Yum Brands Analysis

Problem/Issue

The main problem faced by the Yum brands is the lack of assimilation between the brands, causing further strategic and operational problem for implementing the firm’s current strategy of multi-brand operations. These issues with multi-branding have become more and more acute with the global expansion, which is not feasible, unless the brands inside Yum learn to operate together and to obtain synergies from the joint operations (Siegel & Poliquin 1). The issue of integration is PepsiCo’s heritage, the ex-parent of Yum, can be a good example. PepsiCo always treated restaurant business as a minor unit, since restaurant business was not core for the firm. Restaurant business only benefited the consumer goods sector in terms of the human resource development plus cross selling. All restaurants operated separately, and they took responsibility for meeting specific financial targets, regularly laid down by PepsiCo headquarters.

 

It was not unusual for the cafeterias to participate in the competition, as a result, cannibalizing the business altogether. The existing CEO of Yum!, David C. Novak, changed the strategic program of the firm after it had spun off from PepsiCo in 1997 (Siegel & Poliquin 1). The major idea behind the fresh approach was an amalgam design that permitted integrating Yum brands via decentralizing brand specific operations, however, consolidating shared services, such as accounting and purchasing. A new program aimed at modifying the firm on the strategy structure culture level. The new orientation also aimed at changing both the operational activities and the employees’ mindset. The new approach became important when the firm began pursuing multi-branding growth, which needed both the synchronization of the eatery operations, and the united brand development, as well as promotion (Siegel & Poliquin 2). Even thought the Yum has emphasized the integration design since its start as an independent firm, the intricacy of the mission makes it the principal issue on the firm’s agenda until today.

SWOT Analysis

The KFC firm started in the 1952, by Sanders Colonel Harland. KFC, also referred to as Kentucky Fried Chicken, is a set of fast food cafeterias based in Kentucky, Louisville, in the U.S. Yum brands is the largest restaurant firm in the world in terms of the system restaurants owned by PepsiCo. Yum brands have over 36,000 positions around the globe. KFC serves over twelve million customers each day in 109 states and territories all over the globe. KFC operates over 5,200 restaurants in the U.S., and 15,000 units all over the world (Siegel & Poliquin 4).

Strengths

Yum brands have built successful associations over the last 100 years. The firm has a well-built and identifiable brand worldwide. Additionally, the beverage business continues to raise consumption, as the firm launches new beverages and markets. Successful firms in the growing industry together with accommodating cultures make Yum brands a great place to work. Other strengths include:

  • An extension of the business connections with other firms associated with PepsiCo has enhanced the link of the Yum brands with PepsiCo;
  • The brand pays Yum’s international services;
  • The firm holds the assets worth 8.32 million US dollars, according to the latest statistical data;
  • Yum launched a hybrid combo division in 2003, which showed its turning point, as the firm then merged with Pasta Bravo for five million dollars;
  • The Derby Kentucky services offered by the firm are remarkable ever since their start in 2006;
  • The firm owns strong management teams, which make the prudent utilization of the firm’s available resources;
  • Yum brands’ portfolio is strong enough, so as to encourage the contest with other firms that provide the same services;
  • No one is well-matched with the product quality maintained by Yum brands, since its dealers supply the materials of that particular standard only to the Yum restaurants;
  • The managerial functions run by the brand name are quite strong with a unique focus upon the teamwork lying upon the principles of the division of labor;
  • The efficient maintenance of its financial arrangements;
  • The brand influences the customers for the beverage, consequently, positively promoting the brand and maintaining the strongest consumer’s base;
  • The brand produces different commodities, which are also the leading in their standard, which is maintained by the department of quality control;
  • KFC continued dominating the chicken sector with 4.4 billion sales in the 1999;
  • Yum brands rank highest amongst all chicken cafeteria chain for its menu variety and convenience;
  • Yum has strong trademark recipes;
  • It generates $1 billion in revenue each year;
  • KFC is the biggest chicken cafeteria chain in the globe and the third largest chain of fast food;
  • KFC has excellent image throughout the world, and it has been globally positioned for many years;
  • KCF is the market leader in the chicken foods for over 50 years now. It has above 50% of the marketplace share and has eleven herbs and secret recipe of spices;
  • KFC is the most identifiable variety in the chicken or fried food;
  • Yum has the strong store management, location, motivated franchisees, and workforce;
  • It has powerful distribution networks; for example, outlets in airports and shopping malls;
  • Yum’s positioning amongst the competitors is favorable;
  • Yum has unconventional ways of distribution multi-branding;
  • Yum’s management goals and objectives are measurable and realizable in terms of team empowerment, production, and/or operations;
  • Constant improvement upon the quality of chicken.

