History

Main article: History of KFC

The Harland Sanders Caf and Museum

Harland Sanders was born in 1890 and raised on a farm outside Henryville,
Indiana (near Louisville, Kentucky).[5] When Harland was five years old, his father died, forcing
his mother to work at a canning plant.[6] This left Harland, as the eldest son, to care for his two
younger siblings.[6] After he reached seven years of age, his mother taught him how to
cook.[5] After leaving the family home at the age of 13, Sanders passed through several
professions, with mixed success.[7] In 1930, he took over a Shell filling station on US Route
25 just outside North Corbin, Kentucky, a small town on the edge of the Appalachian
Mountains.[8] It was here that he first served to travelers the recipes that he had learned as a
child: fried chicken and other dishes such as steaks and country ham.[8] After four years of
serving from his own dining room table, Sanders purchased the larger filling station on the other
side of the road and expanded to six tables.[9] By 1936, this had proven successful enough for
Sanders to be given the honorary title of Kentucky colonel by Governor Ruby Laffoon.[10] In 1937
he expanded his restaurant to 142 seats, and added a motel he purchased across the street,
naming it Sanders Court & Caf.[11]

Sanders was unhappy with the 35 minutes it took to prepare his chicken in an iron frying pan,
but he refused to deep fry the chicken, which he believed lowered the quality of the product.[12] If
he pre-cooked the chicken in advance of orders, there was sometimes wastage at day's
end.[5] In 1939, the first commercial pressure cookers were released onto the market, mostly
designed for steaming vegetables.[13] Sanders bought one, and modified it into a pressure fryer,
which he then used to fry chicken.[14] The new method reduced production time to be
comparable with deep frying, while, in the opinion of Sanders, retaining the quality of pan-fried
chicken.[12]
In July 1940, Sanders finalised what came to be known as his "Original Recipe" of 11 herbs and
spices.[15] Although he never publicly revealed the recipe, he admitted to the use of salt and
pepper, and claimed that the ingredients "stand on everybody's shelf."[16] After being
recommissioned as a Kentucky colonel in 1950 by Governor Lawrence Wetherby, Sanders
began to dress the part, growing a goatee and wearing a black frock coat (later switched to a
white suit), a string tie, and referring to himself as "Colonel."[16] His associates went along with
the title change, "jokingly at first and then in earnest," according to biographer Josh Ozersky.[17]

Harland Sanders in character as "The Colonel"

The Sanders Court & Caf generally served travelers, so when the route planned in 1955
for Interstate 75 bypassed Corbin, Sanders sold his properties and traveled the US to franchise
his chicken recipe to restaurant owners.[18] Independent restaurants would pay four (later
five) centson each chicken as a franchise fee, in exchange for Sanders' "secret blend of herbs
and spices" and the right to feature his recipe on their menus and use his name and likeness for
promotional purposes.[19] In 1952 he had already successfully franchised his recipe to his
friend Pete Harmanof South Salt Lake, Utah, the operator of one of the city's largest restaurants

Vision
To be the leading integrated food services group in the Asia Pacific region based on consistent
quality products and exceptional customer-focused service

Mission

To maximise profitability, improve shareholder value and deliver sustainable growth year after
year.

Strengths
1. Second best global brand in fast food industry in terms of value ($ 6
billion). KFC is known by many and is a trustworthy brand in many countries
mainly due to its early franchising and international expansion.
2. Original 11 herbs and spices recipe. KFC original chicken recipe is a trade
secret and a source of comparative advantage against firms competitors.
3. Strong position in emerging China. KFC receives half of its revenue from
China, where it operates more than 4,000 outlets. KFC position in China is
one of its main strengths as Chinas fast food market is growing steadily.
4. Combination of KFC Pizza Hut and KFC Taco Bell. KFC partnership
with other Yum! Brands yields some advantage as the restaurant can offer
items from its partners it doesnt have itself and satisfy more customers
needs.
5. KFC is the market leader in the world among companies featuring
chicken as their primary product offering. KFC has positioned itself clearly
among other fast food chains bearing its famous slogan and trademark
chicken products.

Weaknesses
1. Untrustworthy suppliers. Over the years, KFC has been contracting
suppliers, which supplied contaminated poultry to KFC or were mistreating
chicken, thus resulting in falling sales and damaged reputation.
2. Negative publicity. KFC receives much criticism from PETA over the
conditions chickens have been raised. Furthermore, it received bad publicity
for selling chicken wing with kidney. There are many more or less bad news
from KFC, which damage firms reputation significantly.
3. Unhealthy food menu. KFC menu is largely formed of high calorie, salt and
fat meals and drinks. Such menu offering prompts protests by organizations
that fight obesity and hence, decreases KFC popularity. Consumers also often
opt out for healthier choices.
4. High employee turnover. Employment in KFC is a low paid and low skilled
job. It results in low performance and high employee turnover, which
increases training costs and add to overall costs of KFC.

