case study on costing

8/8/2019 Case Study on Costing

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Introduction of Company

KFC Corporation, based in Louisville, Kentucky, is the worlds most popular chicken restaurant

chain, specializing in Original Recipe , Extra Crispy TM, and Colonels Crispy Strips chicken

with home style sides and five new freshly made sandwiches. Every day, nearly eight million

customers are served around the world. KFCs menu everywhere includes Original Recipe

chickenmade with the same great taste Colonel Harland Sanders created more than a half-

century ago. Customers around the globe also enjoy more than 300 other productsfrom a

Chunky Chicken Pot Pie in the United States to a salmon sandwich in Japan.

KFC continues reaching out to customers with home delivery in more than 300 restaurants in the

United States and several other countries. And in quite a few U.S. cities, KFC is teaming up with

other restaurants, Taco Bell and Pizza Hut, selling nearly fifty years ago; Colonel Sanders

invented what is now called home meal replacement selling complete meals to harried, time-

strapped families. He called it, Sunday Dinner, Seven Days a Week.

Today, the Colonels spirit and heritage are reflected in KFCs brand identity the logo featuresColonel Harland Sanders, one of the best-recognized icons in the world.

KFC specialized in chicken and they says,

No bodys cooking like KFC today and we are the chicken experts

There is no competitor for spicy chicken which is made by KFC

KFC

KFC

KFC

KFC


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INTRODUCING NEW PRODUCTS:

Pricing Issues

PRICING POLICY FOR PRODUCT OF TWISTER

Manufacturing cost RS. 100/-

5% marketing cost (PER UNIT) RS. 5/-

Total cost RS.105/-

15% G.S.T +15% RETAIL MARGIN RS.25/-

Total retail Price RS.140/-

PRICING STRATEGY FOR DEAL

Manufacturing cost RS. 140/-

5% marketing cost (PER UNIT) RS. 25/-

Total cost RS.165/-

15% G.S.T +15% RETAIL MARGIN RS.55/-


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Total retail Price RS.220/-

History

KFC is an internationally renowned fast food industry in the world. They have the main ambitionto increase & maintain the quality in fast food industry. Their aim is to capture the fast foodmarket. Basically they want to provide their products to anyone that is why they expanding theirbranches in all over the world. They want to increase their profitthrough giving maximum satisfaction & other better facilities to people that they want. Now aftercatching such a marvelous position in the International Market, KFC is introducing a new itemBoneless Fried Chicken, with even more attractive and charming taste.

Born and raised in Henryville, Indiana, Sanders passed through several professions in hislifetime. Sanders first served his fried chicken in 1930 in the midst of the Great Depression at a

gas station he owned inNorth Corbin, Kentucky. The dining area was named "Sanders Court &Caf" and was so successful that in 1936 Kentucky GovernorRuby Laffoongranted Sanders thetitle of honorary Kentucky Colonel in recognition of his contribution to the state's cuisine. Thefollowing year Sanders expanded his restaurant to 142 seats, and added a motel he bought acrossthe street. When Sanders prepared his chicken in his original restaurant in North Corbin, heprepared the chicken in an iron skillet, which took about 30 minutes to do, too long for arestaurant operation. In 1939, Sanders altered the cooking process for his fried chicken to use apressure fryer, resulting in a greatly reduced cooking time comparable to that ofdeep frying. In1940 Sanders devised what came to be known as his Original Recipe.

The Sanders Court & Caf generally served travelers, often those headed to Florida, so when the

route planned in the 1950s for what would become Interstate 75 bypassed Corbin, he sold hisproperties and traveled the U.S. to sell his chicken to restaurant owners. The first to take him upon the offer was Pete Harman in South Salt Lake, Utah; together, they opened the first"Kentucky Fried Chicken" outlet in 1952. By the early 1960s, Kentucky Fried Chicken was soldin over 600 franchised outlets in both the United States and Canada. One of the longest-livedfranchisees of the older Col. Sanders' chicken concept, as opposed to the KFC chain, was theKenny Kings chain. The company owned many Northern Ohio diner-style restaurants, the last ofwhich closed in 2004.

The restaurant in North Corbin, Kentuckywhere Colonel Sanders developedKentucky Fried Chicken

The first KFC restaurant, situated inSouthSalt Lake, Utah and since replaced by anew KFC on the same site
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Sanders sold the entire KFCfranchising operation in 1964 for $2 million USDSince that time,the chain has been sold three more times: to Heublein in 1971, to R.J. Reynolds in 1982 andmost recently toPepsiCo in 1986, which made it part of its Tricon Global Restaurants division,which in turn was spun off in 1997, and has now been renamed toYum! Brands. Additionally,Colonel Sanders' nephew, Lee Cummings, took his own Kentucky Fried Chicken franchises (and

a chicken recipe of his own) and converted them to his own "spin-off" restaurant chain, Lee'sFamous Recipe Chicken.

