YUM! CHINA Retail Management (Online) November 25, 2012 Kevin Browning Scott Claxton Michael Marshall
History Yum! came to Existence on October 7, 1997 as Tricon Global Restaurants, Inc. which was an independent company that separated from PepsiCo, the original owners who franchised the Pizza Hut, Taco Bell, and KFC brands throughout the world. Since the company had a relationship with Pepsi, a lifetime contract was formed where all Tricon restaurants would only serve Pepsi products as a beverage. Nearly five years after the beginning of Tricon Global Restaurants, they acquired Yorkshire Global Restaurants, a Lexington, KY based company that owned the A&W All-American Food Chain and the Long John Silver s chain. On May 16, 2002, the name of Tricon Global was officially changed to Yum! Brands after a vote at the annual shareholders meeting. A short time later, Pepsi products were introduced to A&W Restaurants and Long John Silver s, who at the time were serving Coca Cola products, due to the lifetime contract with PepsiCo. The beginning of 2011 brought change to Yum! The company decided to free itself of Long John Silver s and A&W in hopes that it would be able to expand its Big 3 globally. Besides the two companies having very little presence outside of North America, the companies didn t fit into Yum! long term goals. KFC was the first American Fast Food restaurant to operate in the West Bank in 2012 and a Pizza Hut is in the planning stages of being constructed as well. The Big Problem As Americans, we like everything on the go, even our food. By us living in this manner, our food tends to reflect our lifestyle: fast food. In the United States, KFC, Taco Bell, and Pizza Hut are recognized as fast food restaurants. The Chinese, however, are very health conscience. They don t eat as much fried food as we do, if any. This could be a problem for Yum! because its
products would not appeal to the Chinese like it would to Americans. Yum! Would have to tailor its menus to the Chinese diet in order for them to be successful in the Chinese market. Issues Yum China has experienced different issues since the beginning of operation in China. Some issues are deemed more important than others. This section explains a few key issues that KFC and Yum China faced during the beginning years and current years. The first issue was in the start of Yum China first operating in China was the supply chain and staffing issues. A supply chain was not created or built because of the lack of resources and facilities. Sam Su, the Chairman and CEO of Yum Brands of China, was highly concerned and made a decision to create their own facilities and build a fleet of trucks to make the process happen. It made no sense to have to rely solely on deliveries to travel overseas from America to deliver goods. Staffing was difficult for KFC and Yum China, because there were very few people in China able to perform the job duties that are necessary for the work. Also, many Chinese were already employed at other companies and firms and were not willing to risk leaving their current jobs. A second key issue was the Chinese did not really think the food that was offered at KFC stores. The food did not appeal to the Chinese consumer and they said it did not taste very good. Chinese consumers found it difficult to change their preferences of eating baked or grilled chicken to eating breaded, fried chicken. Chinese consumers saw KFC as unhealthy foods which were a huge concern for the consumers. For KFC and Yum China, a huge task was ahead of them to recreate the current menu and make it conform to the Chinese Consumer. Fried chicken remained on the menu and there were different spices added to gain the approval of Chinese consumers. Many local favorites were added to the menu to create new product developments to
the menu. In addition to the Chinese and the concern of unhealthy foods, they became concerned of the safety of eating fried chicken at KFC. There have been many stipulations about the safety of the poultry and hot it is prepared and transported. KFC and Yum China has overcame these allegations and continued to exercise the safety and quality of their products. Perspectives Consumers Chinese consumers are deemed to be healthy, fit, and concerned with their physical appearance. Their views of KFC are that the foods that are offered are potentially unhealthy when consumed in the category of calories and fat. It is known by all that fast food restaurants has increased the obesity rate by 6% in China. This concerned the consumers and began to be their inner feelings towards KFC and Yum China. Consumer perspectives on KFC began to shift from believing KFC was unhealthy to transforming their ideas that KFC has become a nutritious choice of food. KFC began to instill the ideas of New Fast Food into the minds of the Chinese consumer which shifted the consumers feelings and beliefs. Management Based on the big problem of KFC and Yum China is the consumers believe the food is regarded as an unhealthy choice for consumers. Management has ideas to recreate the feelings of the consumers by enhancing the menu to fit the needs and wants of the Chinese consumer. Fried chicken is still offered, so management will need to gain the approvals of the consumer by advertising the advantages and the product itself. Another view of management is to train the employees on the processes and functions on how to operate a KFC restaurant. China s
workforce is very serious about their work which has made this accomplishment easy to engage in. Employees The employees at KFC had their own perspectives of KFC and Yum China. Many employees who worked here were recent college graduates and college students who were ready to help build the growing market in China. Their feelings were changed by the sense of fried chicken and realized that KFC was not a type of fast food. The employees realized that KFC can be regarded as a typical sit-down restaurant that offered great food and an awesome atmosphere. Knowledge Based on the obesity rates that were examined by the Chinese Academy of Medical Science showed increases in the rates of obesity in China. Sam Su developed the New Fast Food concept which was created to emphasize variety, quality, taste, cooking platforms, and occasions. This new concept was intended to attract the Chinese consumers to improve their brand image on health. Sam Su was dedicated to tailor the menu to offer healthier choices as well as incorporating the same products. The concept of New Fast Food was introduced and presented to the Chinese restaurant industry in order to China healthy. KFC and Yum China created very attractive restaurants in China to suit the Chinese consumer. These attractive restaurants included well-lit, air-conditioned, spacious, and somewhat luxurious looks. They are tailored to the customs and traditions of the Chinese which enhanced the food. By creating a new and improved menu, KFC will be able to accommodate to the tastes, preferences, and cultural traditions of the Chinese.
