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Business Segment Chains

The enactment of the franchise law in Mexico in 1990 altered strategies for KFC in Latin America. Under the legislation, “ the franchiser and franchisee are set free to set their own terms. ” Royalties are allowed and taxed at 15% on technology assistance and know-how and 35 % on other royalty categories. This legislation increased franchises throughout Mexico. Mexico is a profitable potential for KFC. The passage of the North American Free Trade Agreement (NAFTA0 eliminates tariffs and non-tariff barriers and further eased restrictions in foreign investments.

Trade relations between Mexico and the U. S. are generally attractive however overall trade and investment is still at small percentage. This is accounted to the political and economic turmoil in Mexico over the past. Foreign exchanges are also fluctuating. The economic situation affects the stability of the labor market in which KFC is very concerned about. Low purchasing power resulted to labor unrest and high turnover rates. 2. ) The Industry The National Restaurant Association forecast projects that the 1994 food service will top among the restaurant industry in the United States.

The food industry is estimated to grow at 6. 3 percent. This figures implies that the fast-food restaurant chains have dominated

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the growth of the restaurant industry. Overall sales growth for the restaurant industry is at 3. 9 percent. There are six (6) major segments that comprise the fast food in the food service industry. The Table also shows the sales of the top 64 US fast-food outlets. The sandwich chain is the largest segment in the industry with estimated sales of 42. 4 billion dollars in 1993. McDonalds eats up 33% of the market share.

The slow sales growth faced by these chains have made them offering new menus like fried chicken and clams and shrimp in some outlets. Franchise relations, government regulations, and food and safety handling are also some of the issues given importance by the chains in these segments. Pizza Hut dominated the pizza segment and is estimated to eat up 44% of the market share. Stiff competition among this segment has increased pressure resulting to wider customer base, special promotions, diversification into non-pizza items, and development of non-traditional units.

Dinner houses have the highest growth among the business segments. Red Lobster is considered the segment leader and Olive Garden follows this. The high growth is attributed to the fact that there is still low-penetration by major chains in this segment. PepsiCo. Inc. are poised to dominate a large-portion of this segment. KFC dominates the chicken segment with 72% of the market share.

These also accounts for almost 50 % of chicken franchise sales. Despite the rapid growth of the restaurant industry, there are several indications that the market is saturated. Eating and drinking establishments has increased by only 2.7 percent on 1992 and the fast-food industry has begun to consolidate. Acquisitions and mergers has also begun in the chicken segment. This strengthens the position of Popeye, the second competitor of KFC. Though the acquisition increased the competitive base of Popeye, this is still small compared to KFC with 8,729 international units as of 1992. The effects of mergers and acquisitions are significant to the industry. Top10 restaurants controlled almost 50 % of the fast-food sales and larger firms were able to give financial and managerial resources to these chains.

3.) The Firm “Colonel” Harland Sanders founded Kentucky Fried Chicken during 1954 in the US. At that time, fast food franchising is still a new practice and with Sanders travel and persuasion he was able to grant 200 take-home retail outlet franchises in 1960. He was also able to establish franchises in Canada increasing the number of franchises to 300 and revenues up to US $500,000 in 1963. The following year, sold the business to 2 businessmen, Jack Massey and John Young Brown Jr.. Brown became president of the United States. Sanders focused on the publc relations of KFC.

Massey and Brown concentrated on increasing the franchise systems across the US and took KFC into public and the company was listed in the New York stock exchange. This strengthens the company in the US markets and made them see the international markets. Joint ventures, acquisitions of rights to operate, and subsidiaries were established all over the world.

There is constant change in the management of KFC. In 1971 it entered into negotiations with Heublin Inc. and later acquired by RJR Nabisco Corp. In 1986, KFC was sold to PepsiCo, Inc. PepsiCo. , Inc. is one of the largest consumer companies in the United States. 63 percent of PepsiCo’s net sales were accounted for its soft drink and snack food businesses. The company underwent into restructuring of operations in 1984. It divested businesses outside consumer product orientation.

The reorganization also focused the business into three product lines, soft drinks, snack foods, and restaurants. PepsiCo’s restaurant business started in 1977 after its acquisition of Pizza Hut and Taco Bell. The compatibility of the products allows management skills to be easily transferred among the three business segments.

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