Research On The Business Environments Of Kentucky Fried Chicken (Kfc)

For this business task Kentucky Fried Chicken (KFC) which is an American franchise but has expanded all over the world will be researched and it will be evaluated how the macro, micro and market environments effect KFC and what challenges these environments pose to the business, KFC.

After extensive research on the business environments recommendations will be made on negative and positive things KFC encounter while operating their business. Websites such as news websites, article as well as the official Kentucky Fried Chicken website are used in order to obtain the necessary information to complete the task at hand.

Background of company

KFC is a fast food company that is famous for its fried chicken and has its headquarters in Louisville, Kentucky. KFC is the second largest fast food chain in the world and McDonalds in number one. It was founded by Colonel Harland Sanders in 1930 when he started at his café. The first KFC opened in Utah in 1952.Colonel Sanders later on sold his brand to investors. The first KFC restaurant in South Africa opened in 1971 in Orange Grove, Johannesburg. The original KFC product is pressure chicken that was made in a pressure cooker and was seasoned with 11 herbs and spices. KFC is well known for its slogan “finger lickin’ good”. KFC is part of YUM! Brands.

Macro Environment (PESTLE)

Pestle is a tool used to evaluate and analyze the Market Environment which is something that the business has no effect on nor can they change these factors. The PESTLE analysis is an acronym for Political, Economic, Social, Technological, Legal and Environmental factors in the market environment. Political factors that will have an effect on KFC is State Capture. Due to state capture South African tax payers have to pay more tax in order to recover Government expenditure. State capture has led to the increase of Value added Tax to 15% this also being in the efforts to pay for the expenses of the government. With VAT being higher as well as tax payers paying more tax, the South Africans have less disposable income and therefore will not be able to buy unnecessary wants such as buying fast food from KFC. This will cause the profits of KFC to decrease as well as target market decreasing.

South Africa has a very high unemployment rate of 26.7% which counts as an Economic factor. Having such a high unemployment rate means that KFC has a small portion of South Africa that they can cater for. Having high unemployment rates decreases the Gross Domestic Product of South Africa (de Villiers, 2018). Most of the 26.7% is part of the poor of South Africa and would rather spend the little money that they do have on essentials rather than spending it on food they do not need, like KFC, and would make the food themselves at minimal costs.

The average population growth rate globally per year for 2018 is1.09% , but in South Africa the growth rate is currently 1.20% per year which is a social factor that can pose as a great challenge to KFC. If KFC is not able to deal or supply for the rapidly growing population of South Africa they can lose clientele as customers want good and fast service but if KFC is not able to do so profits will decline.

Technological factors for KFC is social media. Customers are able to post negative reviews on social media about their experiences at KFC which will cause KFC to lose customers and builds a negative brand image for the Quick Serving Restaurant.

Early this year a new law for road users was implicated called Congestion tax or Road users policy. The law was put in place to cover a backlog of R197 billion of the National Department of Transport. Due to South African roads getting worse the government needed to find a way to make revenue. The policy increases vehicle license fees, fuel levies and toll fees. This law factor will be a great challenge for KFC because suppliers will charge more for their services and customers that are road users will also have less disposable income, meaning that they will not buy KFC.

South Africa has been experiencing a drought which is an environmental factor that has affected the chicken farming industry. RCL foods’ chicken business unit removed a large percentage of its profits and if this happens KFC will be charged more for their chicken from their suppliers. This is bad for KFC because they will have less profit or will have to make the losses up else wear such as increasing prices for meals.