Opportunities
1. Increasing demand for healthier food. While demand for healthier food
increases, KFC could introduce more healthy food choices in its menu and
reverse its weakness into strength.
2. Home meal delivery. KFC could fully exploit (it test deliver services now) this
opportunity and reach more customers.
3. Introducing new products to its only chicken range. KFC could introduce
new meals to its menu and offer pork, beef or only vegetarian meals, which
would target wider consumer group and would result in more costumers.

Threats
1. Saturated fast food markets in the developed economies. The fast food
market in the developed countries is already overcrowded by so many fast

2.

3.

4.

5.

food restaurant chains and this already proves to be a threat to KFC as it finds
it hard to grow in the developed economies.
Trend towards healthy eating. Due to government and various organizations
attempts to fight obesity, people are becoming more conscious of eating
healthy food rather than what KFC has mainly to offer in its menu.
Local fast food restaurant chains. Local fast food restaurants can often
offer a more local approach to serving food and menu that exactly represents
local tastes. Although KFC does a great job in adapting its own menu to local
tastes, the rising number of local fast food chains and their lower meal prices
is a threat to KFC.
Currency fluctuations. KFC receives part of its income from foreign
operations. That income has to be converted into dollars and may affect the
business' profits, especially when the dollar is appreciating against other
currencies.
Lawsuits against KFC. KFC has already been sued for many times and lost
quite a few lawsuits. Lawsuits are expensive as they require time and money.
As KFC continues to operate more or less the same way, there is high
probability for more expensive lawsuits to come.

1. Porters five forces model is an analysis tool that uses five forces to
determine the profitability of an industry and shape a firms competitive
strategy[1]
2. It is a framework that classifies and analyzes the most important forces
affecting the intensity of competition in an industry and its profitability level.

Understanding the tool

Five forces model was created by M. Porter in 1979 to understand how five
key competitive forces are affecting an industry. The five forces identified are:

These forces determine an industry structure and the level of competition in

that industry. The stronger competitive forces in the industry are the less
profitable it is. An industry with low barriers to enter, having few buyers and
suppliers but many substitute products and competitors will be seen as very
competitive and thus, not so attractive due to its low profitability.

It is every strategists job to evaluate companys competitive position in the

industry and to identify what strengths or weakness can be exploited to
strengthen that position. The tool is very useful in formulating firms strategy
as it reveals how powerful each of the five key forces is in a particular
industry.
Threat of new entrants. This force determines how easy (or not) it is to enter
a particular industry. If an industry is profitable and there are few barriers to
enter, rivalry soon intensifies. When more organizations compete for the same
market share, profits start to fall. It is essential for existing organizations to
create high barriers to enter to deter new entrants. Threat of new entrants is
high when:

Low amount of capital is required to enter a market;

Existing companies can do little to retaliate;
Existing firms do not possess patents, trademarks or do not have established
brand reputation;

There is no government regulation;

Customer switching costs are low (it doesnt cost a lot of money for a firm to
switch to other industries);
There is low customer loyalty;
Products are nearly identical;
Economies of scale can be easily achieved.
Bargaining power of suppliers. Strong bargaining power allows suppliers to
sell higher priced or low quality raw materials to their buyers. This directly
affects the buying firms profits because it has to pay more for materials.
Suppliers have strong bargaining power when:

There are few suppliers but many buyers;

Suppliers are large and threaten to forward integrate;
Few substitute raw materials exist;
Suppliers hold scarce resources;
Cost of switching raw materials is especially high.
Bargaining power of buyers. Buyers have the power to demand lower price
or higher product quality from industry producers when their bargaining power
is strong. Lower price means lower revenues for the producer, while higher
quality products usually raise production costs. Both scenarios result in lower
profits for producers. Buyers exert strong bargaining power when:

Buying in large quantities or control many access points to the final customer;
Only few buyers exist;
Switching costs to other supplier are low;
They threaten to backward integrate;
There are many substitutes;
Buyers are price sensitive.
Threat of substitutes. This force is especially threatening when buyers can
easily find substitute products with attractive prices or better quality and when

buyers can switch from one product or service to another with little cost. For
example, to switch from coffee to tea doesnt cost anything, unlike switching
from car to bicycle.
Rivalry among existing competitors. This force is the major determinant on
how competitive and profitable an industry is. In competitive industry, firms
have to compete aggressively for a market share, which results in low profits.
Rivalry among competitors is intense when:

There are many competitors;

Exit barriers are high;
Industry of growth is slow or negative;
Products are not differentiated and can be easily substituted;
Competitors are of equal size;
Low customer loyalty.
Although, Porter originally introduced five forces affecting an industry,
scholars have suggested including the sixth force: complements.
Complements increase the demand of the primary product with which they are
used, thus, increasing firms and industrys profit potential. For
example, iTunes was created to complement iPod and added value for both
products. As a result, both iTunes and iPod sales increased, increasing
Apples profits.

