YUM Brands: Kentucky Fried Chicken
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It can be highlighted that companies find themselves in the news for a myriad of reasons ranging from merger rumors, product liability claims, ethical issues and environmental impacts of their processes. In this regard, the paper examines news reports attributed to the fast food giant Kentucky Fried Chicken by reviewing three recent articles on the organization.
In a study by Bill Peters in the Investors Business Daily, the proprietor (YUM) of Kentucky Fried Chicken, Taco Bell, Pizza Hut reported third-quarter earnings that failed to meet Wall Street expectations and a primary China metric falling short (Peters 1). This was less than a month before the spin-off of operations in the country. The earnings per share alleviated by 10 percent to $1.10 with an augmented revenue of one percent to $3.464 billion (Peters 1). From this, the sales of KFC increased by four percent. However, it can be connoted that the stocks of the YUM brands fell by a total of 2 percent in after-hours trading and 1.9 percent in the heavy volume trading (Peters 1). This was a fall below the 50-day line. (Peters 1) The report highlights the fact that Dominos Pizza and PZZA had lost support. However, as a result of a digital model that makes ordering an easy process, the pizza stocks of both companies closed above their 50-day lines.
The new article attributed this results to cheap groceries and shifts in global politics that have reduced the likelihood of customers dining outside. In addition to the mentioned challenges, Yum Brand faces competition from entities such as Dominos. The author connotes clearly that KFCs extra crispy chicken promotion is attributed to the benefits received by YUM Brands in its third quarter. The article connotes the significance of its China business and thus, was to begin trading on the NYSE on 1st November 2016.
Wang Yue from the Forbes Magazine runs an article on the reason as to why McDonalds and KFC have resolved to local investors in an endeavor to survive businesswise in China. The author highlights that despite expanding and the opening of a multiplicity of restaurants, KFCs share of the fast-food restaurant dropped from 40 percent in 2012 to 23.8 percent in 2015 (Wang). On this note, YUM Brands opted to sell a part of its China unit to Ant Financial. It is an affiliate of the e-commerce giant Alibaba and the investment firm Primavera which is based in Beijing. This justifies the authors claim of the brands opting to sell part of their holdings to local investors.
The strategy by the two brand (McDonalds and KFC) is purposed at changing their fortunes in the Chinese fast food industry. This is founded on the approach of getting off Chinese operations from their books while maintaining cash flow. The benefit accrued to Ant Financial underlies the utilization of the top mobile platform in China in selling their products using a single swipe. Alibaba is connoted to have 450 million active users and thus, can be said to be a formidable promotional tool (Wang). On the other hand, Primavera founded by the Goldman Sachs chairman in China is expected to offer useful business connections to YUM Brand which KFC is part as mentioned. In the same vein of surviving the Chinese market, the American fast food restaurants KFC have begun offering more Chinese-themed food e.g. KFC porridge, fried dough and rice-based meals (Wang). This is a strategy also adopted by McDonald's. The troubles experienced in China are attributed to the changing tastes and consumer preferences.
Mukherjee Sy in a Fortune article captions, Most fast food is still loaded with antibiotics (Mukherjee). In the report, KFC was put alongside Burger King, Dunkins Donuts and Starbucks as the entities with a poor rating from research conducted by a group of consumer and food safety cohorts. The author emphasizes the fact that this large fast food organizations do not pay attention to antibiotic-free meat and more often than not, fuel the antibiotic-resistant bacteria (Mukherjee). The environmental issue is attributed to the sourcing of meat products by most of the companies. According to scientists, the scourge is a ticking time bomb.
On this note, the pressure as concerns the sourcing of poultry and other meat products is growing on YUM Brand from its shareholders (Mukherjee). Therefore, the situation is not only concern scientists but also the general public. Therefore, the company is required to implement policies directed at ensuring safe sourcing of raw material and thus, reduction of antibiotic-resistant poultry or other meat products.
KFC as part of the YUM Brand can be connoted to have a sustainable competitive advantage. This is revealed by its continuous profit-making as compared to entities such as Pizza Hut belonging to the same proprietor. From the report by Peters, it is revealed that the profits accrued to the YUM Brand were partly attributed to the success of KFCs crispy chicken promotion. In addition, KFC despite experiencing shortfalls in the Chinese market due to changing consumer tastes and preferences has implemented a survival approach aimed at maintaining its competitiveness in the market. This can be said to have been achieved through strategic sales to Ant Financial which ensures an online promotional and sales presence, and Primavera purposed at maintaining business connections. From the report by Bill Peters, KFC increased its sales by four percent and thus, shows a sustainable competitive advantage regardless of shortfalls.
