What are the key issues facing KFC in 1994?

Question

What will be an ideal response?

Answer 1

• Relationship with parent.?Because PepsiCo’s corporate culture is so strongly oriented toward performance,
Kyle Craig knows that KFC must make changes rapidly and that KFC’s profit situation has to quickly improve.
Not only is this important for job security, but Kyle Craig and most of KFC’s other top managers came to KFC
from other PepsiCo units. Their goals are to make a mark at KFC and to move on to higher level positions,
ultimately within PepsiCo headquarters. In addition, KFC is dependent on PepsiCo capital for expansion. If
PepsiCo believes that KFC is a declining business, it is likely to cut off capital spending or divest KFC.****
• Per store sales are growing at a slow rate.?Per store sales have slowed for a variety of reasons:*
1. All fast-food competitors have felt pressure to lower prices in order to attract customers.
2. Sandwich chains have introduced fried chicken and chicken sandwiches, thereby taking business away
from KFC.
3. New chicken chains such as Boston Chicken and Kenny Rogers Roaster have heavily promoted non-fried
chicken products, thereby competing directly with KFC.
• U.S. market for food service is maturing.?This explains KFC’s heavy emphasis on international restaurant
construction and the low level of new restaurant construction in the United States. This increases pressure on
KFC to improve store level sales in the United States or to find alternative ways of delivering its product to
the consumer.*
• KFC’s image as a “fried chicken” chain.?The health trend away from fried foods and the perception that
KFC is a “fried chicken” chain has hampered KFC’s attempts to successfully introduce menu items such as
Chicken Littles and a chicken sandwich. Success in developing, and selling non-fried products depends on
KFC developing a healthier image. This drove Kyle Craig’s decision to change the name of Kentucky Fried
Chicken to “KFC” in 1991.****
• Conflict with KFC franchisees.?The inability of KFC management to negotiate a contract which allows it to
open kiosks and other KFC units within 1.5 miles of existing free-standing KFC restaurants jeopardizes
KFC’s ability to break into nontraditional distribution outlets such as airports, shopping malls, and
universities. The market for free-standing restaurants appears to have matured. Therefore, KFC’s ability to
expand its sales base depends on its ability to open KFC units in non-traditional distribution outlets.****