Do Well and Do Good!

CSR, Corporate Social Responsibility, has been buzzing lately, as more and more companies consider the activity necessary, both from a reputational perspective and of course in the glossy pages prefacing their financial reports.  In fact, many companies set CSR up as a separate (non-profit) portfolio…where it hangs out in the corner office, bleeding money, like the Owner’s nephew that we just cannot get fired!

Yet, with opportunities opening up in emerging markets, particularly at the Bottom of the Pyramid, it would make sense to take some of that philanthropic spirit to the bottom line and link up the organizations goal of helping society with the overarching theme of creating value, for society and for the company.

Engaging in business in an ethical, not-for-profit manner in emerging markets today could well lead to relationships with loyal consumers steadily working their way up the pyramid tomorrow, enabling a lifecycle approach and securing customers for the long haul.  For instance, take Hindustan Unilever’s practice of delivering products in single use sachets.  While the packaging and low price point may well take margin below what is customary from a 16 ounce shampoo bottle, HUL is enabling access to quality-of-life improving products and engaging with customers who will reach again for HUL when they “move on up”.  General Electric’s Indian arm has supported local partnerships and financed a myriad of health, educational and innovation drives focused on bringing customers into contact with their unique, yet relatively low-cost equipment offerings customized to market needs.  GlaxoSmithKline, rather than giving drugs away, provides regulatory and technical support to local third-party production facilities such that product costs in the poorest markets can be substantially reduced.

The key is to link CSR efforts to the company’s business model and core competencies.  Instead of focusing on making money OR making the world a better place, companies should leverage their assets and talents to achieve both, resulting in synergistic relationships and better positioning to capture new customers and new sources of revenues.

Investors Welcome!

                In reading the June 30^th Economist article: Welcome, bienvenue, willkommen, I was struck by the inconsistent attitude of Americans in regard to Chinese investment domestically.  American companies are driven to grow into the Chinese market and gobble up every bit of revenue generated by the up and coming middle class and booming consumer markets created there.  The American people encourage this initiative through continued investment into the stock market and the practice of rewarding companies and executives only for rapid, immediate growth.  Given the mature status of most developed markets, making this kind of growth sustainable is predicated on continued advancement into emerging markets.  So of course, it seems more than a little hypocritical that the American public and political leaders are providing such a hostile environment for potential Chinese investors.  Isn’t this another typical case of the American practice of “do what I say, not what I do?”

                Right now China has lots of “disposable income”, and the likely activity when one is in such an enviable position is…drumroll please…to invest.  European nations, albeit in some cases begrudgingly, have taken the opportunity to “welcome” Chinese investors.  This stance allows for more than just an infusion of cash.  European companies get direct line access into the Chinese marketplace.  According to Sweden’s Volvo, recently purchased by Chinese car manufacturer Geely, China has become its “second home market.”  France’s Club Med, happy recipient of Chinese investment funds, is another success story from the article having opened its first resort in China.   For investors to be happy, the company invested in needs to prosper, so obviously it is in everyone’s best interest that the venture succeeds.  Chinese investors observe this rule just like everyone else. 

                The most often cited mode of failure for the China entrance model is lack of knowledge of Chinese market forces whether they be from consumer, political or local competitor pressures.  Why is it then, that the American government is assisting domestic firms in turning down a gift-wrapped opportunity to partner and collaboratively work out these issues with willing, cash-laden potential partners?  Sure, the Chinese are looking for technological and marketing expertise and as intelligent humans are using a common method of joint venture entry to access it.  How is this any different from American firms buying up or joining forces with those in China?

                With the world flattening more and more each day, it seems clear that a homogenous mix of business across the globe is the most likely future view.  The United States needs to take a step forward out of isolationism and start thinking of what we can learn from emerging markets and opportunities instead of hiding our heads in the sand and pretending that the only acceptable means of global expansion is FROM the United State, instead of TO it.

KFC: Finger Lickin’ Good…in the US?

With Yum! Brands driving international growth in the ballpark of 11% full year operating profit and pushing its KFC stores into over 110 counties and territories outside the US and China, it seems clear that the company has figured out how to play in the international restaurant arena.  With a stellar team and top-notch performance abroad, the company has become a standard of excellence for global expansion. 

                What is most curious is how the chicken flew the coop, so to speak, in the United States.  For Yum! overall, US same store sales grew only 1% for 2010, with KFC clearly dragging down the team (financial shared across KFC, Pizza Hut, Taco Bell).  KFC in the US represents just 3% of overall profits.  Compare this with KFC’s success internationally and you start to see a BIG disconnect.  So what’s really going on with the Colonel at home? 

                The first likely excuse is the mature market in the United States.  Makes sense…fast food options abound and chicken isn’t exactly exotic.  Perhaps another contributor is the trend towards healthier food options currently gaining momentum in the US.  Or perhaps America is just plain tired of fried chicken.  Though they may sound plausible,  it is unlikely that any of these culprits are the true root cause for KFC’s lackluster US performance.  The proof?  Chick-Fil-A, a privately held enterprise whose products mirror KFC’s right down to the fried chicken and coleslaw has enjoyed a same store sales increase of 5.92% in 2010, and has been positively trending since its inception in 1967.

                So what does Chick-Fil-A know that KFC doesn’t?  Turns out, nothing.  KFC needs only to look to its screaming success in China and in true bottom-up fashion apply some of those lessons learned back in the land of its birth. 

                In its Chinese exploits, KFC has implemented an image of quality, cleanliness and safety.  Staff are immaculately presented, caring and helpful.  Customers are provided a high quality service experience in a pleasant atmosphere.  The menu is customized for local tastes, constantly refined and innovated around as well as geared towards healthy options.  KFC is highly visible in the local economy and gives back in obvious ways through childhood obesity prevention initiatives.

 Compare this with KFC’s domestic stores.  Cleanliness is lacking, décor is drab, the service experience is perfunctory and the main objective is to provide food as quickly as possible and shove the customer out the door.  There is nothing exciting, innovative or customer-centric about the experience.  To make matters worse, the stagnant US menu is essentially the same as it’s been for the past 20 years and healthy options are few, if not nonexistent. 

Yum! should take a cue from its success in China. It could start by cleaning up the U.S. KFC  stores and mandating exemplary customer service.  Employees should be sought based on their customer-centric attitude and service abilities.  They should be treated like valuable members of the community and encouraged to provide feedback and improvement suggestions.  The franchise environment offers a fantastic opportunity for real-time customer feedback which should be cultivated and utilized in decision making.  As in China, training opportunities should be made available with full-circle experiences required for all staff.  Next, as it has perfected in the Chinese market, Yum! needs to take the same hard look at what US consumers really want.  If it’s low prices, then innovate the menu and drive value communication through low-price offers, meal deals or repeat customer cards.  If the answer is the food experience, then again, innovate the menu and drive the theme of Southern Hospitality and Comfort food that has already made headway through such entities as Paula Dean.  KFC in China as well as Chick-Fil-A in the US have made headway in sales and leveling fixed costs by offering breakfast items for harried consumers.  Seems like an obvious winner to me.  Additionally, healthy options outside of the fried, bone-in “box” need to be developed alongside the “regular” and “extra crispy”.  KFC could further encourage growth by outreach programs centered around social progress while engaging the younger generation of Americans.       

                Yum! Brands has the tools required for a US turn-around.  It has accomplished this with its lagging Pizza Hut brand through product and pricing innovations.  Many similar options exist for KFC.