Price cutting, along with a new ad campaign, has helped No. 2 KFC begin to reverse a 10% drop-off in customers in 1993. The chain had 120 million customers last year.
The move caused market leader McDonald's Japan, among others, to follow, resulting in wide-scale price slashing.
McDonald's managed to keep sales flat at $2.02 billion for fiscal 1993, ended March 31. But at the chicken chain, sales of $1.28 billion were down 5.9% for fiscal '93, ended Nov. 30.
While no figures on the size of the entire industry were available, sales for the top 100 restaurant companies in Japan for the year ended March 31, 1993, were $35.4 billion.
The answer offered early this year to KFC's woes wasn't only lower prices, but a freeze on new stores at its current 1,042 level; a new ad strategy; and a slightly increased ad budget, though the company wouldn't cite specific figures.
KFC conducted a market survey last year to find out what had gone wrong, said Toshiki Nakata, deputy general manager in the planning and administration department.
"The answer was clear enough: `Your food is very good, but you're a bit expensive,'*" he said.
So in January, KFC introduced a value strategy aimed primarily at its biggest customer group, 18-to-26-year-olds who frequent the chain's stores close to or in railway and subway stations. These sites account for about half of KFC's stores but a majority of sales. The remainder comes from suburban outlets, where women pick up dinner for their families.
KFC cut prices 16.8% to $4.76 at city stores on its biggest selling meal, two pieces of chicken and a choice of side dishes such as french fries, rolls and salad.
Since the new price is 500 yen, the denomination of a Japanese coin, "we call it our one-coin price," Mr. Nakata said.
To promote the price reduction, KFC ran one 15-second spot by Hakuhodo showing a row of Col. Sanders' riding up an escalator and singing "More delicious" and another row of colonels riding down singing "More reasonable."
"It worked," Mr. Nakata said, noting that the chain has regained 10% of its lost customers.
KFC tried to maintain momentum with the introduction of Hot & Spicy Chicken. A TV commercial in :15 and :30 versions from McCann-Erickson Hakuhodo broke in April, showing the colonel again, but this time his face turned bright red.
"Hot & Spicy Chicken. Just coming out," an announcer says. "You can choose the original Kentucky Fried Chicken or Hot & Spicy."
KFC's price cuts got the competition moving. McDonald's followed in March, and by last month almost all fast-food and midprice family restaurant chains had done the same.
A McDonald's spokesman here said prices at the Golden Arches dropped by 17% to 33% on its six top meals. The basic choice of chicken or hamburger with french fries and a small soft drink is now $3.80, a 20% drop; a Big Mac or large chicken with medium french fries and medium-size drink is $5.71, a 24% drop. Filet of fish and teriyaki pork covered with soy sauce were reduced to $4.76, or 17% less.
TV advertising from Dentsu switched from promoting a Big Mac and french fries as delicious to touting the Extra Value Menu. The :30 carries the slogan, "Cheaper, better quality, better service and clean."