Competitive Analysis of QSR Industry - SWOT & Porters Five Forces: India

Date – January 23rd, 2012

The purpose of this paper is to determine the Key Success Factors of the Food Service Industry with specific reference to KFC, identifying its core competencies, successful achievements and strategic planning for enhancements.

Industries have characteristics or strategic elements that affect their ability to prosper in the marketplace. The ones that most affect a firm's competitive abilities are called Key Success Factors (KSFs). These KSFs can be related to operations, distribution, marketing, or to certain skills or organizational capability.

The KSFs of the restaurant industry in India are broadly classified into:

·???????Demand side drivers

·???????Supply side drivers

Demand Side Drivers: Favorable demographics and growing working population boost demand for food service chains. The country enjoys one of the largest and most balanced demographics in terms of age. Currently, 63.38% of the population is between 15-59 years. The tremendous growth in its population of young people is bringing about a shift in the Indian food service trends, as young population drives the demand for processed and health foods. This provides an impetus for the growth of the food service industry. As discussed earlier, growing disposable incomes, increase in the number of working women, growing middle class and increasing urbanization- all contribute to the industry’s operational profitability and success.

Supply Side Drivers:?India is rapidly gaining attention of international players in the food industry, more so due to the brisk business of the tourism sector. As per the Ministry of Tourism, the foreign tourist arrivals were 606,000 in November 2010 as opposed to 528,000 in November 2009 and 532,000 in November 2008. The industry is also benefiting with the improvement of retail infrastructure. Assurance of high quality food for the health-conscious consumer segment is a major crowd-puller for the changing trends.

Source: National Commission of Population, India Urbanization Econometric Model; McKinsey Global Institute analysis, MDI India Consumer Demand Model

We’ve narrowed down these success factors by identifying the essentials for the QSR sector that drive value in the industry. ?

·???????Convenient locations with easy accessibility from places of work, commuter routes and shopping areas. Number of outlets and brand visibility is a key contributor to the brand’s success factor.

·???????Product pricing and value for money.

·???????Wide menu choice.

·???????Fast turnaround time through efficient model of quick order placement and delivery.

·???????Service quality

·???????Value proposition for customers due to low average checks.

·???????Brand image and Marketing

KFC’s endeavor is to strike a rapport with new age youth through strategic locations near colleges, work place, key shopping districts and commuter routes, though the following data illustrates that we are losing out with fewer number of outlets vis-à-vis our competitors.

To reduce the gap, Yum! Restaurants has chartered out a major expansion plan for KFC. The KFC India unit currently has 150 restaurants in 30 cities in India. It is expected to grow to 500 by 2015. The expansion strategy focuses on tier-two cities and small towns besides increasing visibility in metros.

Product pricing has also become a significant factor as players in the run have introduced value meals catering to ‘Young Indians’ and the working group.

Since it re-entered the market in 2004, the chain has learnt the menu game i.e. they’ve known what works for this market is having a menu that is 60-70% Indian. KFC wants to be more aggressive in expansion here than ever before. Menu innovation becoming the keyword, the company has triumphantly implemented this KSF by introducing an extensive menu for the vegetarian class, upholding taste as its strength differentiator, considering 30% of the population is vegan.

KFC’s key success factor also lies in its core competencies, which are its trademark recipes, outstanding customer service, the brand equity and its international footprint. The organization has also worked towards a perception change from deep-fried to healthy grilled, retaining chicken as its core product. This has been done to align its brand image from a fried-chicken specialist to making healthy food its key success factor.

The company has also engaged around CSR activities by globally providing employment opportunities and more importantly, hope and confidence, to the physically challenged thereby establishing it as a brand success factor. The company now has six specially-abled stores — three in Kolkata and one each in New Delhi, Hyderabad and Chennai, where hearing and speech-impaired people account for about more than 50 per cent of the total staff. The world’s largest fast food company plans to take that number to 70 per cent across the six stores, along with opening a seventh one in Bangalore.

