Yum! Brands & Facebook: Perfecting the "Fast Food" Business Model

If all firms in a monopolistically competitive industry were merged into one large firm, it is my belief that it would create the opportunity for a variety of brands. An example of this approach is Yum! Brands. Yum! Brands is 37,000 restaurants in over 110 countries and territories with 1 million employees world wide. With reported revenues at $11 billion, Yum! Brands, is described as the "worlds largest restaurant company."

Yum! Brands consists of '" KFC, Pizza Hut, Taco Bell and Long John Silver's '" making them a the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories. This formula is working because Yum! Brands has taken four signature brands; KFC, Pizza Hut, Taco Bells and Long John Silver's '" the best in their individual food categories and placed them into one strategic partnership. The benefits to both the consumer and the company are many. On one side the consumer benefits from a collaborative "Teamwork" structure focused on delivering quality. On the other side, the companies which might have been spending revenues "competing" with one another can now focus on building all brands simultaneously '" because there is a profit model in place that is optimized by their merger, positioning all four brands as market leaders. Now, the challenge is because this brand is the market leader, they can drive price structures and industry trends both within the supply chain and in the consumer marketplace.

The corporate website explains that "over the past 12 years, our success has been driven by our focus on building leading brands in China in every significant category; driving aggressive, international expansion and building strong brands everywhere; dramatically improving U.S. brand positions, consistency and returns; driving industry-leading, long-term shareholder and franchisee value; and building a unique, fun culture led by people who love the restaurant business."

Based in Louisville, Kentucky; Yum! Brands is reaching its goal of one large firm various brands with the following strategy:

The Yum! system includes three operating segments: U.S., International (Yum! Restaurants International) and China Division. Outside the United States in 2009, the Yum! system opened more than four new restaurants each day of the year, making it a leader in international retail development.

At Yum! we're building a vibrant global business by focusing on four key business strategies:
Build leading brands across China in every significant category
Drive aggressive international expansion and build strong brands everywhere
Dramatically improve U.S. brand positions, consistency and returns
Drive industry-leading, long-term shareholder and franchisee value

Venture Capitalists provide funds to finance for new companies (startups) usually for a share of the firm's initial profits (if any) of course. Venture Capitalists look to back experienced entrepreneurs with strong (or at least product blueprints). But potential competitors and the structure of the market into which the new firm enters also are important. According to conventional wisdom, the best start up prospects involves entry into loose oligopolies.

An oligopoly is a prevalent form of market structure where only a few firms account for most or all of total production in an industry. Some oligopolistic industries include automobiles, steel, aluminum, petrochemicals, electrical equipment and computers.

There are a number of factors behind the conventional wisdom held by venture capitalists. In an oligopoly, "economies of scale may make it unprofitable for more than a few firms to coexist in the market; patents or access to technology may exclude potential competitors; and the need to spend money for name recognition and market reputation may discourage entry by new firms." With loose oligopolies, although there are prevailing firms in the industry, there is still room for new entrants. As venture capitalists look at opportunities in this kind of a market structure, the fact that there are firms that exist already and are showing growth makes it a "proven" investment opportunity. With already existing models in place, their ROI seems to be a better bet. Additionally there are basic conditions, structure, conduct and performance benchmarks that have been put into place to measure a new firm against. There are market leaders already in place '" signaling a demand and thus supply for a particular product or service has been established. There is a matrix by which to measure a new entrant against '" but it is still not as rigid as an Oligopoly so there is still room for entry and creativity to establish market position.

An example of a firm engaging in a loosely oligopolistic market structure would be the social networking firm Facebook. Although there are a number of firms in the "social networking online" industry, Facebook has entered into the market and far surpassed once market leader MySpace. With the success of Facebook and it ability to show profit, others are watching and are exploring this market that currently has a true market leader but depending upon how other firms in the online space respond '" it could be any man's game and thus venture capitalists are waiting. There has been buzz around the fact that google with it's gargantuan reach could enter into this space '" which could change the game significantly. With the evolution of social networking models, this would be a perfect example of how opportunities for entry is so much more available in loosely oligopolistic markets versus absolute oligopolies.

In conclusion, as we look at the business models of both Yum!Brands and Facebook - we see a common thread emerging and some great lessons that can be learned by other businesses and owners looking to expand into foreign markets. Question: Is this fair competition for local markets and other competitive brands wanting to enter into the same landscape? Additionally, does it really matter - in the quest for business success, superiority and economic growth?