Kentucky Fried Chicken (KFC) is one of the world’s largest fast-food chains, with over 22,000 restaurants in 130 countries. KFC’s fanciest restaurants are in China, characterized by cashless stores, individualized menus, and localized food items anchored by artificial intelligence (AI).
Starting in 2017, KFC has teamed up with Baidu—”China’s Google”—to develop facial-recognition technology that can be used to predict customers’ orders. “The AI-enabled system can recommend menu items based on a customer’s estimated age and mood,” according to a press release from Baidu. A female customer in her 50s would be offered “porridge and soybean milk for breakfast,” and a male customer in his early 20s would be offered “crispy chicken hamburger, roasted chicken wings, and Coke for lunch.” A reporter went to try the smart restaurant by herself. She stood in front a touchscreen order machine, which first scanned her face. She was read as being female (correct) and in her 30s (only a decade off). On this basis, she was recommended a chicken hamburger meal. If she had visited any KFC in China earlier, the machine would also tailor the recommendation based on her previous preferences. If she did not agree with the suggestion, she could click through some alternatives. In other words, the machine showed her a shorter menu. Once happy with the order, she could pay with her mobile phone at the machine—with neither cash nor credit/debit card—and collect her meal moments later at the counter. Overall, such digitalization was about convenience, providing faster and easier services.
Dealing with a classic dilemma of convenience versus privacy, some customers initially had goose bumps when having a machine capture data about them. However, when they lined up in front of the counter in the traditional way, they could see those brave ones who dealt with the machine received their meals faster. The side-by-side comparison convinced many customers to try the AI-enabled machine—after all, they came to a fast-food restaurant looking for fast service.
By 2019, hundreds of KFC restaurants in China were equipped with such AI-enabled machines. China’s largest fast-food chain, Yum China Holdings runs over 8,400 KFC, Pizza Hut, and Taco Bell restaurants, as well as their cousin East Dawning, which only sells Chinese fast food. In comparison with customers elsewhere, customers in China are uncommonly tech-savvy and ready to try new things—and also indifferent about their privacy. For all Yum China Holdings restaurants, 86% of transactions were already cashless and about half of the orders were placed via mobile app or digital kiosk. Leveraging such big data from the more than 180 million Chinese who belong to KFC and Pizza Hut loyalty programs, the AI would customize a menu for each diner based on preferences and local tastes. During its first year, the AI-powered menu already boosted the average per-order spending by 1%—the equivalent of about $840 million worth of fried chicken each year.
In their homeland, McDonald’s routinely beats Yum Brands, and KFC (a part of Yum Brands) is struggling. But in China, McDonald’s 1,000 restaurants are no match to the much larger number of KFC, Pizza Hut, Taco Bell, and East Dawning restaurants. Yum China is endeavoring to maintain its dominance and repel renewed attacks from a newly aggressive McDonald’s (under Chinese management since 2017) and local fast-food operations eager to eat Yum China’s lunch. The AI-powered menu and increasing automation will help boost sales and outcompete rivals. “We need to stay ahead of the clear trend in digital development,” Yum China’s CEO Joey Wat said. “That’s the future.”
Yum China was spun off from parent Yum Brands in 2016. A key reason for the spin-off was that headquarters executives sitting in Louisville, Kentucky—KFC’s home state—had a hard time keeping up with all the developments in China. So far, KFC and Yum China have succeeded in the local experiment of leveraging AI to improve service and boost sales. Can Yum Brands as a multinational leverage this experience and disseminate such capabilities in presumably advanced economies where cashless payment is rare and concerns about privacy are more sensitive?
Questions:
1. KFC’s restaurants in China are characterized by cashless stores and individualized menus fueled by artificial intelligence (AI). Based on the integration-responsiveness framework, these stores are an example of which strategic option?
a. Localization strategy
b. Global standardization strategy
c. Transnational strategy
d. Home replication strategy
2. There are also inherent differences in the development and diffusion of knowledge among multinational strategies. In the case of KFC’s restaurants in China, which of the following would describe knowledge development and transfer with the multinational strategy in use?
a. Knowledge is developed jointly and shared worldwide.
b. Knowledge is developed and retained within each subsidiary.
c. Knowledge is mostly developed and retained at the center and key locations.
d. Knowledge is developed at the center and transferred to subsidiaries.
3. Yum China was spun off from parent Yum Brands in 2016. What was this decision most likely governed by as a multinational enterprise (MNE)?
a. Institution-based considerations
b. Resource-based considerations
c. Organizational culture
d. US regulation concerns
4. Which implication for action for savvy managers of multinational enterprises (MNEs) is most closely related to decisions that led to the KFC-Yum China case?
a. Understand and be prepared to change the internal rules of the game governing MNE management.
b. Develop learning and innovation capabilities to leverage multinational presence as an asset—”think global, act local.”
c. Understand and master the external rules of the game governing MNEs and home-country/host-country environments.
d. MNEs should move their headquarters to countries governed by more market-friendly rules
5. Knowledge management can be defined as the structures, processes, and systems that actively develop, leverage, and transfer knowledge. There are differences in knowledge management among multinational strategies. In the case of KFC’s restaurants in China, what level of interdependence would be associated with the multinational strategy in use?
a. None
b. Moderate
c. Low
d. High