Weaknesses

  • The bankruptcy state of the Yum brands is weak, since the firm’s cash flow is not sturdy enough to quote;
  • The commodities that the brand produces mostly get damaged while shipping across into their specific destinations;
  • The domestic marketplaces, if not handled according to the customers’ local demands, become the reason behind the slower growth rate;
  • The firm suffered setbacks in January 2011, due to the ill-managed expansion in America and Canada;
  • The brand’s supply chain is not equal to the mark;
  • Miscommunication somehow occurs in product delivery, especially with the case of website marketing;
  • The brand’s economic status does not meet the scale;
  • The shares within the brand market are comparatively low;
  • The firm’s maintaining authorities do not welcome innovative ideas, rendering the brand the slow growth rate;
  • KFC was losing the market share, since other chicken chains improved sales at a faster rate;
  • The firm lacks knowledge about its customers.

Opportunities

  • The beverage market is growing rapidly; as a result, the PepsiCo association can perform better in this perspective through introducing additional and acceptable inventive products;
  • The customers of Yum brands can visit the firm online via its website, yum.com, for the feedback and placement of orders as well;
  • Yum brands have a larger potential for exceeding trade in China due to the firm’s population growth;
  • The clients’ changing trends are very suitable for the firm’s growth;
  • It is the firm’s opportunity to increase the currency market via debts that also makes its fiscal position better;
  • The firm can increase its online services for victory in the future.

Threats

  • The sudden rises in the costs of different goods make a bad impact;
  • The firm is facing extreme competition across the globe;
  • The firm is also facing the obligation to follow the state rules and regulations, so as to remain secure in the near prospect;
  • Product substitution is a key problem to Yum brands;
  • It is the brand’s need to improve the products and the services;
  • The use of cheaper know-how falls down the product level;
  • The firm is facing trouble in maintaining the same standards at its international franchise;
  • The fewer product variety poses threats to the firm, since it has extremely few products other than its portfolio, fried chicken;
  • Another threat is saturation of the United States’ markets.

Product or Market Positioning

Market Share

Yum brands at the present have a commanding 43% market share of the fast food industry based on the United States volume, and consequently viewed as a market leader in the highly competitive atmosphere with intense rivalry (Siegel & Poliquin 4). The dominance extends globally because of Yum’s strong brand historical growth during the Second World War. It is apparent that the expansion of Yum is attributable to the implementation of an international tactic of think global and act global. The profit sanctuary of Yum brands is in the U.S., and the firm leverages this income strength to expand internationally via franchising, licensing, and other joint strategies (Siegel & Poliquin 3).

Best Product

Based on the changing consumer demands, as well as an increase in the market for beverages, fast food industry has seen an augmented relative market growth rate. There is an increased consumer demand for ready foods and beverages internationally. Yum brands have capitalized on this fresh business though launching pizza huts in China, using a hybrid approach, whereby they think global and act local (Siegel & Poliquin 7). PepsiCo used this hybrid strategy in order to experiment with beverages using the Chinese herbs. These locally customized beverages symbolize the best foodstuffs for the future expansion in the new Chinese and Indian markets. This local tactic is an amalgam strategy, whereby the firm thinks globally, but acts locally.

Growth Opportunity

As the fraction of Yum’s leading share, the firm has a powerful share of restaurant chain accounts. Yum brands have 69 percent national pouring rights share. Yum brands can maintain this leadership in the market through its creative freestyle fountain system (Burkitt 1). A PepsiCo brand called FritoLay has seen the largest increase and reveals the best income growth opportunity internationally using a global strategy.

Best Business Opportunities

The U.S. accounts for one third of the whole global fast food consumption, and with the decline in the U.S market, Yum brands must look worldwide for growth marketplace opportunities (Burkitt 1). Yum’s history of utilizing a global tactic in the worldwide markets gave the firm a competitive advantage. However, relying on half of its income from the United States, Yum had to look to fresh, global markets. Yum specifically chose to focus upon the emerging markets, such as China and Russia. In these fresh markets, Yum plans using the hybrid strategy of think global and act local in advertising and marketing (Siegel & Poliquin 9).

