We’ve all heard the amusing story in the news about KFC restaurants running out of chicken and closing their stores as a result. For some customers, the closures have been hard to bear with some even telephoning the police as they considered the situation to be an ‘emergency’! Twitter is awash with witty chicken jokes and KFC’s competitors are seeing an increase in their sales as a result. They say ‘no publicity is bad publicity’ but this crisis is certainly a PR nightmare for the company.
This news story, whilst hilarious to many, will however have a significant impact upon the KFC business, its employees and its franchisees. One can envisage years of litigation ensuing over this catastrophic business blunder.
So how did this happen? How does a restaurant, whose menu is based solely around chicken, run out of chicken?
The company decided to change their delivery supplier from Bidvest (who specialise in fresh food supplies) to DHL however almost immediately from the start of this new contract KFC experienced problems with their supply chain. KFC have 900 stores across the UK and rely upon constant deliveries to these outlets to keep them replenished with fresh food supplies. Anyone with supply chain experience will know how finely tuned an operation of this type has to be to keep the outlets stocked with just the right amount of provisions to keep the profits flowing and minimising food wastage.
The switch to DHL was controversial from the outset, with the GMB union apparently warning KFC they would be making a mistake if they switched their supplier. The union was right in their accurate prediction. KFC did not take heed of this warning and Bidvest, who lost the KFC contract, was forced to cut 255 jobs and close one of their depots. It seems that no one has come out well from KFC’s decision to switch supply chain suppliers.
DHL have blamed their problems on operational issues which led to incomplete and delayed deliveries. This led to restaurants having to first offer reduced menus to their customers and then closing all together once the food supply dried up completely. KFC have reportedly closed 575 of their 900 outlets whilst the supply chain issues continue. Some of these restaurants have been closed for days.
95% of KFC restaurants are run by franchisees meaning that they are owned by individuals who pay a franchise fee to KFC for the right to run their restaurant under the brand name KFC and offer the same menu as all the other KFCs, with the business owners keeping the profits. Their franchise agreements will undoubtedly insist that they only sell food ordered directly from KFC leaving them without the option of sourcing their own produce until normal business can be resumed.
Media reports have suggested this crisis will be costing the KFC brand £1million a day. As most of the outlets are run by franchisees it will be those business owners who will be feeling the effects of this crisis in their own pockets and the staff running the restaurants will be laid off until the restaurants can reopen. No doubt the franchisees will be demanding recompense from KFC and it will be interesting to see how the company intends to deal with this problem once the dust has settled and normal business has been resumed.
So could this happen to your business? This tale of supply chain woes is an everyday occurrence for businesses up and down the country albeit on a much smaller scale and with far less media exposure. So as a business, how do you avoid finding yourself in a crisis through no fault of your own?
Aside from choosing your supply chain distributors carefully and scrutinising how they are going to run your supply chain for you it is important to have a well drafted contract which gives you remedies should the worst happen. You could include liquidated damages clauses in your contracts which are pre-decided penalties in the event that a delivery is late or incomplete so you know that you’re financially covered. It is also worth considering whether to have some business interruption insurance in place as extra piece of mind.
For more information about the issues raised in this article please contact Susan Lewis.