INTRODUCTION

Franchise by definition is a continuing relationship in which a franchisor

provides a licensed privilege to the franchisee to do business and offers assistance in
organizing, training, merchandising, marketing and managing in return for a monetary
consideration. Franchising is a form of business by which the owner of a product,
service or method obtains distribution through affiliated dealers (franchisee). This
business approach is commonly used by business owner (franchisor) in expanding
their business empire worldwide.

Franchising is very popular and appealing for the franchisee because it gives
them the opportunity to open and manage a well-established business with less risk
or calculated risk. The chances of immediate success in franchise business is likely to
be possible as to be compared to independent business because of its well-known
trademark. Examples of well-known franchise business models include McDonalds,
Subway, KFC, Marriott International, and FedEx.

KENTUCKY FRIED CHICKEN (KFC)

Kentucky Fried Chicken or formerly known as KFC is one of the leading fast
food franchise restaurants in these modern day. KFC is a restaurant that started in the
United States in Kentucky and has expanded internationally. KFC’s headquartered is
located in Louisville, Kentucky in the United States. KFC has been a brand and
operated by a concept of Yum! Brands when the company has spun off from PepsiCo
as Tricon Global Restaurant Inc. It was founded by Colonel Harland Sanders in the
year 1952. KFC mainly sells salads, wraps, sandwiches, side dishes, dessert and
chicken pieces. However, its major product is its finest fried chicken.

The history of KFC started when Colonel Sanders began selling his special fried
chicken to society from his roadside restaurant in Corbin, Kentucky during the Great
Depression. The dining place was named as the “Sanders Court & Café” where
Sanders served meals for travellers with his own dining table. Sanders identified the
potential of the restaurant franchising concept. Sanders The first has travelled the
United States to market his restaurant concept to independent business owners.
Independent business owners are required to pay some franchise fees in exchange
for Sanders secret blend of herbs and spices and method of doing business. The first
KFC franchise is located in Salt Lake, Utah operated by Pete Harman.

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 Started from the first franchise and now of KFC has become the largest chicken
fast food empire in the world. Since then the illustration face of Colonel Sanders has
become the heart and symbol of KFC. Today, more than a billion of Colonel’s “it’s
finger lickin good” chicken is served every day and KFC still keep expanding their
empire internationally.

CASE STUDY OF KFC

1.0 MAIN ISSUE AT THE KFC OUTLETS

The main issue that has happened in Feb 22, 2018 to KFC outlets located in
United Kingdom, which has made headlines that shook the world. The whole issue
started when KFC switched its delivery partner to DHL from South African-owned
supplier Bidvest. Bidvest are specialist for a food distribution firm with years of
experience as compared to DHL. The decision to switched delivery provider to DHL
has led to supply crisis of chicken that closed almost hundreds of its restaurant.

In the case stated, KFC confirmed that DHL is still waiting for their application
for a cold storage license to be completed. The Daily Mail newspaper reported that
crates of undelivered chicken at a depot of DHL would have to be destroyed because
of chicken spoiling in the depot as DHL are unable to deliver the fresh chicken to its
outlets which led to wastage of KFC’s main raw material. Thus, because of the reason
that DHL are still waiting for their cold storage license it has interrupted the delivery
process of chicken and KFC had to made a decision of closing down hundreds of
outlets in United Kingdom due to shortage of its chicken.

Before the issue happened, the GMB trade union has already warned KFC the
decision they made would have consequences in their business. However, KFC has
ignored what the GMB trade union said and now they are facing the consequences of
its action. The bird-brained decision of KFC has caused everything including losing
their existing customers, closed outlets and some outlets may operate but with a
reduced menu or shortened hours and others meat substitute competitor such as
Quorn are having competitive advantages over KFC.

To conclude, the decisions made by KFC to hastily switch supplier from Bidvest
to DHL even before DHL has obtained a cold storage license resulted in a disrupt
supply of their main raw material forcing them to close hundreds of stores.

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2.0 EFFECTS TRIGGERED FROM THE ISSUE

KFC can be seen as one of the leading companies in the fast food chain
industry. The company itself has expanded its wings throughout all over the countries
since it started to operate in 1952. KFC are being specialist for its fried chicken, as the
product itself is hard to imitate. By having competitive advantages over others KFC
should be leading the fast food industry. However, recently there are issues that has
happened to KFC which triggered some effects to the company itself.

Firstly, the issue that caused KFC to close down most of its outlets and some
outlets are operated with a reduced menu or shortened hours in the United Kingdom.
KFC are unable to operate their business as usual because of the supply crisis of
chicken. Chicken is one of the main ingredients for KFC as most of their menu is using
chicken. Based on the case given, DHL is one of the cause of the issues happened to
KFC. KFC has appointed DHL as their new delivery provider. DHL is formerly known
for its brand name, which their expertise is focus on logistics and international mail
services. The issue started when DHL has failed to do the task given in delivering
chicken to all outlets. KFC also has come out with a statement “We’ve brought a new
delivery partner onboard, but they’ve had a couple of teething problems-getting fresh
chicken out to 900 restaurants across the country is pretty complex” to the public. But
the reason for the delay of delivery is because DHL is still waiting for their cold storage
license to be completed, which is why DHL has failed to do the task given.

