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Wednesday, December 31, 2014

Reasons for Chick-fil-A's ascent in the fast food market


Chick-fil-A retail sales
Chick-fil-A has a competitive business model in the fast food market
Chick-fil-A has climbed the fast-food market with efficient marketing, location, menu items and operations per Forbes; this has lead to a strong $2 million average in store sales. The restaurant chain also surpassed its largest competitor in the retail chicken market with a 2013 sales eclipse of KFC. According to data cited by Bloomberg-Businessweek,

Chick-fil-A finished the 2013 fiscal year with revenue that was $78 million higher than KFC's. Moreover, KFCs 2013 revenue was $4.22 billion, whereas Chick-fil-A's was $5 billion, and sales of around $3.2 million per store eclipsed KFC's $938,000 average store revenue. This change in the retail chicken market also shows a drop in KFCs annual sales along with a rise in Chick-fil-A's.

Although companies such as KFC and Chick-fil-A do not occupy the top positions for U.S fast food chains, they are within the top 10 per QSRmagazine. Moreover, 2011 data put KFC in the lead with $4.5 billion in sales and Chick-fil-A next in line with $4.05 billion in revenue. In the U.S., Chick-fil-A operates or licenses less than half the retail locations that KFC does. A clue to Chick-fil-A's success is its target marketing. Chick-fil-A's branding includes being closed on Sunday per AdWeek. This appears to be a religiously-motivated decision that could appeal to its largely Southern demographic.

Unlike KFC, Chick-fil-A is a privately owned company. This means the corporation does not have to grant public access to financial statements, quarterly reports and the like. The company lists its “secrets to success” on its media web page, and they include: a focus on quality over growth, attention to balanced nutrition and brand building, among other things. Whether or not Chick-fil-A can attribute its new top spot to its combined "secrets to success" is a qualitative evaluation. However, the business' dedication to customer service and quality make it a market game changer.

KFC is owned by Yum! Brands Inc., a large multi-national and publicly traded company. In fiscal year 2013, the Yum Brand's net cash flow from investment activities was $886 million, some of which is linked to the development of its overseas vs. U.S. market. Moreover, the company's 2013 10-K report states the following:
“KFC operates in 118 countries and territories throughout the world.  As of year end 2013, KFC had 4,563 units in China, 9,460 units in YRI, 4,491 units in the U.S. and 361 units in India. Approximately 78 percent of the China units, 11 percent of the YRI units, 5 percent of the U.S. units and 47 percent of the India units are Company-owned.”
Despite Yum! Brands' global strategy, its 2013 total sales were $11.18 billion, down 5.5 percent or $649 million from the previous year. Yum! Brands owns and operates both KFC and Pizza Hut locations around the world and also franchises them out.
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The Chick-fil-A story indicates that international marketing and more franchises open for more hours do not necessarily mean more sales. Since both KFC and Chick-fil-A are in the same market and have similar products, the advance of Chick-fil-A demonstrates that marketing prowess and dedication to its unique branding is effective in competition against larger firms with higher capitalization and greater available resources. In an industry where technological innovation is not a top priority, a core strategy that involves quality service is a potentially prosperous marketing objective.

Image: Mav, "A series of Chick-fil-A trucks at the Airport West Distribution Center", GFDL, CC BY-SA 3.0