By Denise Harrison, EVP
Try, Try Again
Yum Brands did not get it right at first, they had several aborted attempts; first in Hong Kong and then in Taiwan. But rather than simply giving up, they asked what would we do differently if we were to do this again? Here are some of the answers to that question:
- Hire local talent and give them decision making power
o Knowledge of Mandarin was essential to opening up the supply chain in areas where many foreign businesses did not venture and it has been vital to Yum Brands’ expansion success.
o Understanding the culture: knowledge of additional menu items that would entice the local population to accept the new fast food outlets. For example, KFC added congee (rice with a variety of choices: pork, mushrooms, pickles) to the menu along with the traditional fried chicken products.
- Select the right venture partners
o Partnering with state owned companies smoothed the path for expansion
Having stubbed their toes in Hong Kong and Taiwan allowed for better analysis of what needed to be done as the team looked to enter China.
Success through Focus
Now Yum Brands has 40% market share and its profit is up 23% in China, but down 2% in the US for the third quarter of 2010. But what will allow this success to continue? The answer is focus.
Yum Brands has several geographic segments including the US and China. The US is a mature market for fast food and competition is fierce and margins are shrinking – often a characteristic of a mature market. In contrast, China is a growing market; even with many competitors, an increasing percentage of the Chinese population will earn enough disposable income to be able to eat at fast food restaurants, so growth is assured. A growing market with a 40% market share is clearly a market where an expand strategy is warranted. But what about the US? Should Yum Brands try to maintain its position (i.e., vigorously defend its market share) or should it contract – pruning itself of marginal restaurant chains? Yum Brands has decided to sell its Long John Silver’s and A&W chains so that it can redeploy its resources into segments (e.g., China) that will reap greater rewards.
What does this mean for you?
- Entering new markets is difficult; don’t expect to always get it right the first time. In any case, be sure that you learn from each attempt and institutionalize the knowledge – don’t sweep the failure under the rug. Lessons learned are not about assessing blame, but rather about understanding what you could have done differently that would have made the effort more successful.
- A company as large as Yum Brands must redeploy resources in order to achieve higher future returns – what does that mean for smaller companies? With fewer resources at our disposal we must be even more focused in order to optimize our future results. We must ensure that we make tough decisions in strategic planning to re-focus our efforts to those areas that will reap higher rewards. Too often people do not want to contract in a market segment or withdraw from a market segment, and this diverts resources from more profitable activities. A good strategic planning process enables the team to have discussions based on market attractiveness and competitive position in order to make these tough decisions.
Denise Harrison is Executive Vice President of the Center for Simplified Strategic Planning, Inc. She can be reached at firstname.lastname@example.org
© Copyright 2011 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.