required raw products. Due to lack of product differentiation, the large size of orders, and a large number of suppliers; the suppliers do not hold bargaining power against KFC and cannot attempt to raise their prices. In 2004, KFC terminated a contract with one of its chicken suppliers due to their crude slaughtering of the hens. Thus, the suppliers of KFC do not have any bargaining power over it.
Bargaining Power of Buyers – High
The buyers of KFC are its customers who walk in into its restaurants every day. These customers have an array of choices to go to now e.g. McDonald, Subway, RFC, Pizza Hut, and so on. Therefore, KFC cannot raise the prices and force the customers to purchase their products at higher rates. The customers will simply shift to another competitor. Thus, the customers of KFC have a number of choices. Therefore, the bargaining power of customers against KFC is high.
Threat of Substitutes – High
There are a number of restaurants that are offering products similar to those of KFC. One of them is Popeye’s Louisiana Kitchen has become a strong substitute for KFC. The restaurant offers a number of other side dishes such as rice and mashed potatoes that KFC does not offer. Secondly, in many nations in which KFC operates, it is facing substitution by local restaurants such as Arabic Fried Chicken in the Middle East region. KFC has tackled this issue by offering free Wi-Fi service at its restaurants and introducing the morning menu of breakfasts. Thus the threat of substitutes is high for KFC.
References
Cornelius, S., 2010. Structural Analysis KFC. [Online] Available at: https://www.scribd.com/doc/31608312/Structural-Analysis-KFC [Accessed 11 July 2017].
Smarau, I., 2013. Task 5 – 5 porter model (KFC). [Online] Available at: https://www.slideshare.net/ilyanaismarau90/task-5-5-porter-model-kfc [Accessed 11 July 2017].