Franchising · 23 February 2018

Franchisors urged to safeguard supply chains after KFC breakdown

KFC’s new contract with courier DHL has failed to deliver

As fast food chain KFC undertakes a PR rescue mission in the wake of a national chicken shortage, franchisors have been warned to ensure supply chains are safeguarded from similar incidents.

Since working with DHL from 14 February, fried chicken chain KFC struggled to smooth out logistics and at least 750 UK branches were closed this week due to a food shortage.

When KFC switched distribution from Hertfordshire-based Bidvest to DHL, it was warned of the courier company’s poor track record in servicing food outlets. Back in 2012, Burger King made the same switch and were left in a similar situation.

Widely criticised as a cost-cutting measure, the switch saw KFC move distribution from Bidvest’s six warehouses to a single DHL centre in Rugby.

It was subsequently revealed that DHL’s cold storage depot had not been registered, and KFC admitted some poultry would have to be destroyed.

At least 750 of 900 UK KFC branches were closed, and the company bore the brunt of a social media backlash. With hundreds of its branches still shut, the disruption has had both financial and reputational repercussions.

In response to the chicken shortage, Gurmeet Jakhu, director at legal dirm Emms Gilmore Liberson and a former secretary at a leading franchisor, reminded UK franchisors to ensure suppliers are able to fulfil commitments.

Jakhu said: “A common feature in fast food retail franchising is that the franchisor will, either directly or indirectly, control the supply of food products and ingredients to be used by the franchisee. Recent events have shown how this can lead to serious business disruption when a franchisor is unable, whether through supplier or logistics issues, to provide a key component.

“Where franchisors do have exposure to supply commitments in their franchise agreements, they should make sure that the suppliers are in a position to provide the service and this can be achieved by undertaking pre contractual due diligence and audits.

“Franchisors should also ensure that adequate safeguards are in place to obtain compensation from the supplier for any losses sustained by it and just as importantly, its franchise network, as such losses are clearly foreseeable in a franchise relationship.”

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ABOUT THE EXPERT

Simon Caldwell is deputy editor at Business Advice. He has a BA in politics and communications from the University of Liverpool, and has previously worked as a content editor in local government and the ecommerce industry.

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