Pestle analysis of KFC
KFC is among the leading global brands of fast food in the QSR chicken category. It is a part of Yum Brands, which also owns Pizza Hut, Taco Bell, and The Habit Burger Grill. KFC is a global brand and operates across several markets. Apart from being the largest brand in Yum brand’s portfolio, KFC is also the global leader in the QSR chicken category. It had 15,000 stores operational worldwide in 146 countries as of December 2020.
KFC was founded By Colonel Harland D Sanders in Corbin, Kentucky. It offers a large menu of fried and non-fried chicken products such as sandwiches, chicken strips, chicken-on-the-bone, and other chicken products marketed under various names. The company has grown fast and has very few direct competitors in the global market. Being a global brand, KFC is subject to several kinds of pressures and challenges. The global fast-food industry has grown hypercompetitive, and companies are focusing on various factors apart from technology to maintain their leadership.
This is a pestle analysis of KFC detailing how the various factors in its macroenvironment affect its business worldwide.
Political factors are of huge importance in the context of nearly every large and small industry. It is because the country's regulatory environment directly impacts the profitability of the businesses in an industry sector. Government policies affect sales and growth. Apart from it, tax structure and other political factors also affect businesses worldwide. Companies need to focus on the political environment of individual countries to maintain their market position there. Changes in the political environment can sometimes have a severe impact on business operations and profitability.
The trade wars between the US and China also severely impacted the businesses operating in the two countries. For example, many Chinese businesses operating in the US faced difficulties continuing their operations and vice versa. The US-based companies also faced huge difficulties due to tariff hikes and other types of restrictions imposed by the governments of the two nations. KFC’s journey in China, however, has remained comparatively free from hurdles. Apart from being the first western brand in the Chinese market, the company is also the largest. According to Statista, the company has more than 7000 stores operational in China, and 5,872 of them are company-owned as of 2020. In the early years, there were difficulties before KFC when government rules for foreign brands were stricter. Local partners played a critical role in helping foreign businesses establish their presence in the country. The company has been able to establish itself by adapting to the local political and socio-cultural environment.
Economic factors have always played a critical role in the context of international business across all industries. The world economy had been flourishing over the past several years when the pandemic hit the global market hard in 2020. Many industries, including the hospitality industry, were hit quite hard. The economic impact of the pandemic included millions of job losses and businesses shutting down in large numbers. Such periods can be challenging for businesses that depend on physical channels only for sales. However, the fast-food industry has drastically changed over the past few years. Digital technology has helped change how companies sold products and marketed their brand. It also helped minimize a lot of the negative economic impact of the pandemic. While some brands in the QSR industry were able to sustain themselves just well without incurring huge losses, some managed to grow sales and revenues like Dominos.
The Chinese market was the first to revive from the impact of the pandemic and open up. However, the other markets took some time to revive. While the economic impact of the pandemic has been controlled to a large extent, and the unemployment rate, which had shot to sky-high levels during the pandemic, has again come down in the US, it might take a year or more for its impact to be completely brought under control. When the employment rate falls in a leading market, it affects customers' disposable income and causes spending on fast food and other items to fall, affecting the sales and revenues of QSR brands. In the US and other leading markets, while the employment rate fell during the pandemic, the leading QSR brands could maintain their sales using digital technology and extensive reach. KFC has also survived the impact of the pandemic quite well. There was only a small decline in its sales and revenues compared to the previous year. The company’s net sales were down to $26.3 billion in 2020 from $27.9 billion in 2019, a decline of around 6%.
Overall, the economic factors can have a significant impact on the sales and revenues of QSR brands. However, there are some mitigating factors too that help businesses during economic downturns. For example, the competitive pricing strategy of leading QSR brands has helped the businesses survive the negative impact of economic declines. Companies also form strategies to manage the negative impact of economic fluctuations or currency exchange rates.
