Wednesday, March 28, 2012

Why does an American old grandpa run so fast in China?

---Brief discussion on strategies of KFC in China

American fast food has been prevailing in China nowadays, especially in big cities like Beijing, Shanghai, Hong Kong and Guangzhou. KFC was very successful in China, which was expected to make 36% of an estimated $2 billion operating profit from 3700 restaurants and had a 40% market share among fast-food chains compared with 16% for McDonald's until 2010, according to Euro monitor International, a London-based market research firm.

Why this American old grandpa runs so fast in China?

I think its success in China is closely associated with its analysis on environment, industry and company, which is the important step in the framework to conduct a strategic planning process.

Grandpa: I knew myself and where I am going.
Grandpa: I knew how to love and win the Chinese young” kids” hearts.

KFC knew clearly its strengths, weaknesses, opportunities and threats of the potential market in China, which laid a solid foundation for its market positioning.

KFC’s first strength should be the strong brand in the fast food industry. It has been more widely accepted and recognized in China than any other fast food brand like McDonald, Burger King, and Pizza Hut and so on. High quality of food should be his second advantage. KFC announced that their food quality was controlled by the local franchise. Their third strength should be their fast speed service and short processing time, which helped distinguish them from traditional Chinese food when they first entered China market. However, these operational advantages cannot guarantee whether the fried chicken could be successfully accepted by Chinese people and how to compete with local restaurants remained KFC’s two weaknesses.

Grandpa knows his strengths and weaknesses, and he knew which potential market he would target. Here come the opportunities and treats.

Without a large number of fast food restaurants at that time, KFC seized the opportunities to grow and expand. Until recent years, the number of KFC’s stores has been 2-3 times that of McDonald. The basic thing is to cover more customers and show its advantages of high quality, convenience and strong brand.

However, with people paying more attention to health trends, KFC has to face new challenges to develop their market and maintain the current market share when the friend chicken and potato chips were regarded as junk food. Besides, how an American company can survive under the legislative and policy of a foreign country remained a big problem.

Based on the analysis above, I really appreciated three strategies that KFC adopted under such circumstances. The strategies fully reflected that KFC knew how to love and win the Chinese young “kids” hearts.

-Localization

In order to compete with local companies that possessed the local resources and understood the local markets, KFC chose the right joint-venture partners and employed local management team and gave them decision making power. The local employees helped open up supply line and tap the local market potential.

What impressed people the most was its strategy of localizing its menu. KFC customers can purchase a bowl of congee, a rice porridge that can feature pork, pickles, mushrooms and preserved egg, which is traditional Chinese food. Besides hamburger, sandwiches, milk and hot chocolate, KFC promoted its new nutritious breakfast deep-fried dough sticks, porridge, and soy-bean milk. Afterwards, KFC also provided a chicken, bacon and mushroom rice dish. It was very unique to Chinese customers that you can find traditional Chinese food in an American fast food chain. KFC cared more about what the real customers’ need was and how to integrate their strengths into the needs. Localization without losing its uniqueness in friend chicken and other fast food was an outstanding feature of
KFC in China.

-Innovation


I also was impressed by KFC’s innovation and the speed of creating new trends. Not only did KFC focus on new types of services but also it developed new food types. KFC had diverse types of set meals for individuals, couples, families with children and also a group of friends with reasonable prices, which provided a different convenience from the short processing time.

Also, KFC offered new dishes with fish, shrimp, and other seafood that you would not combine with friend chicken. Combined with local features, KFC had specialized menu terms like a Sichuan cuisine influenced wrap. These new items together with special gifts and meanings mentioned in the attractive advertising and promotion always caused a series of consumption trends.Grandpa really knew what the young customers need and like.

-CSR

Another thing I want to mention is its Corporate Social Responsibility strategy. Its attention on charity such as Red Ribbon activity gradually got the government's recognition and improved its public relationship. Also customers would like to buy more when they knew 1% of their money spent in KFC would be contributed to charity issues.

After knowing the KFC's case, I better understand how a good strategic planning process could help a company develop faster and more successful.

However, with more and more entrants and new substitutions, KFC needs to develop more strategies to maintain its dominant position in the market.

Also, as Liu mentioned, who was the author of KFC in China: Secret Recipe for Success, how much reliance on a single market should a company have no matter how financially attractive that market is?

-Xin Wan

March 28, 2012

References:

http://www.bloomberg.com/news/2011-01-26/mcdonald-s-no-match-for-kfc-in-china-where-colonel-sanders-rules-fast-food.html

http://www.thechinaexpat.com/kfc-in-china-4-reasons-why-kfc-kills-mcdonalds/

http://www.slideshare.net/blakefelson/kfc-in-china


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