Using the tool

We now understand that Porters five forces framework is used to analyze
industrys competitive forces and to shape organizations strategy according to
the results of the analysis. But how to use this tool? We have identified the
following steps:

Step 1. Gather the information on each of the five forces

Step 2. Analyze the results and display them on a diagram

Step 3. Formulate strategies based on the conclusions

Step 1. Gather the information on each of the five forces. What managers
should do during this step is to gather information about their industry and to
check it against each of the factors (such as number of competitors in the
industry) influencing the force. We have already identified the most important
factors in the table below.

Threat of new entry

Amount of capital required

Retaliation by existing companies
Legal barriers (patents, copyrights, etc.)
Brand reputation
Product differentiation
Access to suppliers and distributors
Economies of scale
Sunk costs
Government regulation

Supplier power

Number of suppliers
Suppliers size
Ability to find substitute materials
Materials scarcity
Cost of switching to alternative materials
Threat of integrating forward

Buyer power

Number of buyers
Size of buyers
Size of each order
Buyers cost of switching suppliers
There are many substitutes
Price sensitivity
Threat of integrating backward

Threat of substitutes

Number of substitutes
Performance of substitutes
Cost of changing

Rivalry among existing competitors

Number of competitors
Cost of leaving an industry
Industry growth rate and size
Product differentiation
Competitors size
Customer loyalty
Threat of horizontal integration
Level of advertising expense

Step 2. Analyze the results and display them on a diagram. After

gathering all the information, you should analyze it and determine how each
force is affecting an industry. For example, if there are many companies of

equal size operating in the slow growth industry, it means that rivalry between
existing companies is strong. Remember that five forces affect different
industries differently so dont use the same results of analysis for even similar
industries!
Step 3. Formulate strategies based on the conclusions. At this stage,
managers should formulate firms strategies using the results of the
analysis For example, if it is hard to achieve economies of scale in the market,
the company should pursue cost leadership strategy. Product development
strategy should be used if the current market growth is slow and the market is
saturated.
Although, Porters five forces is a great tool to analyze industrys structure and
use the results to formulate firms strategy, it has its limitations and requires
further analysis to be done, such as SWOT,PEST or Value Chain analysis.

Example
This is Porters five forces analysis example for an automotive industry.

Threat of new entry (very weak)

Large amount of capital required

High retaliation possible from existing companies, if new entrants would bring innovative
products and ideas to the industry
Few legal barriers protect existing companies from new entrants
All automotive companies have established brand image and reputation
Products are mainly differentiated by design and engineering quality
New entrant could easily access suppliers and distributors
A firm has to produce at least 5 million (by some estimations) vehicles to be cost competitiv
therefore it is very hard to achieve economies of scale
Governments often protect their home markets by introducing high import taxes

Supplier power (weak)

Large number of suppliers

Some suppliers are large but the most of them are pretty small
Companies use another type of material (use one metal instead of another) but only to som
extent (plastic instead of metal)
Materials widely accessible
Suppliers do not pose any threat of forward integration

Buyer power (strong)

There are many buyers

Most of the buyers are individuals that buy one car, but corporates or governments usually
large fleets and can bargain for lower prices
It doesnt cost much for buyers to switch to another brand of vehicle or to start using other t
of transportation
Buyers can easily choose alternative car brand
Buyers are price sensitive and their decision is often based on how much does a vehicle co
Buyers do not threaten backward integration

Threat of substitutes (weak)

There are many alternative types of transportation, such as bicycles, motorcycles, trains, bu
or planes
Substitutes can rarely offer the same convenience
Alternative types of transportation almost always cost less and sometimes are more environ
friendly

Competitive rivalry (very strong)

Moderate number of competitors

If a firm would decide to leave an industry it would incur huge losses, so most of the time it
bankrupts or stays in automotive industry for the lifetime
Industry is very large but matured
Size of competing firms vary but they usually compete for different consumer segments
Customers are loyal to their brands
There is moderate threat of being acquired by a competitor

FUTURE PLANS
As the worlds largest restaurant company, it is our responsibility to make sure that we have balanced
meals for people who are interested in accessing lower fat, lower calorie options and that they have
information available to make informed purchase decisions. Our teams around the world are working
hard every day to ensure we live up to this responsibility.