KFC (Kentucky Fried Chicken) is currently one of the most popular chicken restaurants in the world. Of course, there are several factors that contribute to KFC’s success outside its delicious fried chicken.
With the great success witnessed from different outlets in various countries, one might ask, what is KFC’s business model? I wondered about the same thing and decided to research the matter! Here’s what I discovered!
What Is KFC’s Business Model In 2022?
KFC’s business model is primarily based on franchising as of 2022. The parent company permits other outlets to use its brand name, logo, and operating methods in the franchise model by issuing licenses. Therefore, since KFC’s management cannot oversee all operations, it gets into agreements with other outlets that adhere to the conditions of the parent company.
If you need more information on KFC’s business model, its strategies, reasons for its success, and much more, keep reading!
What Business Model Does KFC Use?
KFC uses the franchise business model to manage its operations across the world.
In this franchise model, KFC’s parent company is the franchisor who owns the business model, brand, and trademark used by subsidiary companies referred to as the franchisees.
As a result, the franchisor and the franchisees are bound by a legal and commercial relationship.
Further, this allows the franchisee to sell products and services of the franchisor in exchange for using its brand name.
Also, it’s important to note that KFC franchisees have to pay some fees and sign a binding agreement with KFC’s parent company, just like any other franchise.
To further benefit from the franchisees, the KFC parent company receives a 5% royalty fee from the gross monthly receipts at the restaurants.
Once all legal formalities are through, a franchisee is permitted to use KFC’s logo, brand name, and operating methods to sell the company’s products.
To set up a KFC franchise outlet, the following parameters have to be in place:
The Initial Investment
To set a standard KFC outlet, the minimum financial requirement in the US is about $1.5 million net worth and liquid assets of $750,000.
Additionally, the start-up expenses include:
- Initial franchise fee
- Real estate
- Development services fee
- Start-up inventory
- Training expenses
- Grand opening expenses
- Miscellaneous operating costs
In order to be part of KFC’s operations, KFC franchisees should install multiple types of equipment, including:
- Restaurant furniture
- KFC merit system
- Décor items
- Cash registers
- Small ware
- Indoor-outdoor signage
Overall, the average amount for setting up the KFC restaurant ranges from $329,00 to $476,000.
For an outlet to operate as a KFC, the parent company requires that three critical stakeholders attend and complete KFC’S training program.
That said, the keyholder of the restaurant includes the franchisee, the store leader, and the manager or the restaurant’s assistant manager.
Then, the training takes eight to ten weeks in designated and certified training stores.
Ideally, the franchisee caters to all training costs, including the travel of the accommodation of the management team.
As much as the franchisee selects the restaurant’s location, the KFC parent company must approve the proposed site.
However, it’s essential to note that KFC’s approval of a proposed site doesn’t guarantee successful operations but only implies that the sites meet the minimum standards of the parent company.
Generally, KFC considers various factors such as:
- General location
- Market size
- Traffic patterns
- Competitive locations
What International Strategy Does KFC Use?
KFC’s international strategy is a global franchise network that introduces the business to new markets.
Over the years, the global franchise network has enabled the company to expand its operation to numerous countries while maintaining the unique values of the parent company.
That said, KFC’s international strategy has proved to be an ideal strategic plan for business operation since both the franchisor and the franchisee mutually benefit from the business’s success.
For the franchisor (KFC’s parent company), the international strategy immensely contributes to the expansion of the business since other people have to use its money to establish an outlet.
In addition to this, the initial start-up fee and the ongoing royalty fees generated from franchises allow KFC’s parent company to further build the brand by catering for operational costs.
With that, the operational costs include business operation at the headquarters, marketing and advertising the brand, training and supporting the franchisees, and improving the quality of the goods and services.
On the other hand, franchisees benefit from KFC’s international brand awareness and visibility among consumers.
For example, the effect of visibility is that the franchisee would realize more success than if the restaurant had operated as a sole proprietorship.
Moreover, the international strategy by KFC supports the franchises in getting quality training that matches international standards and ongoing support through their operations.
What Makes KFC A Successful Business?
The main reason behind KFC’s success in the food industry is the franchise system in which the company operates.
In this system, the parent company provides rules for managing the franchises, including the original recipe created by Colonel Sanders, the founder of KFC.
As a result, all franchises operating under the parent company maintain KFC chicken’s unique taste, which forms a significant part of KFC’s Unique Selling Proposition(USP).
This way, KFC upholds customer loyalty and retention since the product and services provided at one store are similar to a different store in a different location.
Is A KFC Franchise Profitable?
Yes, the KFC franchise is profitable because KFC has managed to build itself a firm brand name within the food industry.
Ideally, an individual KFC unit can make approximately $942,000 – $1,000,000 per year.
In conclusion, KFC’s business model heavily relies on a global franchise network that introduces the company to new markets while maintaining all operations of the parent company.
This way, the parent company benefits from start-up fees and monthly royalty fees used to fund operational costs at the headquarters.