In 2008, McDonaId's and KFC were the two largest quick-service restaurants (QSR) in the world, with 31,999 and 15,580 outlets, respectively. Both chains were renowned for their broad spectrum of consumers on a global basis. McDonald's appeared to be a clear winner in international expansion. It had over 17,500 international outlets and was the first corporation to set up a solid foundation for international franchising. It spearheaded global expansion with its first overseas outlet in Canada in 1967, and entered Japan in 1971.2 McDonald's outlets had tremendous success in Japan-despite the difference in culture- with record-breaking daily sales and speed of expansion in the initial stage.
KFC also started international expansion early, opening its first overseas outlet in England in 1964. However, it was given a bumpy ride when it began to penetrate the market in Asia. The Japanese outlets were far less successful than McDonald's and only started to make a profit in 1976, six years after KFC entered Japan. KFC outlets opened in Hong Kong in 1973 but were all closed down within two years. The company would eventually win the confidence of Hong Kong customers ten years after its first entry. In Taiwan it experienced relatively smoother development, although KFC headquarters was to spend a huge amount of money and effort in order to get the ownership back from its joint venture partners at a later stage.
It was a totally different picture in China. In the "Middle Kingdom" KFC was not only recognized as the leader in foreign quick-service restaurants but was also a significant player in the Chinese restaurant industry as a whole, alone contributing 1% of the country's total food and beverage industry revenues in 2005. In 2005, KFCsoutlets in China recorded an average of US$1.2 million in annual sales per store, compared with just US$900,000 for similar stores in the US. According to the 2008 figures, KFC had over 2,300 outlets in China, with an average profit margin of nearly 20.1%.
In contrast, at 1,000 outlets, McDonald's presence in China was less than half of KFCs, with an estimated profit margin significantly below that of its leading competitor. Many people attributed KFC's success in China to its early entry-three years earlier than McDonald's-and its natural advantage in menu selection which corresponded to the typical consumer's preference for chicken over beef. However, were these reasons enough to explain KFC's continued growth and the extension of its lead over its rival? How could McDonald's as a latecomer and the second largest QSR player in China, capitalize upon its global dominance and resources to catch up with KFC?
1. Considering KFC's aggressive expansion plan, do you think it would be smart for the company to expand in rural and suburban locations? Would it be beneficial for the company to expand in these areas or do more harm than good?
2. KFC faced many challenges positioning their products overseas. Explain some of the business strategies that the company executed to become successful in China.
3. Explain some of the reasons as to why KFC was so successful in a country like China, but was struggling to achieve its financial goals in its homeland country? (USA).
4. What would be some of the strategic ideas that you would implement to stay ahead of your competition in such an aggressive market like the fast food business?
5. What was KFCs and Mcdonalds transitional strategy? Is it a source of competitive strategy?
6. What was different about Mcdonalds international strategies vs KFCs international strategy. Did this give them an advantage? Why or Why not?
7. As stated in the case, many North American fast food chains are considering potential expansion into global markets like China, making it difficult for companies like McDonald's & KFC to anticipate their competition. Explain which approach, either KFC's or McDonald's, is the best to prepare for when new competitors enter the market.
Attachment:- case discussion.rar