Sociocultural factors have also grown in importance in the context of international business. They have acquired a distinct role in terms of marketing and sales. Demographic changes worldwide have shifted businesses' focus to the millennial generation, which is the largest part of the QSR brands’ customer base worldwide. The millennials are a tech-savvy generation, and therefore companies are focusing more on the use of technology for selling to millennial customers. Apart from it, companies also need to adapt a lot to the local cultures and societies to grow in various local markets. For example, the culture in the western nations is vastly different from that of the Eastern nations. There can be significant differences in the type of food and service people prefer from China to Canada. Companies including QSR brands have to adapt their business to the local culture in the various markets to succeed there. Culture has a significant impact on people’s tastes, preferences, and marketing literature, highlighting the importance of culture in business. Part of KFC’s success in China can be attributed to its mastery of the marketing techniques that helped the brand grow its appeal to the Chinese audience. KFC has adapted its marketing strategy to the local culture to find faster growth there. It used heavy localization to establish itself in China and swiftly grew into a large and dynamic brand. In this way, focusing on socio-cultural factors can drive faster success for companies in the QSR sector.
Technology is now among the leading factors driving superior growth for a vast number of businesses worldwide. People can identify its critical role from how the number of smartphone users is growing worldwide and the growing use of digital channels for sales and marketing. Technology is driving higher sales and superior ROI on the marketing strategies of QSR brands. During the pandemic, the role of digital technology as the main sales and service channel grew more highlighted than ever. More and more people were ordering food online through websites and apps. Customers were confined to their homes during the pandemic, and therefore digital channels were their preferred channel for shopping and ordering food.
In recent years, fast-food brands, including KFC and other leading QSR brands like Dominos, have grown their investment in digital technology to grow their market influence and share. However, several of them, including KFC, have gained cost efficiencies through technology to grow their profitability. Technology has helped KFC reach more customers in various markets. It has also increased competition between QSR brands. It has helped them manage their supply chain efficiency and minimize costs. Apart from that, KFC has also injected more life into its marketing efforts using digital channels. It uses online advertising and social media channels for marketing and customer engagement. Social media particularly has played an integral role in driving higher customer engagement. KFC uses social media to address customer issues and complaints apart from marketing. Data and analytics, and cloud technology are also driving higher success for the company across various markets.
Sustainability and the environment have emerged as key concerns for large and international businesses. Sustainability is relevant for both an automobile company with a heavy carbon footprint or a small business with a lower carbon footprint. The level of environmental awareness among consumers worldwide has grown. Sustainability affects brand image. Consumers like to buy from more sustainable brands. KFC is also investing in sustainability to maintain a stronger brand image and improve its business processes. Apart from adopting sustainable business processes, the company also focuses on sustainable packaging. It has made all customer-facing plastic packaging recyclable or reusable. KFC sources fiber-based packaging from certified or recycled sources. The company is a proud partner of Next Gen Consortium, a consortium of brands focused on improving packaging in the food industry and reducing wastage.
The other critical areas of focus for the company related to sustainability and environmental awareness include climate change, forest stewardship, and waste reduction. KFC has also invested in a sustainable supply chain. TIT has minimized its supply chain and business operations' environmental impact, strengthening its image among its customers as a highly sustainable brand.
Legal factors and compliance are now at the top of the list for most large businesses worldwide. Noncompliance, in most cases, hurts business image and profitability. Businesses need to remain compliant to avoid legal tussles, hefty fines and maintain a strong brand image in the markets they operate. There is a complex web of laws that large and international businesses need to comply with. From labor to food safety, supply chain, business operations, franchising, and marketing, there are various laws KFC must comply with. The legal framework also varies from market to market.
In the age of social media, any type of news, good or bad, travels faster than ever. Businesses need to maintain an ethical image and adopt ethical practices. Several scandals in the past have rocked the fast-food industry. KFC also has not remained immune to it. However, the company is now focusing on higher compliance and ethics in its own business operations and its suppliers. Remaining compliant and maintaining an ethical image helps businesses avoid losing their image before the customers. It also helps grow their popularity and sales.