International mar - KFC.doc

International mar - KFC

2 International environment factors 1.2.1 The political environment 1.2.2 The economic environment 1.2.3 The social cultural environment 1.2.4 The demographic environment

1.2.5 The technological environment 2 How does KFC segment the market

Group members:

1 Phan Thi Thanh Binh ( group leader)2 Le Thi Quynh Anh

3 Tu Thi Lan Anh4 Hoang Thi Tuyet Anh5 Le Thi Ngoc Anh6 Nguyen Thi Anh7 Mai Thi Chi8 Nguyen Hong Chi9 Do Thi Chinh10 Nguyen Thi Cham

I The introduction and overview of Kentucky Fried Chicken1.1 Introduction

International marketing (IM) or global marketing refers to marketing carried out by

companies overseas or across national borderlines This strategy uses an extension of the techniques used in the home country of a firm It refers to the firm-level marketing practices across the border including market identification and targeting, entry mode selection, marketing mix, and strategic decisions to compete in international markets.

A international company must have a good international marketing strategy To be successful in home country environment and host country environment, international businesses need use several factors in the environment to gauge the direction in which they should steer There are various environmental factors which can impact the businesses in an economy These environmental factors can be categorized into external and internal environment of the businesses The internal environment of the company includes the factors which are within the company and under the control of company like product Organizational culture, Leadership, and Manufacturing (quality) On the other hand, the external factors are not under the control of the company and include Social environment, political conditions, suppliers, competitors of the company, Government regulations and policies, accounting agencies like Accounting standard board, Resources in an economy and demographics of people

From that, we can see environmental factors have much effects to international marketing strategy of an international company And here is the case of KFC - the world's most popular chicken restaurant chain It is not only successful in American, but also in many other countries over the world To do this, KFC always evaluates the environmental factors and often find ways to succeed through innovative technologies, clever marketing tactics and unique product and

service offerings So, what are those environmental factors? How does KFC segment the market? What is the best activity KFC used in Vietnam? Let’s find the answer for these questions in the details below.

1.2 Overview of KFC

KFC, founded and also known as Kentucky Fried Chicken, is a chain of fast food restaurants

based in Louisville, Kentucky, in the United States KFC has been a brand and operating segment, termed a concept of Yum! Brands since 1997 when that company was spun off from PepsiCo as Tricon Global Restaurants Inc.

KFC Corporation, based in Louisville, Kentucky, is the world's most popular chicken restaurant chain, specializing in Original Recipe, Extra Crispy, Kentucky Grilled Chicken and Original Recipe Strips with home-style sides, Honey BBQ Wings, and freshly made chicken sandwiches While its primary focus is fried chicken, KFC also offers a line of grilled and roasted chicken products, side dishes and desserts Outside the USA, KFC offers beef based products such as hamburgers or kebabs, poutine, pork based products such as ribs and other regional fare.

The company was founded as Kentucky Fried Chicken by Colonel Harland Sanders in 1952, though the idea of KFC's fried chicken actually goes back to 1930 Although Sanders died in 1980, he remains an important part of the company's branding and advertisements, and "Colonel Sanders" or "The Colonel" is a metonym for the company itself The company adopted KFC, an abbreviated form of its name, in 1991 Newer and remodeled restaurants will adopt the new logo and name, while older stores will continue to use the 1980s signage Additionally, Yum! continues to use the abbreviated name freely in its advertising Every day, more than 12 million customers are served at KFC restaurants in 109 countries and territories around the world KFC operates more than 5,200 restaurants in the United States and more than 15,000 units around the world KFC is world famous for its Original Recipe fried chicken made with the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more than a half-century ago.

Customers around the globe also enjoy more than 300 other products from Kentucky Grilled Chicken in the United States to a salmon sandwich in Japan

KFC is part of Yum! Brands, Inc., the world's largest restaurant company in terms of system restaurants, with more than 36,000 locations around the world The company is ranked 239 on the Fortune 500 List, with revenues in excess of $11 billion in 2008

II Body

1 Environment factors effect to international strategies of KFC1.1 National environment

1.1.1 Home country: America

1.1.1.1 Economy and social environment – American fast food  The development of American Fast Food

The Modern fast food industry originated in the United State in the 1920s, and developed rapidly, became epidemic all over the world from 1950s The emergence of the western-style fast food resulted from the rapid economic development in the United State and the great acceleration in the peace of life In the 1950s, most married women stayed home to keep house and take care of their children In the 1960s, many women returned to the work place This meant that they had less time and energy for housework and preparation of meals, so they depended more on “TV dinner” and fast food restaurants Single parents also have little time to spend in the kitchen People living alone also depend on this type of food, since cooking for one is often more trouble than it is worth People require food which is readily available, affordable, and nutritious and tasty The most obvious characteristics of American fast food are speed and abundant supply of cooked food Some fast food was slightly processed and can be quickly ripen while selling At a primary stage, with the help of industrial management experience, American fast food chains adopted standardization in raw materials of their food, processing, pricing and service

Therefore, the major reason for the rapid development of western fast food has been the supply of safe and convenient fast food to people who are very busy and in a hurry.