SWOT Analysis Strengths There are quite a few strengths as KFC moved into China. At the start, Yum knew that Chinese ate more chicken rather than beef. China was a developing market opening up to fast food restaurants, and new to fried chicken on the bone. China is also a very high growth gate area to communities, businesses, shopping centers and restaurants. As the people move in, the people need to eat. KFC and Yum China designed highly attractive stores throughout China to appeal to the Chinese consumer. Later in the years, KFC became the leading restaurant to sell fried chicken. Weaknesses KFC and Yum China experiences many weaknesses that were needed to be overcame, and there are still weaknesses KFC and Yum China still face today. The main weakness was Chinese consumers had feelings that the food serves at KFC was unhealthy and not nutritious. The image set by fried chicken was that it is very greasy and had high number of fat. Chinese consumers tend to be health conscious individuals who consumed healthy food. Today, KFC still battles the fight that poultry and the food prepared meets the safety standards. Some Chinese consumers are skeptical about the safety which results in them not dining at the restaurant. Opportunities Operating in a health conscious country can be difficult for fast food restaurants to become successful. One of the biggest opportunities that KFC is faced with is to recreate the menu to tailor to Chinese local favorites. Sam Su has great ideas to integrate Chinese culture into
the Western style restaurants. Another opportunity is to expand to larger populated areas and communities to make KFC restaurant easily accessible and more convenient for the Chinese consumers. To become more successful, KFC and Yum China needs to offer more healthier items to the Chinese consumers. Threats KFC and Yum China s biggest threat is the fact of Chinese consumers not enjoying fried chicken on-the-bone. Many believe it is an unhealthy choice of food and can lead to obesity. Not only do they believe the food is unhealthy, many Chinese consumers do not like the taste of the products served at KFC. Along with being an unhealthy food, consumers thought of food safety regulations about KFC is a threat. Another important threat to KFC and Yum China if their competitors in China such as McDonalds, Subway, and Burger King. The food industry is growing rapidly in China with very high competition against all companies. Actions In the beginning, Chinese consumers did not like that taste and quality of the food. The introduction of fried chicken to China was at first very difficult for KFC to overcome to make KFC successful. Actions deemed necessary for KFC to incorporate was to add more spices to the chicken and other products that were tasteful and accepted to the Chinese consumer. The traditional Chinese diet included more grains rather than proteins and vegetables. To conform to the Chinese consumer KFC needs to serve and offer more grains in their menu to attract more business. KFC in the Western civilization is known as a quick restaurant with standard seating and fast delivery of food. Chinese enjoy restaurants with an attractive atmosphere for dining on any
occasion. KFC and Yum China needs to create these excellent dining attractions for the Chinese to enjoy. To build a stable and reliable supply chain in China, KFC and Yum China must create the facilities, factories, and trucks in order to create, store, and deliver the products throughout the KFC and Yum China restaurants. KFC needs to build relations with Chinese farmers to gather more suppliers in the area. KFC is dedicated to providing the best quality products to their customers by purchasing almost every product from Chinese producers. Ensuring the quality of the products are safe, KFC and Yum China should buy the best-of-the-best products from their suppliers. Another issue was the staffing problems KFC faced in the beginning. KFC did not know who to hire since many Chinese have never worked for Western fast food restaurants, which at first made it difficult for Sam Su. Sam Su should create incentive plans for future employees who may work at KFC. China s workforce is similar to the Chinese military is the sense of dedication, teamwork, and learning abilities. Sam Su, should hire individuals who are fresh to the workforce who are willing to undergo those three aspects to help make KFC and Yum China successful. The recruits should be able to fluently speak Chinese and understand the Chinese culture and norms. Consequences As with any decision comes a consequence. These consequences can be either positive or negative based on the type of action implemented. Each action is researched and well though before making decisions to implement because of the potential risks of that action becoming unsuccessful. When KFC and Yum China tailored the menu to adapt to Chinese consumers, this was a huge move for their part. The Chinese consumers enjoy Western foods but to add to their
tastes and preferences, more spices were needed. By acquiring foods that are common to the Chinese resulted in a greater variety of food choices. The Chinese will always love their traditional foods and enjoy the new taste of Western foods in their diet. These were very effective consequences that moved KFC in China to become successful. One negative consequence that could have played out for KFC and Yum China, is that creating new menu items and spicing the foods could have resulted in poor taste and quality. Luckily, this action was well researched and tested providing a great outcome. In the United State, KFC is regarded as a quick, on-the-go restaurant that is convenient. IN china., the Chinese consumer enjoys not only good food but an exciting atmosphere where family gatherings, business meetings, and even birthdays can take place. Within these measures KLFC has recreated their stores by providing luxurious restaurants and atmospheres. For KFC, redesigning the KFC stores in China was expensive but this decision paid off well. KFC in China is not thought of as quick on-the-go food but rather as a place for an exceptional meal. By focusing on China s population and income it enabled KFC and Yum China to open stores in different areas of the country. In the beginning of KFC and Yum China in China, there were problems of being able to properly staff the businesses. Sam Su focused on hiring recent college graduates to head the stores and offered them great opportunities. The positive outcomes were great. Since the since managers found their first job at KFC, there was no pressure for them to leave other jobs. The Chinese believe in company loyalty to the extent that they may only have one job for their entire lives. The training and courses the employees encounter prepare them to be great leaders at their stores by providing great customer service, satisfactions, and increased revenues, all contributing to the success of KFC and Yum China.
References Bell, D., Shelman, M. (2012). Yum! China. Harvard Business School. 1-37 "History and Culture." Yum. Yum! Brands, n.d. Web. 8 Nov 2012. <http://www.yum.com/csr/about/history/>.