The fast food industry through Tricon Global
Our project is on Kentucky Fried Chicken, which is a division of Tricon Global Restaurants and is classified in the restaurant industry. This industry has grown in the early 1990s at a rate of 10% a year through 1993 and continued to grow through 1996, according to the U.S. Census Bureau. This booming expansion lead to greater supply than demand, but became more balanced as of January 1999.
There are low barriers to entry in the restaurant industry due to its popularity among small-scale entrepreneurs. Nearly four out of every ten restaurants in the United States are run by small operators. There is little education, contacts, or resources needed to start a restaurant. For example, immigrants may have little education, but have an entrepreneur vision and the know how to prepare their native cuisines so they choose to open a restaurant. Some of these ventures are successful, but high fixed costs create barriers.
Food and Beverage, labor, and real estate are the restaurant owner's largest costs. Companies must negotiate directly with national and regional suppliers to ensure competitive prices on food and beverages. The shortage of workers in the 16-to-24 age group, the low unemployment rate, and the increased minimum wage contributed to a 2% increase in labor expenses in 1999. Real estate is also an obstacle due to large investments for prime locations or an increase of rent in the case of leased buildings. Competition is also a factor in the success of starting a restaurant.
The second force in Porter’s model is the power of suppliers. Suppliers can be a crucial part of almost any industry. Powerful suppliers can reduce industry profitability or make it difficult to react to changes in product prices. In the restaurant industry, specifically the sub-industry of fast food, Food brokers dominate due to the limited number of important suppliers. Most restaurants receive their tangible goods from the same broker, such as Sysco. These food brokers inventory a wide variety of products that are specific to the industry and can deliver all necessary goods such as, caned products, dry goods, beverages, frozen meats, and even cooking and cleaning supplies. The only choice most restaurants have as far as food delivery is for the purchasing of produce. Fresh produce is usually purchased locally and therefore a competitive market. It is easier and less costly for the restaurants to purchase their perishable produce this way. In recent years, due to the ageing demographics, customers are moving away from fast food outlets towards mid-scale and dine in style restaurants. Because of this trend, a demand for higher quality food and service is needed. The brokers can select and locate the quality of products required by the restaurant. The food brokers can easily meet the restaurants needs, but at a change in cost. Along with this trend a new strategy called multiple branding is increasing in popularity. Multi branding is the combination of dining in and low cost menu items along with traditional fast service.
Another force of Porter’s model is the availability of substitutes. In today’s market the state of the fast food industry can be summed up as being fiercely competitive. The availability of close substitutes in the fast food industry is very high. There are numerous types of substitutes in the industry. The restaurant industry all together builds an industry of over 118 billion dollars in shares. All fast food restaurants, whether a franchise or a local establishment, are a major competitor, along with fine dinning restaurants, supermarket frozen foods, and even cooking at home. Because of the huge abundance of available substitutes the consumer’s switching cost is almost nothing. In the average case you will find several similar restaurants in close proximity to each other to appeal to the customer. Marketing is a key factor here. Most companies spend about one forth or 25% of total expenditures on advertising and marketing research. The massive efforts in advertising are necessary due to the fierce competitiveness in the industry and the high availability of substitutes.
The fast-food industry as one unit is a forever changing industry simply because there is no other industry in the world that is more affected by the average-wage consumer. No matter what happens in the job market - fluctuating trends in taxes, Stock Market surpluses or crashes - the lower to middle class consumer is the most important buyer. People have to eat and the influence that the average person has on a daily basis in this industry has directly related to this industry’s increasing year-end net profits. Since there are so many competitive products in the market, this makes the bargaining power of the consumers very high, even more so than the thousands of increasingly growing distribution channels that transport products all around the globe. Over the last decade, especially in the late ‘90’s, the Fast Food Industry has soared into Asia, Eastern Europe and even some third world countries. The goal of the fast food industry is to meet the ever changing needs of the average person who is the biggest and best buyer.