Market environment (Porter’s forces)

Porters forces is used to assess if a market would be attractive and if the market is profitable. KFC faces the threat of a substitute product because many customers are wanting to make healthier life choices so would rather buy food from the shop. The country is also in a technical recession which means customers will not want to spend unnecessary money on fast food as tax and inflation increases during this time so they buy food from shops and make it themselves to save money. Customers could also rather want pizza from Panorottis or burgers from McDonalds. The threat of new competition in the market is something that KFC must be aware of as the QSR industry is growing although it is difficult to enter this market due to high entrance barriers. The new competition will want to try take over the market that KFC has control over. It is also difficult for new competition to enter the market and compete against Kentucky Fried Chicken as it is such a large franchise and has customer loyalty. KFC’s current competition is Chicken Licken as both are known for their fried chicken. KFC is a head of Chicken Licken in the industry but many prefer Chicken Licken over KFC as a survey was conducted on this and it was thought that KFC’s chicken tends to be dryer than that of Chicken Lickens as well as not containing as much flavor as expected. Rainbow chicken supplies most of KFC’s chicken, but KFC is not the only enterprise that Rainbow Chicken supplies to therefore it has more bargaining power, supplier power. This meaning that Rainbow Chicken can increase their prices for their products and KFC will pay for it because of the good reputation that Rainbow Chicken has. Rainbow Chicken also says that their chicken is halaal and contains no steroids and this attracts customers to the business that uses their products because their values are attractive which gives them the opportunity to up their prices. (KFC advertorial)If KFC does not abide to ethical ways of providing their services or make use of ethical suppliers customers will not want to buy from KFC. Due to the power of the buyer, the buyer could post negative reviews about this if they found out KFC is unethical or could no longer buy from KFC which will decrease profits. Buyers also have access to other Quick serving restaurants therefore KFC will not up their prices because of the power the buyer has to make use of other restaurants. KFC’s complementary products are the side dishes such as coleslaw, gravy and mash and a mini loaf of bread that is offered to customers as a side dish. This goes well with the meals and adds value to their menus.

SWOT analysis

SWOT analysis is used to look at the Strengths, Weaknesses, Opportunities and Threats of a business. Strengths and Weaknesses are the internal factors of a business and Opportunities and Threats are external factors, things that the business has no control over. Strengths of KFC is that they make use of ethical suppliers and does not only make use of one supplier as well as because KFC is the second largest fast food chain they have created customer loyalty due to the chains expansion.

KFC outsources their chicken but could make their own chicken farms and would avoid the increased prices they have to pay that suppliers add to their prices due to the Road users policy. This then becomes a weakness of KFC. It’s also a weakness that KFC relies on their suppliers.(Food24, 2018)Due to the high population growth KFC can make use of this to increase their target market as well as using the unemployment rate to their advantage by providing meals affordable to the poor which is something KFC has already utilized. A threat to KFC is the risk that a new QSR may over take them in the fast food industry such as Nandos because they have successful campaigns and they are very controversial which is something consumers are drown to. With the drought playing a major factor in the food industry this possess as a threat that KFC will not be able to supply their customers with food because their suppliers have a shortage in chicken due to the livestock dying out because of the drought.

Conclusion

It is a negative that KFC relies on Rainbow chicken to supply their chicken because at the moment lots of livestock farmers are struggling to keep their animals alive, which does decrease their profits there for it would be recommended that KFC starts their own chicken farm which will save them extra transport costs and could allow them to decrease meal prices. Another negative is that KFC should take the fact that many people are trying to make healthier life choices to their advantage and provide for this part of the population by making meals that are banding etc.

KFC has taken advantage of the fact that there is a high unemployment rate by offering cheap meals for South Africans part of the lower income group as well as the unemployed. KFC also indirectly creating jobs by outsourcing services such as the chicken. Due to KFC’s competitive advantage in the industry they don’t have a lot of competition but other franchises are still able to try compete with KFC.

Recommendations

I recommend that KFC makes use of the high unemployment rate and create more jobs by either opening more franchises and have training and education for the unemployment this will also contribute Corporate Social Responsibility. KFC should also be transparent about the quality of their product and where they come from such as make ways means of slaughtering and how they animals are raised. Due to the recession inflation is high to cover this and not increase the prices KFC should make use of one supplier only for their chicken because Rainbow Chicken is not their only supplier, which increases expenses. By having only one supplier KFC can make meals cheaper which will attract more customers.