Today, some of the older KFC restaurants have become famous in their own right. One suchrestaurant is located in Marietta, Georgia. This store is notable for a 56-foot (17 m) tall sign thatlooks like a chicken. The sign, known locally as the Big Chicken, was built for an earlier fast-food restaurant on the site called Johnny Reb's Chick, Chuck and Shake. It is often used as atravel reference point in theAtlanta area by locals and pilots.

KFC India

KFC is the worlds No.1 Chicken QSR and has industry leading stature across many countrieslike UK, Australia, South Africa, China,USA, Malaysia and many more.

KFC is the largest brand of Yum Restaurants, a company that owns other leading brands likePizza Hut, Taco Bell, A&W and Long John Silver. Renowned worldwide for its finger lickinggood food, KFC offers its signature products in India too! KFC has introduced many offeringsfor its growing customer base in India while staying rooted in the taste legacy of ColonelHarland Sanders secret recipe. Its signature dishes include the crispy outside, juicy inside Hotand Crispy Chicken, flavorful and juicy Original Recipe chicken, the spicy, juicy & crunchyZinger Burger, Toasted Twister, Chicken Bucket and a host of beverages and desserts. For thevegetarians in India, KFC also has great tasting vegetarian offerings that include the Veggie

Burger, Veggie Snacker and Veg Rice meals. In India, KFC is growing rapidly and today haspresence in 11 cities with close to 50 restaurants.

Values of KFC

Focus all our resources to our restaurants operation because that is where we serve our

customers.

Reward and respect the contributions of each individual at KFC.

Expand and update training with time and be the best we can be and more.

Be open, honest and direct in our dealings with one and other.
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Commit ourselves to the highest standard to the personal and professional integrity at all

times.

Encourage new and innovative ideas because these are the key to our competitive growth.

Reward result and not simple efforts.

Dedicate ourselves to continuous growth in sales, profit and size of organization.

Work as a team.

PHILOSOPHY OF KFC

THE CHAMPS PROGRAMTHE CHAMPS PROGRAM

Champs stands for our belief that the most important thing each of us can do is to focus on the

customer. It stands for our commitment to provide the best food and best experience for the best

value.

CHAMPS stand for the six universal areas of customer expectation common to all cultures and

all restaurants concepts.

THE CHAMPS

These are:

Cleanliness

HospitalityAccuracyMaintenance of FacilitiesProduct QualitySpeed of Service


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CHAMPS is the philosophy to ensure that the customer has the consistent quality experience in

every restaurant, everyday, on every occasions and you will be playing role in delivering

CHAMPS to our customers.

Situational Analysis

Current Products

Kentucky fried chicken

Zinger burger

Krushers

GameBox

Twister

Boxmaster

Chicken Bucket

Hot wings

Fries

Corn on the cob

Zing Kong

Snacker(chicken & veggie)

Veggie Feast Soft Drink

Coleslaw

Chicken Thali

Veg Finger


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Snack Box

Sundae

Soft Twirl

Brownie Sundae

KFC outlets in Chennai:

KFC Restaurant in AnnaNagar KFC Restaurant in Citi Centre

Second Avenue,Anna Nagar,Chennai-600040

Chennai CitiCentre,RK Salai, Chennai-600004

KFC Restaurant in Numgambakkam KFC Restaurant in Anna Salai

KFC, Swastik Complex 81,Palimar Restaurants, Ground Flr & First Flr,Nungambakkam High Road,Chennai-600034

S-117, Planet Yumm Food court,2nd floor, Spencer plaza phase 3,769, Anna Salai,Chennai - 600002

KFC Restaurant in Spencer Plaza KFC Restaurant in Poonamallee High Road

Spencer Plaza- Ph 1,Chennai-600002

AMPA Center One,Unit # 1, Ground Floor,#1, Nelson Manickam Road,Ponamalee High Road Junction,Chennai-29

KFC Restaurant in Porur KFC Restaurant in Adyar

Site # 1/445, Ground Floor,Mount Poonamallee Road,Chennai

Site # 21, Ground & First Floor,3rd Cross Street,Kasturibai Nagar, Adyar,Chennai 600020

KFC Restaurant in Taramani

Ascendas IT Park,Taramani, Chennai -600113

Promotions

In India KFC not advertise there products too much because people KFC due to itsreputation in other countries. They promote their products through special

packages.They promote there products through billboard, pamphlets and through otherpromotion strategies


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Current target market

Segmentation

KFC has divided the market of India into distinct groups of customers withdifferent demands, tastes and behavior who require separate products or marketingmix.