 The characteristic of American Fast Food

American fast food is well-known all over the world To sum up, the characteristics of its success can be due to following the eight “F”s They are, respectively, Fast, Full, Fresh, Fried, Family, Fordism and Franchising Among them, fast, full and fresh can be easily understood They mean the speed, quantity and quality of the food supplied Fried refers to the kind of food because American people like fried food very much Also, this food can be easily transported Family and fantasy emphasize people’s feeling of having a meal in the fast-food restaurant Fast food should meet the need of families To the children, the food can not be too greasy, and the prices can not be too high for their parents In order to make customers feel at home, the toilet in the restaurant should be clean and the dinning tables should be neat and tidy Most of the fast-food restaurants do not supply wine Fordism is the way of flow process which was employed by Ford U.S ai first It included a refined division of labor, decreasing the cost, saving production time and using automated equipment instead of manual production This method was widely used in the American fast food industry in the last century The last “F” refers to franchising In the beginning, by franchising those fast-food companies were able to see their products and expand the sales in the domestic market, to be exact, the American market Some local people in different cities paid money to the parent company and would then be allowed to sell products and receive guidance in operating and managing the business from the parent company, and

moreover, they can obtain the support the conduct drumbeating This style of parent company operating together with some subsidiaries has some advantages, such as low cost, more

likelihood of success while the risks are lower The American fast-food industry spread from the eastern cities to the west, and then to more and more countries abroad

1.1.1.2 Competitors – KFC will be beaten, won’t it?

While the series of stunts drove buzz and the introduction of grilled chicken spied short-term sales, the moves also contributed to a lack of consistent brand positioning and a distraction from

KFC’s flagship product, both of which have hurt the chain and allowed competitors to creep in and carve out share.

Although KFC remains the largest player in the growing segment of fast-food chicken, its share continues to drop KFC’s market share tumbled six full points since 2005 to 30% in 2009, while the category grew from $14,5 billion to $16,1 billion.

Ever-growing threats? Brands such as Chick-fil-A The much-smaller chain, at least by locations, has built a cult-like following with high-quality sandwiches, better-for-you options, excellent service and clean stores It now commands 20% of the markt with just 1,500 locations That’s less than one-third of KFC’s 5,200-store U.S presence Moreover, chick-fil-A operates on a six-day week, as its restaurants are closed on Sundays.

KFC doesn’t just need to look out for not only direct competitors like Popeyes, Chick-fil-A… but also hamburger chains selling chicken sandwiches and supermarket chains.

1.1.1.3 Customers  Healthy food

KFC has used partially hydrogenated oil in its fried foods This oil contains relatively high levels of trans fat, which increases the risk of heart disease.

In the United States, the Center for Science in the Public Interest (CSPI) filed a court case against KFC with the aim of making it use other types of oils or make sure customers know about trans fat content immediately before they buy food In October 2006, KFC said it would begin frying its chicken in trans fat-free oil (<0.5g per serving) in the United States This would also apply to their potato wedges and other fried foods, however, the biscuits, macaroni and cheese, and mashed potatoes would still contain trans fat Trans fat-free soybean oil was introduced in all KFC restaurants in the U.S by April 30, 2007, and CSPI dropped its lawsuit However, outside the United States the company has continued to use other types of oil that have drawn criticism over their health effects In Australia, KFC was reported to be using palm

oil with up to 1 per cent trans-fat and 52 per cent saturated fat content as late as 2007, after restaurants in the United States had changed to trans-fat free oil.

 Animal rights

Since 2003, animal rights and welfare organizations, led by People for the Ethical Treatment of Animals (PETA), have been protesting KFC’s treatment of the animals used for its products These groups claim that the recommendations of the KFC Animal Welfare Advisory Council have been ignored Adele Douglass, a former member of the council, said in an SEC filing reported on by the Chicago Times, that KFC "never had any meetings They never asked any advice, and then they touted to the press that they had this animal-welfare advisory committee I felt like I was being used”.