In today’s society, the fast-food markets are facing many similarities when it comes to securing its customers. The age group 36-54 or the baby boomers are the primary targets because they represent the most people and wages in the work place. According to 1999 statistics, in the US alone nearly 80 million or roughly 27 percent of the US population fits into this category. Most of them have families to feed, and due to increased work and family responsibilities, they do not always have time to prepare meals at home.
The fast-food industry has been studying such trends and is constantly expanding their variety of meals to meet a typical family’s time demands. It is estimated that the usual family member prefers to prepare a meal no more than 15 minutes a day. The industry is also searching for ways to make their products more nutritious, since others at this stage in their life tend to be health conscious, and want to focus on more nutritious foods. Even for the elderly, the industry has produced securely wrapped, packaged products for easier access and safety.
Due to the increasing world populations, the fast-food industry has expanded personnel and distribution channels to reach out to every possible consumer while reducing its own overhead costs of doing so. For example, in 1997 Tricon Global Markets was formed. This billion-dollar industry is a fast-food giant composed of major fast food kings such as taco bell, Pizza Hut, and Kentucky Fried Chicken. Also with the growing different ethnic backgrounds and changing lifestyles, these trends in the world and in people’s lives have always played a huge impact and role towards the industry as a whole.
Availability of Substitutes of the Industry Products
This brings about possible substitutes for the market. Some families will prefer to stay home and cook meals, others will go to grocery stores to buy frozen foods and prepare quick and easy microwave dinners, which usually are a lot cheaper than going out to a fast food restaurant. The idea is to choose time or price, or quality or price.
The fast-food Industry as a whole will always will be around, no matter if customers decide not to buy products or if the Industry continues to grow, expand or merge with other markets. As long as the world’s population increases, along with different people of different ages, lifestyles, ethnic backgrounds, and a desire for food, the fast-food industry will continue to boom for years to come.
Finally the last force on Porter’s Five-Forces Model is the Rivalry Among Competitors. The fast food business is fairly balanced among its competitors. The main competition is through advertising. This is where firms gain or lose most of there customers. Fast food franchises also compete through promotions. For example, when McDonald’s offers the beanie babies with the purchase of a kid’s meal it has a negative affect on other fast food restaurants. The food service industry has grown to serve many different aspects of today’s society. Food companies now cater to nontraditional markets such as schools, airports, and corporate cafeterias. This response is necessary for a business to keep up with its competitors. To gain an upper hand in the food industry, a business must reduce its fixed costs. Fixed costs include: Food and beverage (largest), Labor, and Real estate. During times of fluctuating prices, some restaurants engage in forward pricing to stabilize food costs. Forward pricing is when a company negotiates with it suppliers to buy a given amount of food or other products for a set price to be delivered on a set date in the future. The reductions in costs dramatically increase its competition power. There is product differentiation within the food service industry. It is divided into 3 categories: Commercial (largest), Institutional, and Military.
The barriers to exit the food industry are relatively low because you can always find buyers for the equipment, although it is somewhat specialized. The emotional barriers to exit are the highest for a business to overcome. It portrays a negative affect on the whole company. It also affects the owner of the business. The thought of going out of business is never easy to swallow. The USDA and FDA provide guidelines to exiting, but none of them are very strict.
The Origin and Evolution of the Colonel and his Secret Recipe
The origin of Kentucky Fried Chicken began by a man named Harland Sanders, who was born in 1890. He got started in the cooking business ever since he was 6 years old, when his father died. His mother was then forced to work all the time and since he was the eldest of three children, he had to take care of his younger brother and sister. He had to learn how to do most of the chores in the home, primarily cooking. Little did he realize how great this experience was for him because it would set the stage for the “Colonel’s" ultimate success in the Chicken Industry. From the time he was 7 until the age of 40, Colonel Sanders held numerous jobs - farm worker, justice of the peace, insurance salesman, railroad fireman - all to support himself and his family. However, his passion for preparing exquisite dishes consumed him and in 1935 he operated a small dining station in his living quarters in Corbin, Kentucky. It was here that the Governor of Kentucky heard about the Harland Sanders’s expert cooking tactics and proclaimed him as a "Kentucky Colonel". Over the next 10 years his business grew and he perfected his secret blend of 11 herbs and spices for his chicken recipes that are still kept secret but are still being used today. In 1952, his chicken business was franchised.
