KFC China's recipe for success
Going local
Intuition led to product localisation, which is also a very important part of the success formula. Liu says that KFC China tended to introduce new products more frequently than their competitors in China. Also the fact that KFC has chicken as its core product offering is a very natural advantage that fits this context very well, since most Chinese prefer pork, followed by chicken; whereas beef and mutton lag far behind. So in that light, KFC enjoys a natural product advantage over McDonald's.
That KFC has also done a lot of work to continuously invent and launch new products; products that better fit the Chinese consumer’s taste preference, has allowed them to keep the competition at bay. It has got a 2:1 ratio over McDonald’s in China, whereas outside China it's the other way around.
Although KFC’s original recipe is accepted by most Chinese, KFC China did not stop there. The highly localised menu includes congee or Chinese-style porridge for breakfast; Beijing Chicken Roll (à la Beijing Duck) served with scallion and seafood sauce; Spicy Diced Chicken resembling a popular Sichuan-style dish. Their latest creation is you tiao or Chinese dough fritters.
Yet for all its hits, there are already rising brands that are not the KFCs or the Burger Kings or the McDonald’s. Liu says that Wei Qian La Mian, also known as Ajisen Ramen, is a Japanese product that has been doing very well in various cities throughout China. So is Zhen Gongfu or Real Kung-fu, a Chinese fast food chain which is showing a lot of promise.
The competition has even gone hi-tech. “I recently heard about a robot developed with subsidy from the Chinese government which is capable of preparing dozens of popular Chinese dishes at high speed, and with excellent taste, based on expert knowledge.”
Dawn of a new era?
Which probably explains why KFC China has fired its latest salvo. Says Liu: “I think the reason that YUM! Brands is interested in launching and launching aggressively this new brand called East Dawning is for reasons both offensive and defensive in nature … because (they) wanted to fend off potential local Chinese fast-food competitors.”
However, Liu thinks KFC China should reposition East Dawning, and move its market focus and resources to outside China; and within China, continue to focus on KFC, Pizza Hut and Pizza Hut Express. After all, he says, KFC China is the indisputable star of YUM! Brands’ worldwide growth engine.
That being said, Liu feels that more attention in the future should be paid to the flavour, quality and price performance of new products – not frequency of new product introduction, as this can detract consumer focus away from core products offerings.
He also thinks that the company should develop senior local talent within KFC China to take on top national, regional and even international leadership roles in the next few years.
“While the ‘Taiwan Gang’ played its historical mission exceptionally well during the first two decades, it’s time for the baton to be passed on to the local Chinese – not for any altruistic reasons, but simply because the locals understand this market even better than the ‘Taiwan Gang’”, he says in his book.
But past achievements do not guarantee future success. So will the “Local Gang” be as good or even better than the “Taiwan Gang”? That, Liu says, remains to be seen. “It all depends on the evolution of that leadership team and the evolution of China, the market, in the future.
Implementation will be key. And in China, successful implementation requires not only sound, localised products, people, systems and processes, but also the flexibility to change direction according to a new government policy, crisis or opportunity.
“Only the most perceptive and swiftest-moving companies will rise to the top, and stay on top,” Liu says in his book, although having said that, he still has a lot of faith in his former company. “KFC’s leadership position in the Chinese restaurant industry is KFC’s to lose.”
[This article is republished courtesy of INSEAD Knowledge http://knowledge.insead.edu Copyright INSEAD 2010]
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1. What are the three main reasons for KFC's success in the rapidly changing market environment in China?
2. What was KFCs strategy to adapt to the local market? Name three of them.
3. Name four of their highly localised menu.
4. Name three of KFCs competitors.
5. According to Liu, KFC should not concentrate only on increasing the frequency of introducing new products. What should they do instead?
