Chicken Wars: KFC vs Chicken Inn

In my last article, we discovered that Simbisa Brands (Chicken Inn’s Owners) are investing heavily in Zimbabwe in a way that could help them dominate in the future.

There is one risk, however - KFC’s aggressive push into Zimbabwe.

Who will win the Chicken War, KFC or Chicken Inn?

Let’s unpack!

To evaluate this we will compare the two businesses on the following criteria.

1. Brand Power

2. Pricing

3. Financial Power

4. Staying Power

On brand power, I am using the Cambridge dictionary definition which is “the ability of a brand to attract a share of its particular market”. As a result, this is a general evaluation not just how well known the brand is in Zimbabwe.

For example, while McDonalds is not in Zimbabwe we would still say it has significant brand power as if it were to enter the market it would attract a significant share of the market.

Now to the comparison.

Chicken Inn is a fast-food chain that started in Harare, Zimbabwe in 1987. Today Chicken Inn has over 160 outlets in nine countries and is one of the largest Quick Service Restaurant Chains in Africa outside of South Africa.

KFC on the other hand is a global giant and the third-largest restaurant brand in the world. In South Africa alone KFC has 1,052 outlets.

KFC is also popular in Zimbabwe judging by its Facebook page where people frequently ask for KFC to open a branch near them when they announce a new outlet.

Even Simbisa’s management has highlighted that KFC is a threat mainly due to the strength of its brand.

However, Chicken Inn has worked hard to invest in its brand and recently won the best brand at the Superbrand Awards.

Although the Superbrands awards don’t necessarily indicate long-term customer loyalty, the award proves that in Zimbabwe Chicken Inn’s brand shouldn't be underestimated.

However due to the pull power of KFCs brand. I think they will win this battle.

Brand Power Winner: KFC

The next category is "Pricing". With pricing the key question is not which is cheaper but which is priced in the most attractive way relative to value.

For this, we will look at how much $5 gets you at each outlet. The closest comparison is perhaps with the most well-known menu options, the Chicken Inn 2 Piecer and the KFC Streetwise 2.

When you look at the pricing it seems that Chicken Inn is slightly cheaper but only by about 10%. The portion sizes at Chicken Inn may also be bigger but probably within a reasonable range.

On the other hand, since KFC has a stronger brand and is likely to be viewed as more "premium" the 10% -15% difference is probably one customers are willing to pay for.

A good data point is that KFC Belgravia has over 2,000 reviews and none of the top results quote "expensive". This likely indicates people are ok with the KFC pricing.

So since pricing doesn’t seem to be a big competitive advantage for either KFC or Chicken Inn, I will call this battle a tie.

Pricing Winner: Tie

On "Financial Power," it gets interesting. In Zimbabwe, Chicken Inn outlets and the Chicken Inn brand are owned by Simbisa.

KFC however uses a franchise model which means that the owners of the KFC brand, Yum Brands are not the owners of the outlets in Zim

So while KFC globally is a $2.8 billion business none of that financial firepower is available to KFC Zimbabwe as a South African company, Country Bird Holdings, owns the franchise rights to Zimbabwe.

Country Bird Holdings (CBH) is one of the largest poultry and animal feed producers in Africa with operations in South Africa, Botswana, Nigeria, Mozambique, Zambia, and Zimbabwe.

It operates in many parts of the value chain and the KFC restaurant business seems like a smaller part of its overall business.

Evaluating CBH’s financial firepower today is difficult since it is now a private company.

However, we can make some reasonable assumptions if we go back to 2013 when CBH was still listed on the JSE as we also have the financials for Simbisa for the same period from their listing statement.

From this, we see that in 2013 CBH generated R3.2 billion which back then was the equivalent of ~$320 million and at the same time Innscor’s Quick Service Resstraut Business which later became Simbisa Brands had revenue of $148 million.

In terms of Assets, CBH had R1.96 billion or ~$196 million and Simbisa had $47 million.

These numbers would suggest that CBH is bigger than Simbisa and could have a financial advantage. However, a few factors give Simbisa the edge. The first is Capital Intensity.

Capital intensity measures how much capital you need to generate your revenue. It is calculated using average total assets divided by revenue. (for simplicity of the calculation I will use total assets/revenue).

Some businesses don’t need much capital for example a consulting business. With some computers and office furniture you can generate a lot of revenue.

Whereas other businesses like mining need a lot of capital to build up the mine, processing facilities, additional power etc.

This explains why Accenture, the consulting firm has a Capital Intensity Ratio of 0.8 whereas Zimplats has a Capital Intensity Ratio of 2.5. (Total Assets $2.47bn / Revenue $962m).

CBH had a higher Capital Intensity Ratio at 0.61 vs Simbisa at 0.31. In other words, to generate $1 of revenue CBH needs 61 cents of capital where as Simbisa only needs 31 cents.

This means even with the same amount of capital, Simbisa could invest more in Chicken Inn because CBH's other business segments are more capital-intensive and would absorb the capital away from the KFC business. This point is linked to Simbisa's second advantage: Focus.

CBH has numerous business lines and is spread across more geographies. So even if they have more money it’s spread thin.

Simbisa Brands is a “pure play” QSR (Quick Service Restaurant) business so all capital will go to building the QSR business and most of that Capital is going to Zimbabwe as explained in my previous article.

This is one of the reasons Simbisa Brands was unbundled from the Innscor Group. To prevent divisions from competing for Capital.

For CBH this will still be an issue. The KFC business will have to compete with larger, capital-hungry divisions. I suspect CBH may also find some local partners to invest alongside them but I still think it will be hard to catch up to Simbisa.

Simbisa also has the advantage of already having over 90 Chicken Inn Outlets in Zimbabwe compared to KFC which has about 10. To catch up CBH will need a lot of capital which it may not be able to risk.

Financial Power Winner: Chicken Inn

The next category is unusual: “Staying Power”. Normally this would never be a consideration but when operating in Zimbabwe you need a lot of resilience.

Chicken Inn has been operating in Zimbabwe since 1987. The majority of their revenue is from Zimbabwe so they have no choice but to navigate the challenges Zimbabwe brings. KFC on the other hand left the Zimbabwean market in 2007, returned in 2014, and then 2018 temporarily closed some outlets.

It’s a little bit like KFC is dating Zimbabwe whereas Chicken Inn is married with Kids.

One also can’t blame KFC. When you are the third most popular fast food brand in the world you probably aren’t too worried about missing out on a comparatively smaller market like Zimbabwe.

Staying Power Winner: Chicken Inn

So overall who wins? It’s not black and white.

The power of the KFC brand means that if the two chains are next to each other, KFC will likely win especially in higher-income areas. Whilst not the most scientific approach, an example of this is Belgravia where KFC has higher reviews and many more reviews.

However as mentioned in the last article, Chicken Inn, through Simbisa has been on an aggressive drive to buy up the best locations so KFC may struggle to find many good locations to exploit.

Whatever happens with this Chicken War, Chicken Inn is well placed to compete with its financial power, local knowledge and commitment to stay the course. KFC will make inroads, but it remains to be seen how far they will go.

I am working off of public information so I could be missing something in my analysis or just simply be wrong. I have provided the data points I have used so you can make your assessment. Please let me know what you think!

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