It can be highlighted that the ACA signed into law in 2010 and upheld by the Supreme Court, the ACA requires that all employers with 50 or more full-time workers provide health insurance or face a penalty (Schenker). It can be connoted that the fast food industry is founded on the reduction of labor costs to ensure sustainable profits. In this regard, alleviated insurance expenses cause heightened labor costs and thus, losses for fast food restaurants in which KFC is a part. On this note, companies such as KFC will only opt to lay off or slash the working hours of employees. The law can be termed as complicated for the reason that it intends to help employees acquire health cover but also exposes them to unemployment.
According to Ryan Ellis, the repeal and replace approach taken by the government as concerns Obamacare will see a cut in the current tax baseline (Ellis). For business, this means a cut in the permanent tax and hence, more profits. This is particular for small business owners. On this note, it can be connoted that KFC is a franchise composed of a multiplicity of small business owners. For this reason, there will be increased profits for the small investors. The tax cuts also extend to the families and from this, it can be concluded that there will be higher disposable income and thus, more sales for the KFC franchise. Therefore, it presents a win-win situation for the YUM Brand.
In the reaction to an increase in the minimum wage, it can be said that KFC would go ahead to increase the prices of its products. This knee-jerk reaction was seen when the Californian legislation adopted a gradual minimum increase to $15 an hour (Wihbey). Therefore, in a report, it was identified that fast-food restaurants as mentioned, would increase the prices of their products by 4.3 percent with others related jobs (Wihbey). On this note, critics highlight that increases in the minimum wage have an adverse effect on businesses.
KFC is one of the largest fast food restaurants worldwide and faces competition from established brands such as Dominos and Burger King. It can be connoted that the franchise business is hard to handle and from this, it can be highlighted that the brand faces challenges with its suppliers and some of its franchisees. The brand faces challenges as concerns shifts in consumer tastes and preferences as seen in the article by Wang and Peters (Wang; Peters). However, KFC as part of the YUM Brand still ensures a steady increase in profits and cash flow. In China, the outfit has been seen to mature an approach purposed at ensuring profits which have made it more adaptable than some of its competitors e.g. McDonald's. For this reason, it can be presumed to have a strong management.
As mentioned, there has been a growing environmental concern of the use of antibiotic-resistant meant and poultry (OMICS International). This has led to pressure by its shareholders and scientists to procure more antibiotic-free meat products. It can be connoted that the issue was a major concern for the Chinese population which led to the rebounding of sales in the country and the violation of Chinese law (OMICS International).
Ms. Wurtzburger forwarded a claim that the overflowing bucket chicken in KFCs advertisements was false advertising (Criscione). However, this can be dubbed as one of those inherently unsuccessful consumer cases and lacking in the elements to survive a court of law. On this note, the case was subject to immediate dismissal by the courts.
Personally, it would be feasible to buy stocks in YUM brands because of its potential penetration to new markets. Also, the brand has survived the Chinese fast foods markets with half of its profits attributed to the market. Therefore, with high revenues, it means high earnings per share and thus, a feasible investment.
Works Cited
BIBLIOGRAPHY \l 1033 Criscione, Stephanie. KFC sued because chicken isn'st overflowing: The problem of scant complaints and a new civil procedure. 2016. Online. 1 March 2017. <https://wfulawpolicyjournal.com/2016/11/08/kfc-sued-because-chicken-isnt-overflowing-the-problem-of-scant-complaints-and-a-new-civil-procedure/>.
Ellis, Ryan. Congressman Vern Buchanan Sees Tax Reform Through The Lens of Small Businesses And Economic Growth. 1 March 2017. Online. 1 March 2017. <https://www.forbes.com/sites/ryanellis/2017/03/01/congressman-vern-buchanan-sees-tax-reform-through-the-lens-of-small-businesses-and-economic-growth/#1921460a>.
Mukherjee, Sy. Most Fast Food Is Still Loaded with Antibiotics. 23 September 2016. Online. 23 December 2017. <http://fortune.com/2016/09/22/fast-food-antibiotics/>.
OMICS International. KFC. July 2014. Online. 1 March 2017. <http://research.omicsgroup.org/index.php/KFC>.
Peters, Bill. Yum Brands Stock Dives Late As Earnings, Sales Miss; China Comps Down. 10 May 2016. Website. 2 March 2017. <http://www.investors.com/news/yum-brands-reports-as-restaurants-struggle/>.
Schencker, Lisa. If you have employer health insurance, an Obamacare repeal will affect you too. 17 December 2016. Website. 1 March 2017. <http://www.chicagotribune.com/business/ct-obamacare-repeal-worries-employees-1218-biz-20161214-story.html>.
Wang, Yue. Why McDonald's & KFC Are Turning To Local Investors To Survive In China. 9 September 2016. Website. 2 March 2017.
Wihbey, John. Minimum wage: Updated research roundup on the effects of increasing pay. 27 July 2016. Website. 1 March 2017. <https://journalistsresource.org/studies/economics/inequality/the-effects-of-raising-the-minimum-wage>.
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