In India the niche marketing is being used for particular classes of people.

They have made segments of the market on the following bases.

Demographical

Behavior

Geographical

By using these three bases they segmented the market as under.

DEMOGRAPHICAL BASIS

In demographics their first segment is consisted of the income factor i.e. highincome, average income and low income.


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BEHAVIOR

In behavioral aspect they segmented the market on the basis of quality, taste andprice. Following are the different possible segments in this regard.

Taste conscious

Quality conscious

Class conscious

Combination of price and quality

GEOGRAPHICAL BASIS

On the basis of the geographical factor we have divided our market in three mainsegments.

Urban areas

Sub urban areas

Competitive analysis


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CompetitorsYou cannot enjoy the business without competitors. No organization can afford to ignore therecompetitors. It is very important for a marketing managers to monitor the activities of therecompetitors, what they are doing? KFC adopted such sort of strategy that there is no competitorfor spicy chicken, which is made by KFC.

KFC beats its competitors through the revising marketing strategy at every movement but themain competitor of KFC areMc Donald

COMPETITIVE ADVANTAGE

KFC McDonalds

Spicy Products

Indian people like spicy products instead ofboiled food

Burger and French Fries

Arabian Rice and Zinger Burger Big Mac

Free Delivery Charges for home delivery

Chicken is eaten by every community Beef is banned in some community

Local Staff and Highly Qualified because

local staff can better deal with

the customers

Its Staff consist of simple Graduates and givethem training

KFC uses Top to Bottom and Bottom to TopApproach in Management.

McDonalds Uses Top To Bottom Approach.

KFC is Co branding with WallsNo such Case.

Competitors


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Because the fast food market in India is highly competitive, KFC faces a wide number of direct

and indirect competitors. KFCs main competitors are fast food chains such as McDonalds and

Dominos, which are already well established throughout India.

McDonaldss in particular is a direct competitor, as they have already successfully introduced

their Salads plus line (http://www.theage.co.in), which directly targets healthy food conscious

Indians. But, there are a number of other competitors that is also focusing on chicken types

products. All this competition makes it quite difficult for KFC to maintain or even broaden their

customer base. However, with the introduction of a new and healthy product range, KFC can

differentiate itself from most competitors and will gain a competitive advantage.

Customers

KFCs customer market consists solely of the consumer market (Kotler et al 2003). KFCs

products are bought by individuals (males, females, singles, and families). Therefore, the product

range KFC offer should appeal to as many people within this consumer market as possible, to

ensure that the maximum amount of products can be sold. The characteristics of these

individuals and a segmentation of them are discussed later in this report.

Current Sales Analysis

Market ShareMarket Share

KFC has a very long history and has the most recognize able brand in chicken withover 50% of the market share. It becomes difficult for the companies like Sub way,


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Mc Donalds, Chicken planet, Dixie or those who may want to enter in the marketof fast food restaurants.Due to with over 50% of the market share in fast food industry KFC hasrecognition around the world and has been globally positioned for many years inIndia and to capture the market share in India adopts champs philosophy

Environmental factors and opportunities

Political :The operations of KFC are affected by the government policies on the regulationsof fast food operation. Currently government are controlling the marketing of fastfood restaurant because of health concern such as cardiovascular and cholesterol

issue and obesity among the young and children in the country. Governments alsocontrol the license given for open the fast food restaurant and other businessregulation need to follow such as for a franchise business. Good relationship withgovernment in giving mutual benefits such as employment and tax is a must for thecompany to succeed in any foreign market.

Economic:Though for last 1 year their was economic slowdown all across the globe but thesales of KFC and other fast food chains did not slow down to that extent that ofother sectors in. The GDP (Purchasing Power Parity) is estimated at 2.965 trillionU.S. dollars in the year 2010. The GDP- per Capita (PPP) was 2700 U.S. dollars asestimated in 2008. The GDP- real growth rate in 2007 was 8.7%. India has thethird highest GDP in terms of purchasing power parity just ahead Japan and behindU.S. and China. Foreign direct investment rose in the fiscal year ended March 312007 to about $16 billion from just $5.5 billion a year earlier. There is a continuousgrowth in per capita income; Indias per capita income is expected to reach 1000dollars by the end of 2007-08 from 797 dollars in 2006-07. This will lead to higher

buying power in the Hands of the Indian consumers. So taking into considerationsthe economic factors of India KFC is safe. The only danger to it will be if there is a

terrorist attack in India and the victim is KFC.

