In our new article we will examine KFC’s China business model, the success they had in China and what it means for a global brand to enter in an emerging market. The story of KFC also offers many lessons of how to solve the issues arising when a company is entering a new and unknown market.
KFC’s success’ five key points
When the KFC opened in Beijing in the Tiananmen Square back in 1987, western-style fast-food restaurants were unknown in China.
KFC’s China executives believed that the US model wasn’t good enough for the success level they were looking at that time. There are some key competitive advantages that were the key to building KFC’s success in China:
- Bigger outlets. At that time the managers wanted to change the perception of the brand so that the future consumers would see KFC as a part of the local community. With bigger outlets, which are about twice the size of those in the U.S., bigger kitchens and more floor space special effort was made to welcome families and groups.
- Wider seletion, more staff. KFC China’s menus usually include 50 items, compared to about 29 in the United States, with the introduction of about 50 new products a year, either temporarily or permanently.The food preparation is more complex in a Chinese KFCs and requires an employment of around 60 people in a single restaurant. KFC’s intention wasn’t to put itself as the cheapest dining option and this decision put them way above the street vendors, local restaurants or fast food chains.
- Rapid expansion outside of large cities. It takes KFC only half the time required in the US to open a new outlet (4 to 6 months), from site selection, staff training, all the way to the grand opening. The deciding factor was the competition with McDonald`s. Instead of going directly head to head with them in the four largest Chinese cities, KFC decided to embrace the smaller cities and build a truly national business, with outlets all over the country.They established a presence in 16 locations from which it could grow and develop and by the year 1999 it was opening dozens of restaurants a year.
- Distribution. KFC China established its own distribution arm in 1997, building warehouses and running its own fleet of trucks. Even though this endeavour was expensive, it was also necessary with rapid expansion in mind. The same year the company implemented a supplier rating system with the suppliers that perform best, which allowed managers throughout China to concentrate on purchasing from them. Buying locally is essential to keeping their costs low.
- Employee training. When KFC opened in Beijing, it was one of the first companies to promote excellent customer service. But even with the rapid expansion, staffing is still an issue. To maintain its current restaurant-opening rate, KFC needs at least 1,000 new managers and 30,000 new crew members a year with their training finished before the new outlets open.
New fast food
KFC China’s rapid growth poses challenges. A highly visible company can easily become the target of backlash, for example, the negative opinions of fast food.
The 2002 China National Nutrition and Health Survey revealed that 22.8% of Chinese adults were overweight, compared to 6% in 1982. The number of overweight and obese children aged 7 to 17 was 8.1% over the past 10 years, according to the same agency.
In 2005, the company introduced “new fast food”, anew concept with the aim of “nutritious and balanced” food and the promotion of “healthy living.”
Recently, in the city of Hangzhou, KFC opened KPRO, a healthier alternative to KFC where customers can pay with only a face scan.
Next KFC coming up?
Let’s look at some of the examples how our partners such as BusinessOulu, Polar Bear Pitchingand Air Guitar have successfully managed to position themselves in the Chinese market.
BusinessOulu was successful in firstly positioning itself as a great, suitable and reliable partner when it comes to education. They successfully won the trust of the local partners and after the success with the various education partnerships, they were ready for the next step in conquering the market.
Polar Bear Pitching and Air Guitar presented themselves for the first time at 2050 convention this year with different events. Polar Bear Pitching had to adapt to the taste of locals as the brand recognition wasn’t that strong and instead bringing an ice hole all the way from Finland they built a small pull filled with ice which made participants less uneasy to try and pitch their stories in the ice pool.
Air Guitars presence in China was not quite there, but with their introduction at the 2050 theyr popularity has been growing. They didn’t just decide to tellthe people who they are and what they do, but to showthem also, and who better to show the true spirit and mission than the two-time winner of the Air Guitar World Championship.
Even with all the challenges an emerging market presents, it is not impossible to be successful and thrive in it on the long run.
Harvard Business Review