KFC responded by saying the chickens used in its products are bought from suppliers like Perdue Farms, Tyson Foods, and Pilgrim's Pride, and that these suppliers are routinely monitored for animal welfare violations Several PETA undercover investigations and videos of these and other KFC suppliers purporting to show chickens being beaten, ripped apart, and thrown against walls contradict KFC’s claims PETA has criticized some of the practices of chicken breeders, such as beak trimming and overcrowding, but KFC says its suppliers meets UK legal

requirements The Department for Environment, Food and Rural Affairs recommends a maximum stocking density of 34 kg—around 30 chickens—per square metre, and say that in circumstances where beak trimming needs to be carried out to prevent the birds injuring each other, only one third of the beak should be trimmed "measured from the tip towards the entrance of the nostrils" PETA states that they have held more than 12,000 demonstrations at KFC outlets since 2003 because of this alleged mistreatment of chickens by KFC suppliers.

In June 2008, KFC Canada agreed to PETA's demands for better welfare standards, including favoring suppliers who use controlled-atmosphere killing (CAK) of chickens, and other welfare standards as well as introducing a vegan sandwich at 65% of its outlets PETA has called off its campaign against KFC Canada, but continues to demonstrate against KFC elsewhere in the world.

1.1.1.3 Restaurant chains – closed or opened?

In reality, KFC is already closing stores — 150 of them worldwide in the first half of this year, the most closures of any Yum brand After store openings, its U.S store-count shrunk by 40 stores But KFC may be ready to increase its closure rate and let the chain get a little smaller to help turn around its unit-sales figures.

That move would be good for the chain’s relationships with the surviving franchise owners, who could see their sales and profits grow Investors may not like it, as gross sales for the chain could decline, and it may or may not turn around the declining unit metrics And if shrinking sales turn out to be more about the food, closing stores won’t help.

But letting underperforming operators limp along under your brand’s banner hurts the whole company in the long run Those stores tend to be less well-run and delivering a lower-grade customer experience Sometimes brands need to prune the deadwood to stay healthy For KFC, this move is long overdue.

1.1.2 Host countries: Vietnam and Australia1.1.2.1 Vietnam

1.1.2.1.1 The micro environment: the KFC in Vietnam  The infrastructure

To be in Vietnam from 1997, now KFC has had 71 stores at 8 provinces The most are in HCMC with 45 stores, the rest are in Ha Noi, Can Tho, Ba Ria Vung Tau, Bien Hoa, Buon Ma Thuot, Hue, Hai Phong KFC is planning to build some other stores in many other potential cities.

The stores of KFC are decorated with traditional style The red color is the main one This decoration will help customers have the comfortable felling when having meal, talking with friends and clients.

 The technology of cooking:

The products of KFC in Vietnam, as well as on over the world, were produced with similar recipe This recipe was invented a half century before by Colonel Harland Sander- inventor of

KFC There are few of people knows that He was very successful in his secret mixing recipe which cost millions of dollar

However, KFC Vietnam has been studying to change the dimension, state to fill the Vietnamese eating and drinking

The KFC Vietnam only chooses the prestigious and quality guaranteed suppliers who have the qualification KFC has a long-term strategy in Vietnam, therefore, they have used a lot of time to capture the market share and get the belief of customers here

 Supply system:

KFC has a chain of store in HCMC and a team of deliverer They will bring the products to customers’ house in the shortest time Many stores in other cities are advantage of KFC This thing will help KFC deliver their product to consumers in many places

Beside, the stores of KFC are always at the convenient place, in the shopping mall, in supermarket There places have a good condition to do business, to attract customers People can come there easily So, the business will develop more and more.

 Financial resource

All system of KFC is under Yum Corporation This corporation is doing business with more than 33.000 restaurants on over 100 nations in the world The KFC, Pizza Hut, Taco Bell and Long Jonh Siver are the most famous branches of Yum With strong financial resource, they can do many big-scale business actions and easy to compete with other competitions

 The business ability:

In term of work staff, there are about 2000 employees working in the stores of KFC, their rule is “Work hard - Play hard” KFC concentrates on improving the work staff’s ability to make customers satisfy, and then, increasing the profit KFC promises to create the best working conditions for staffs, too

Today, there are over 3800 KFC franchise companies on global KFC serves nearly 8 million customers each day

During 10 years in Vietnam, the chain store of KFC with the standard of Yum International Corporation, KFC Vietnam develops day by day and continues serving many potential markets at many cities of Vietnam.

KFC was in HCMC rather early In the first period of time, KFC tried to build the branch name, create the store system, and do a lot of marketing actions to bring their image to customers After 7 years, KFC has succeeded With the strong and strategic development, KFC has captured the market share and had a firm place on the Vietnam market.

Up to now, KFC has become the most famous fast-food branch name in Vietnam The numbers of customer know and use this kind of food more and more According to the result of a recent survey, there are 70% of Vietnamese would like to eat at fast-food restaurants.