During the mid to late 1950's, Colonel Sanders's restaurant business was near a point of disaster when new construction projects were causing him to lose business. The Colonel refused to give up his dream so he took his Corbin Kentucky-based business and traveled across the country and continued to expand his business, ultimately giving it national recognition. The Colonel’s chicken restaurant business soon began pouring in millions and in 1964 he officially reached a deal with restaurant owners and investors who offered to pay him a nickel for every chicken he sold. (Note: Back then a nickel had a lot more buying power.) At the end of the year, he had more than 600 chicken outlets in the US and in Canada. Later, due to his advanced age, he sold his interest and his secret recipe of 11 herds and spices in the company for $2 million. In 1966 Kentucky Fried Chicken was officially based in Lexington, KY where it continues to be the home-office of Kentucky Fried Chicken. Also in 1966, John Brown, a future Kentucky Governor, became the first owner of the new company. Over the next 30 years the company went through several owners and changes. In 1971 Heublein, Inc bought it for $285 million. Next, R.J. Reynolds (now RJR Nabisco) bought the company in 1982 and in 1986 PepsiCo, Inc. bought it $840 million. In January 1997, PepsiCo Inc announced the merging of Kentucky Fried Chicken, Taco Bell and Pizza Hut to form TRICON Global Restaurants, the world's largest fast-food chain.
Years before the Colonel died in 1980, at the age of 90, he was proclaimed as a world wide celebrity and was not only famous for his secret blend of 11 herbs and spices that are the heart and soul of Kentucky Fried Chicken, he was also famous for his wide glasses, black tie, white suit, and goatee which appears as the Logo for every bag, box, and sign for every single KFC restaurant. Even up to his death, he was always traveling across the country as a public spokesman for KFC, meeting people and he lived to see his cooking skills flourished as Kentucky Fried Chicken emerged as the world's largest and most popular chicken restaurant chain.
In addition to the success that came from the Colonel's secret recipe, he had other ideas that have directly contributed to KFC's multi-billion dollar industry. He is also famous what he called "Sunday Dinner, Seven days a week", now called "home replacement meals". This is where the concept of "fast food" comes to mind. Now more than ever, people have less and less time to prepare meals, so they go out to fast food restaurants such as KFC to get these delicious and often nutritious meals. Thanks to the Colonel's ingenious cooking style, over 300 products are offered by KFC. The most popular foods currently offered by KFC are:
a. Original Recipe Chicken
b. Hot Wings pieces
c. Tender Roast Chicken
d. Chucky Chicken Pot Pie
e. Extra Tasty Crispy Chicken
f. Kentucky Nuggets
g. Colonel's Crispy Strips
h. Honey BBQ Sandwich
i. Original Recipe Sandwich
j. Tender Roast Sandwich
k. Triple Crunch Sandwich
l. Triple Crunch Zinger Sandwich
Every day, about 8 million customers are served by KFC. There are approximately 5000 KFC restaurants in the US and over 5500 Internationally. As of now, KFC and Tricon Global Restaurants operates in more than 100 countries with a total of nearly 30000 restaurants and is expanding daily. Kentucky Fried Chicken also has a share in the Stock Market and appears under Tricon Global Restaurants with the Stock Ticker Symbol “YUM”. Currently KFC's sales in the US are $4.3 billion annually with total worldwide sales of $8.9 billion. Experts predict a one-percent increase in KFC sales in 2001. Overall, KFC employs nearly 300,000 employees and is currently ranked sixth in the fast-food industry with McDonald's being the top-ranked fast-food restaurant industry. In the chicken industry alone, KFC generates nearly 60% of all chicken sales in the world, with Popeye being a far runner-up with approximately 9% of market sales. Kentucky Fried Chicken has no equal when it comes to serving and selling fresh chicken products. Because of its enormous success, about one new KFC restaurant is opened each day.