Trends and Strategies

The consumption of snacks and beverages has witnessed a steady increase. The changing pattern of consumption is attributable to the fierce competition for consumers (Siegel & Poliquin 8). As the rivalry gets fierce, the chain restaurants must find extra ways of bringing revenue, as the customers have a diversity of alternatives to dining in the restaurant segment. Yum brands would be serving breakfast at nearly 800 cafeterias in the U.S (Siegel & Poliquin 11). Yum brands have reorganized its business. It combined its international and U.S restaurants divisions into the three global brand divisions, namely Pizza Hut, Taco Bell, and KFC (Novak 2).

Alternative Strategies

Growth

In an extreme competitive business that grows year after year due to the increasing varieties of fast food products, Yum should consider the offensive expansion with the global strategy. Yum should look at the new emerging markets, where there is a growing middle-class, such as India and China (Novak 2). Yum should build principal brands in each significant category in China. Another growth strategy is to drive aggressive, global expansion and build powerful brands everywhere. Yum should also dramatically increase the U.S brand positions, returns, and consistencies (Siegel & Poliquin 11). Another strategy is to drive long term shareholder, industry leading, and franchise.

Retrenchment

The firm should not consider the retrenchment strategy given its financial results and the continued marketplace dominance in an oligopolistic market.

Status Quo

Given the latest push by the state, federal, and local authorities to limit beverage consumption, which study has connected to obesity, the available option for Yum is to stay status quo around its existing strategies of producing its signature beverages.

Combination

Yum spent considerable capital and time to build a respectable brand all over the globe. A combination tactic to the strategy will include adopting the quo status around its current brand tactics in the short term, whilst assessing the opportunities to increase wellness snacks and fast food in the long term. Once it achieves the short-term status quo and implements offensive growth strategies, Yum could then develop via hybrid or global approach in the new international markets with a rising middle class (Burkitt 1).

Recommended Strategy

Phase 1 (now): The first phase should focus upon improving the areas of weakness plus taking quick advantage of the areas of opportunities. Responding quickly to the need of consumers ought to be the immediate offensive expansion hybrid approach that Yum should adopt. The consumer’s growing preference for ready to eat food and snacks should prompt the firm to either expand upon its current wellness offerings, or to seek for joint ventures with the firms focused upon this emerging market (Novak 2).

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Phase 2 (1-3 years): the firm should then focus upon the offensive growth after implanting the immediate inside strategies to overcome weaknesses plus taking advantage of the opportunities (Burkitt 1). Since consumers are looking for healthy and nutritional substitutes, as evidenced by Yum’s success with Pizza Huts, the firm should continue adding snack and beverage food diversity and global expansion (Burkitt 1). Yum should take its beverage and snacks business to the emerging marketplaces with a mounting middle class. The firm should implement the quo status and defensive expansion strategy in the U.S in order to protect its diversified revenues.

Phase 3 (3+ years): In the long term strategy, Yum should continue to utilize an offensive hybrid growth strategy to globally diversify its current product revenues in the emerging markets, such as China and Russia (Novak 2). The variety would allow Yum to generate sufficient income to challenge its competitors and their images as global beverage brands that symbolize the U.S abroad. Lastly, the firm should examine the triumph of the firms like Macdonald and increase individual size packages (Burkitt 1).

Growth Related Strategies

Yum brands have a wide range of fast food brands. The first growth strategy that must be assessed and recommended is the offensive hybrid growth. Yum’s offensive hybrid expansion centers upon the expansion of sales into the new states. Yum should look at the new emerging markets, where there is a growing middle-class, such as India and China. The second strategy is to build principal brands in each significant category in China, so as to grow and develop irrespective of all threats and weaknesses. Another growth strategy is to drive aggressive, global expansion and build powerful brands everywhere, so as to establish powerful brand recognition, with more branches. Another strategy is to dramatically improve the U.S brand positions, returns, and consistencies. Yum should reserve negative same-store sales for KFC through investing in improving franchise relations and product innovation. Another strategy is to drive long term shareholder, industry leading, and franchise value.

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