The Ministry of Commercial and Trading, in 2009, the income of fast-food industry in Vietnam has reached 500 billion VND, increased by 35-40% in comparison with the result of 2008 In this number, there are some foreign branch- names such as: Jollibee, Lotteria, and obviously, KFC 1.1.2.1.2 Macro-environment of Vietnam

 The political environment

On November 18th, Grant Thomton Vietnam has announced the results of the survey month conducted in November 2009 with more than 200 representative interviewees consisting of investors and investment advisors in Vietnam As a result, 59% of respondents have a positive outlook on Vietnam's economic situation in next 12 months In addition, 67% of respondents express confidence that Vietnam is now more attractive destination for investment than any others Specifically, he quoted Katsuto Momii - President and CEO of Nihon Unisys: "I find the stable and peaceful business environment in Vietnam, Communist Party of Vietnam‘s good leadership and political stability is motivations for us not to worry when doing business in Vietnam".

Stability of political environment in Vietnam is good favourable conditions for KFC comes and do business in Vietnam

 The Legal environment

Constitution and law of Vietnam allow, respect and encourage business activities within the legal framework.

The ordinance on food hygiene and safety

Ordinance was issued on August 19th 2003 unifying food hygiene and safety, to prevent and surmount the consequences of unhegienic food affecting the people’ health, people's lives.

Draft Law on food safety

In Session 6 of the 7th National Assembly, the Government has submitted to Parliament the draft Law on Food Safety stipulating to ensure safe conditions for food, food production and sales of food; advertisement and labeling of food; food import and export; control the risk of food contamination; response and prevent and surmount the problem of food safety, The enactment of the Bill on Food Safety is appropriate in the context of deep participation of Vietnam in the global economy.

Vietnam’s franchise laws

With Vietnam’s entry into the World Trade Organization in January 2007, many predicted that franchising activity in the country would increase significantly They were correct In the first half of 2009, Vietnam’s Ministry of Industry and Trade granted licenses for franchise deals for 15 foreign companies, mostly from the United States, Belgium, and Canada.

Vietnam’s Commercial Law provides the basic legal framework for franchising, while related franchising regulations are contained within certain decrees and the country’s Intellectual Property Law and Technology Transfer Law Vietnam’s franchise laws apply to franchising activities between Vietnamese parties, to foreign franchisors granting franchise rights within Vietnam, or to Vietnamese franchisors granting franchise rights in a foreign country

The Commercial Law is broad It defines franchising as a commercial arrangement where the franchisor grants its franchisee the right to conduct the business of selling goods or supplying services The franchisee may carry out the business in a format determined by the franchisor and use the franchisor’s trademarks, trade names, logos, slogans, and advertisements The franchisor has the right to control and assist the franchisee in the conduct of the franchised business Quite notably, the Commercial Law’s definition of a franchise does not mention any fee requirement Adopted in 2006, Decree 35 has expanded the definition of franchising to include master franchising, sub-franchising, and area development arrangements

Vietnam was, is and will try to improve legal system in order to create favorable conditions for investors and to promote economic development.

KFC is one fast food restaurants having penetrated into Vietnam market for a long time It has certain understanding about people, business environment and practices as well as the law of Vietnam so this is a competitive advantage KFC Vietnam is one of franchisees of KFC in American.

 The economic environment

Gross Domestic Product Growth

Though a global economic recession, Vietnam registered quite a high growth in the recent years, with 2006 at 8.17%, 2007 at 8.48%, 2008 at 6.18%, and 2009 at 5.32% and achieved 6.78% in 2010 The growth rates acquired in the recent years, made Vietnamese economy have the third highest growth rate in the Asia - Pacific Area after China and India.

GDP Growth 8.17% 8.48% 6.18% 5.32% 6.78%

Inflation and economic policies

Inflation

In 2011, curbing inflation will be the top priority for the Government The inflation rate was

high in 2010 and its impact will still be seen in 2011 Therefore, curbing the inflation rate at seven percent will be a big challenge.

In other countries in the region, the inflation rates are 4-5 percent only Meanwhile, in Vietnam, the inflation rate is high due to the external factors, the increases of food prices and some education fees In the goods price structure in Vietnam, food and foodstuff make up 39 percent of the consumer price index increases Besides, the high inflation in China, the big neighboring economy, also had big impact on Vietnam.

Besides the loosened monetary policy to curb inflation, the government has also made some other policies for demand stipulus of investors and consumers such as simply procedures for business registration, tax exemption for the first years, etc for investors

As well as policies to reduce personal income taxes encouraging consumption of people These policies have brought positive effects for both investors and consumers as investors keen on more projects and consumers tend to boost spending, this is also true the food industry.

 The Cultural and social environment

According to the General Statistic Office, Vietnam population in 2009 in total was 85,789,573 people Vietnam has the third largest population in Southeast Asia (after Indonesia and Philippine) and the thirteenth largest one in the world.