Right now, KFC is aggressively working on campaigns to expand in ways that would give it even a greater advantage in fast-food restaurant industry. It is using a common technique called multi-branding, which is one company having licensed to carry products for another to increase sales for both parties involved. For example, in 2000, KFC reached an agreement with Michigan-Based A&W Root Beer Restaurants and is now testing this system to co-Brand in 300 locations for the next five years. This method serves as a means for KFC to consistently compete in an ever increasingly competitive industry and to protect itself from potentially drooping sales.
In controlling inventory and most importantly quality of the chicken, Kentucky Fried Chicken uses a variation of Just In Time (JIT) system, by receiving chicken two to three times a week. KFC starts to operate when a delivery truck arrives at the back door. The truck usually contains chicken, vegetables, and other needed materials to successfully operate a KFC restaurant. There are many steps involved in the successful unloading of a delivery truck. Frozen foods are taken off the truck first and immediately transferred to the freezer. This includes vegetables, deserts, and other food products. Next to be unloaded is the refrigerated goods. This is the part of the process where the world famous chicken is unloaded. Finally, the dry good and condiments are unloaded and stored in their appropriate places.
The chicken is received with a kill date. The kill date represents the date the chicken was actually butchered. This kill date is also used as a measure of the freshness for the chicken. When taking the chicken off the truck it is placed on the “chicken-side” of the isle next to the refrigerator to prevent warming until it can be placed inside. Once the truck is unloaded, the refrigeration unit inside the truck must be inspected for satisfactory working order. For inventory accuracy all pieces aboard the truck are counted and checked against the bill of lading. Any shortages or surpluses are noted and called in to franchise headquarters. The cases in which the chicken arrives in must be damage free. This includes the box being sealed as well as being structurally stable. Any damages must be noted and relayed to the shipping agency. The kill dates must be checked on each individual chicken. No chicken will be accepted if it is received six days past the kill date. Printed with the kill date on each chicken is a label stating “Inspected for Wholesomeness by the U.S. Department of Agriculture” which must be attached or the chicken must be rejected. Acceptance sampling is done to ensure quality of the chicken during each shipment. At random at least five cases are selected, based on quantity of order. The middle bag of chicken is always used in each case for sampling purposes. To check for quality, a thermometer is used to check the temperature of the chicken by inserting it into the thickest part along the bone. Acceptable temperature is between twenty-eight and thirty-six degrees Fahrenheit. If one chicken fails to meet the quality inspection then the entire lot must be rejected. Upon rejecting a lot the market manager and or the franchise supervisor must be notified immediately. This is necessary to arrange for an immediate shipment to be scheduled. This is important due to the inventory control system in place to ensure quality to every customer. Once the sample testing is complete the chicken can be placed in the refrigerator. First In First Out (FIFO) Method is used in placing the chicken in order in the refrigerator. The earliest kill date is located at the front of the cooler such that it is the first one to be used when needed. This guarantees quality and freshness to each customer.
KFC is famous for the Colonel’s Original Recipe. The Original Recipe is the only chicken that contains the colonel’s secret eleven herbs and spices. The secret is really a secret because the contents of the bag that the marinating sauce comes in are unknown to all of the employees of the store.
When it is time to use a chicken the first step is to thaw properly. Thawing is done after or before normal store hours or during off peak times. These times are picked to reduce down time while the store is in operation because it takes about an hour to thaw completely. The thawing process takes place in a sink filled with water about sixty-five to seventy degrees Fahrenheit. Temperatures over seventy degrees is a violation of health code regulations. After the thawing process, the chicken will be marinated. The employees then check the cooker, known as the Henny Penny, preheat and make sure it is at the proper fill mark. Next, the chicken will begin the breading process. This process is known as the 7-10-7 process. First they dump the chicken into water and shake seven times to get all the excess water out of the basket. Then the chicken is dumped into a lug to begin a folding process with the hands for a count of ten to ensure that the chicken is covered properly with flour. Finally, the chicken is pressed into the flour and tapped together lightly to remove excess flour.