Source – Business Standard

I’ve studied the Key Success Factors (KSFs), core competencies, brand’s strategy and its current execution through this case study. Here’s a moderate sum up of the plus and minuses through a SWOT Analysis which will form the basis of my recommendations to follow–

Strengths

-???????Taste

-???????Brand Equity

-???????Global Exposure

-???????Trademark Recipes

-???????Strong Customer Focus

-???????Operations

Weaknesses

-???????High Price

-???????Image perception of fried food

-???????Poor Reach

-???????Restricted Menu of standardized items

Opportunities

-???????Increase visibility by opening more stores

-???????Penetrate into Tier II & III Cities

-???????Capitalize on income levels rising with high disposable income

-???????Shift in food habits

Threats

-???????Health Conscious Eating Habits

-???????Animal Care Activists

-???????Intense Competition

Here is an investigation of the brand’s KSFs based on the Porters Five Forces –

Threat of new entrants (Medium) – As stated in the earlier case study, the organization has put high barriers to new entrants in the sector by having preferential access to the supply chain and the distribution channels. This also contributes to being a crucial factor of the business success. However, unless the brand visibility is remarkably improved, it poses a threat from new entrants. For example, even though McDonalds opened its first outlet a year later in 1996 it overtook KFC and became a market leader owing to strategic locations and high visibility. KFC must aggressively pursue opening new outlets and capitalize on first movers advantage wherever it can especially Tier II and III cities.

Bargaining power of buyers (Medium) – There are not many western fast food joints currently in India. Thus buyers do not have multiple options available in the same category. However, the scenario is changing with Starbucks, Dunkin Donuts, Denny’s Corp, Wendy’s, Arby’s International are also in line to enter India. Customer loyalty has played a significant role in building the brand image as KFC has consistently delivered great tasting, superior quality product. However, the brand must continue to innovate and broaden relevance through meaningful variety.

Competitive Rivalry (High) – With all brands in the market, racing to have a bigger slice of the cake and outperform each other, the competitive rivalry is high. KFC must continue to strengthen differentiated brand positioning with ‘So Good’.

Bargaining power of suppliers (Low) – There are lot of suppliers available in the market. However, KFC needs to judiciously invest in developing supplier base and have a cost effective and efficient supply chain. Yum! China supply chain model has proved successful for the company which India should replicate to support explosive growth.

Threat of substitutes (Medium) – There are not many options available especially in fried chicken category where KFC has its own trademark recipes. However, Indian consumer tends to fall back on local substitutes. With local players entering into fast food segment with differentiated brand positioning; KFC will have to continue to find ways to attract new customers and retain old ones.

Recommendations –

We have had a glimpse of how Yum! Restaurants India has given a boost to KFC and worked around its strengths and weaknesses to achieve the clearly laid out success factors to be a front runner in the industry, following are the recommendations for brand enrichment and maintaining profits consistently.

-???????Having identified menu-game as a keyword, the company must continue to innovate on new recipes suited to local palates.

-???????Need to enhance the street wise menu which was introduced to drive value and has significantly increased the number of transactions.

-???????Provide more options in the healthy-food segment maintaining the brand promise of taste as the key differentiator. (Currently grilled chicken is at a 9% national menu mix)

-???????Develop a strong culture of good service and set in motion to excel the quality standards and operations from being on the threshold currently

-???????Continue to aggressively drive towards opening new outlets (KFC in West India has 22 stores whereas the market’s potential is more than 70 stores. McDonalds and Dominos are currently at 50 and 60 plus stores respectively)

-???????Strong Cash Generation and Returns Increasing the profit margin from 11% to 17% through improved operations and reduced overhead costs

-???????Judicious investment required in supply chain to ensure company’s explosive growth plan is supported well. A well devised supply chain model will help increase margins, improve food quality, and ensure food safety. Learning’s can be imbibed from Yum! Restaurants China which has a world class supply chain model.

Conclusion –

To conclude, the market is favorable for QSR Industry. Right strategy and operational execution plan can guarantee continued success. With growing disposable income and changing dietary habits, the demand for fast foods and organized food chains is rising in India. It is expected to be consumer driven in need for higher quality, hygiene and nutrition.

Having said that, if KFC has to claim the cult position and sustain its dominance in its category it needs to continually improve and innovate across product, service and variety. Taste has been the key differentiating factor for the brand; it needs to further leverage it by constantly innovating tastier and healthier products for its target customers. The brand further needs to work towards improving service excellence and quality.

KFC in India has established itself as an iconic youth brand. The brand needs to further leverage it by strengthening differentiated brand positioning with ‘So Good’.

Furthermore, brand needs to work towards increasing visibility with aggressive plans to increase number of outlets across metros and tier II cities.