Socio cultural:India is the second most populous nation in the world with an approximate

population of over 1.1billion people. This population is divided in the following


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age structure: 0-14 years 31.8%, 15-64 years 63.1% and 65 years and above 5.1%.There has also been a continuous increase in the consumption of fast food in India.The social trend toward fast good consumption is changing and India has seen anincrease of 90% fast food consumption from the year 2002- 2007. This increase isfar greater than the increase in the BRIC nations of Brazil (20 per cent), Russia (50

per cent) and China (almost 60 per cent). Thus this shows a positive trend for fastfood industries in India.

Technological:The Indian fast food Industry is heating up with a lot of foreign players enteringthe Indian market. The technological know how and expertise will also enter theIndian market with an increase in competition. With the lower rates and increasetechnology the fast food counters are attracting youth by giving them attractive

deals

Environmental:As one of world largest consumer of beef, potatoes and chicken, KFC always had

been critics for world environmentalist. This is because high consumption of beefcausing the green house effect by methane gasses coming from the cows ranch.Large-scale plantation has effect the environment and lost of green forest openingfor plantation activities. Vegetarian environmentalist criticizes the fast-food giantfor cruelty to animals and slaughtering. In America, once KFC want to introduce

whale burger causing uproar because whales are endangered species. Before usingpaper packaging, KFC once had been criticized for being insensitive to pollutionbecause of using ne based packaging for its food products. Imagine millions ofpeople purchase from fast food operator and how is the impact to worldenvironment by throwing away those hard to recycle packaging.Our world is getting concern on environment issue and business operating hereshould not just care for profit, but careful usage of world resources for sustainabledevelopment and care for environment safety and health for our future generation.Critics and concern from all public or activist should be review and support if

necessary to ensure we play our social responsibility better.

Legal factors:As a certified fast food operator, there are many regulations and procedures thatKFC should follow. For example is the Halal certification that becomes a concernto Muslim consumers. KFC should protect its integrity and consumer confidence

by ensuring all materials and process are as claimed or must followed.


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Other legal requirement that the business owner should follow as stipulated in lawsare such as operating hours, business registration, tax requirement, labor andemployment laws and quality & environment certification (such as ISO) in whichthe outlet has been certified. The legal requirement is important because theoffenders will be fined or have their business prohibited from operating which can

be disastrous.

Pricing:

KFC during pricing their products keep the different points in the mind likethey adopt the cost base price strategy. Pricing of the product includes theGovernment taxes and excise duties and then they come at final stage ofdetermine the price of their products. KFC prices of products are a bit highaccording to the market segment and it is also compatible to the stander oftheir products.

Calculation of the price under Cost Based Pricing Strategy:

Total Pounds of Chicken Served in KFC Restaurant Annually = 1.914Billion

Total KFC Chicken Pieces Sold Annually = 5.89 Billion

Total Retail Sales = $8.9 BillionSales Price of per Chicken Piece = Total Retail Sales / ChickenPieces sold

= $8.9 Billion / $5.89 Billion

=$1.51

We assume that Fixed Cost is = $6000000000Variable Cost = $675000000Profit Margin is Or Mark Up = $225000000(25% of Sales)Per Unit Variable Cost = $675000000 / 5890000000

= $ 0.115

Unit Cost = Variable Cost + Fixed Cost / Chicken pieces Sold= 0.115 + 6000000000 / 5890000000= 0.115 + 1.02= $1.135

Now suppose manufacturer wants to earn 25% mark up on sale. Themanufacturer mark up price is calculated:

Mark Up Price = Unit Cost / (1 Desired Return on Sales)

=1.135 / (1-.25)


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= 1.135 / 0.75= $1.51

Product Issues

General description:

Features:

Quality Control Over Ingredients

Every Chicken Tested

K & Ns state-of-the-art Quality Assurance Lab monitors the entire integration process from

livestock to feed and on to preparation of ready-to-cook and cooked products.

Every Chicken Certified

HACCP K & Ns ensures food safety by implementing the international HACP (Food Safety

System) and enjoy the unique privilege of being the first and only HACCP certified company is

India producing chicken and chicken products. Free from diseases and bacteria, drug residues

and other contaminants.


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Quality Assurance Certificate

Director General ( Research ) has issued quality assurance certificate for the chicken used by

KFC.


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Data analysis:The data we received is as follows:-

We did a survey on KFC on people with age group of mostly 20-25yrs. Mostly all were open tonon-veg food, and following were the results. As seen below KFC has shown a good report onall the micro factors that we considered.


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We also asked questions on whether they would like KFC to start homedelivery services.


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We also inquired How close is the nearest KFC outlet from your house?

Would you like to order at home or Dine in?


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case study on costing

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