First the chicken is positioned onto racks and placed into the cooker. Once the employees have completed this they will drop the chicken into the cooker and press the appropriate start button and the chicken begins cooking. Once the chicken has started cooking, the cook will sanitize his/her work area and begin the process all over again.
After the chicken has been cooked and an order has been placed the cashiers put the chicken and other side items, if any in boxes according to order. He/she also makes the drinks for the customers and places the box in a bag and once the customer has paid for the meal the cashier gives the order over and the transaction is complete. The next customer in line is then waited on.
Sales and Service
The Kentucky Fried Chicken (KFC) fast food restaurant chain takes their service standards very seriously. KFC’s goal is for high quality service to match their quality product. The concept of quality service goes beyond a nice smile and fast service. KFC starts its work from the outside. The external fixtures of the restaurant must be attractive and physically maintained. This includes the parking schematics, and even the area landscaping. Although the external cosmetics are not maintained by KFC employees, it is the responsibility of all employees to monitor the appearance and keep sidewalks, and all windows clean.
Along with the appearance of the outside of the establishment, the inside must be maintained. All counters, tables, and trash depositories must be checked and cleaned several times a day. Restroom facilities must also be kept clean. Aside from the physical appearance the atmosphere must be pleasant as well. The temperature needs to keep at a reasonable level, and the burnt out lights need to be replaced in a timely manner to keep a well-lit eating area. This includes all back lit menu signs, on the inside and outside.
Each employee has a defined mold to fit. All employees must wear a clean approved KFC uniform, a nametag, any long hair has to be pulled back, and a smile. All employees should talk directly to a customer, utilizing eye contact and proper speech. All employees use the same greeting: “Hello welcome to KFC, my name is. . . .” And every order must be repeated to reassure the customer the accuracy of the order. One unexpected procedure is the handling of the money. Whenever money is taken it is not immediately put into the drawer, but it is set aside. The money is not placed in the appropriate slots until the correct change is counted and accepted by the customer. If any problems arise only the manager can handle money complaints. Service is a team effort. Although the kitchen employees do not directly interact with the customer they are a major part. Obviously they are needed to actually produce the food correctly, but also import is the time and accuracy of the order. The service goal of KFC is to only take about a minute and a half from time of order to the delivery of the customer’s food. Since the food at KFC is considered higher quality fast food, some orders may take a longer amount of time. If chicken needs to be cooked to meet the order, the employees must ask the customer if they would like to wait or change the order. By asking, the customer is reassured of the quality of prepared food. Once the order has been filled and the customer is satisfied the cashier must make an appropriate closing, such as “Thanks for dining at KFC.” In short, KFC’s service is quality oriented to match their quality food.
Tricon Global has adopted a new service strategy in recent years. KFC and Pizza Hut are the pioneers of this strategy. The new plan is known as the CHAMPS plan. It is a strategic plan of customer-oriented service.
Each employee can be given a CHAMPS card for outstanding service from a fellow employee or manager. Outstanding service is anything from assisting another employee with his or her task or keeping a smile and quality service even when customers are displeased. Each month the manager here in Valdosta holds a drawing for those who have been CHAMPS during the week. The prizes range from cash to more interesting awards, like the manager washing the employee’s car or even a water gun fight in the parking lot. The CHAMPS program is working extremely well to bring unity to the KFC team, and to boost the quality of service.
KFC offers several different serving techniques to the customer. Similar to most fast food restaurants, KFC offers a drive through along with the diner in facilities. Some restaurants will offer an additional self-serve buffet. Although the buffet is not offered daily, it is available every Sunday.
After analyzing KFC's operation and procedures it appears to be an effective and efficiently ran restaurant. Customer relations are important assets to KFC, which builds repeat business and reinforces their reputation as the leader in the chicken industry. As far as recommendations we feel KFC needs to persevere with its already implemented procedures and continue to listen to customer needs to ensure their success as an industry leader.