Secondly, the issue has also damaged the corporate reputation of the company
itself. Due to the cause of shutting down hundreds of outlets, KFC are now losing most
of their existing customers. The supply crisis has left their customers struggling to find
their deep-fried chicken fix. People are upset and angry because most of the KFC
outlets are closed because of the supply crisis. A quote from a customer said “KFC is
a well-known brand and they can’t sell chicken?’ she said, adding that she would be
heading to rival McDonald’s even though “it is not that good”. The issues also have
led to widespread on social media, where @jonevans78 a Twitter user has wrote “So
@KFC have run out of chicken. This is how the apocalypse starts”. From the quotes
it can be seen that if the issue it still not sorted out by KFC it might affect its long-term
sales of the company. People might change their interest to other meat substitution,
like Quorn or McDonald’s.

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 Thirdly, the issue has attracted other meat competitors to have competitive
advantages over KFC’s failure. With all the news buzzing with shocking headlines of
most KFC outlets had to be closed due to supply crisis. The society in United Kingdom
was angry and upset when their favourite restaurant had to be shut down from awhile.
People went crazy for the news of KFC, they even expressed their feelings on social
media. A quote taken from The Star Online article, a Twitter user wrote
@Brad_Langford said “How will the nation cope?”. From the Twitter feed itself it can
influence others on the issues of KFC and they might go to another rival. Another
Twitter user @jonevans78 wrote “So @KFC have run out of chicken. This is how the
apocalypse starts”. The issues have been widely spread from word of mouth to social
media which it has triggered other meat substitutes maker like Quorn to take this
opportunity for them to market their products. The company has also twitted its offer
of “Quorn Crispy Nuggets for a meat-free alternative”. Thus, the issues happened to
KFC can be stepping stone for other competitors to be ahead over it (KFC).

Fourthly, as the issue is widely spread and most of the nation are upset with
the sudden news of their favourite restaurant had to be closed and some are being
operated with limited menu and shortened hours. The society are taking matters into
their own hands, in order to resolve the problem. Some customers even go and
complain with London police department about the closed KFC outlets. One London
police department has tweeted “Please do not contact us about the #KFCcrisis- it is
not a police matter if your favourite eatery is not serving the menu that you desire”.
The news really had made its headlines and could harm the company.

Lastly, the issues have led to redundancies to Bidvest. Since KFC has made
their decision to end their contract with Bidvest to DHL it had caused 255 staff
redundant and the closure of a Bidvest depot. Their new contract with DHL has created
more job opportunities. The reason of KFC switching their service provider is to reduce
its logistics operation cost. However, the decision made by KFC and having hundreds
of outlets closed could cost them more than cost savings.

To conclude, even though KFC is a big company but due to some minor mistake
could lead to big issue that shocked the whole nation. However, the effects from the
issues that KFC need to bear is far bigger.

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3.0 IDEAS TO AVOID SUCH MISTAKE IN THE FUTURE

KFC itself is a well-known product which has captured the heart of the young
and old. When hundreds of KFC outlets had to be closed for temporary due to chicken
shortages, at the hearts of consumer, it would be similar as the world is ending. The
society cannot cope with the matter. The supply chain crisis of KFC all started when
they switched their service provider to DHL. Therefore, before anything happens in the
future organizations need to take measures to avoid any mistakes that could damage
the company itself.

Firstly, before appointing a new logistics provider KFC’s management team

need to do due diligence. According to Barnes (2018, p.1) due diligence is defined as
“an investigation of a potential investment or product to confirm all facts, such as
reviewing all financial records, plus anything else deemed material”. Every
organization need to do due diligence as a process that helps to mitigate any risk it
might encountered. The management at KFC need to investigate every inch detail
before switching their contract with DHL. They need to view in terms of DHL’s
operational part. Does DHL have the right facilities, cold storage, trucks and manpower
to deliver the chicken. As stated in the case the GMB trade union has already warned
that they are making a bird-brained decision to switch supplier. KFC also confirmed
DHL is still waiting for their application for cold storage to be completed. The statement
given by KFC has proved that their management team couldn’t care less and ignoring
the advice given to them before making any final decision. Due diligence can be time
consuming but it is an essential to any business to be successful.

Secondly, develop a contingency planning. Contingency plans are essential to

any type of business, by having a good contingency plan, it could help an organization
to recover back their operations if any possible situations occur. KFC’s management
team need to consider a contingency plan before they switch their supply provider. If
KFC still wanted to switch their supply provider they can have two closure agreement
with Bidvest and DHL to deliver their chicken. KFC can set an equal portion for both
of the company to deliver the chicken across the countries. For instance, Bidvest
manage and deliver on East and North, while DHL manage and deliver on the South
and West of Britain. This way KFC can be more efficient in their production.

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 Thirdly, measure the possible risks. KFC need to pay attention of possible risks
that could happen when they change their service provider. The most important part
of supply chain strategy is the processes, the infrastructure, the facilities, sufficient
manpower and the information system. Organizations need to review their supply
chains strategy and relationships with the supply provider company as the logistics
operations company has their value to an organization. For instance, DHL has been
appointed by KFC as their new delivery partner but they had failed to do the task given
which lead to KFC’s brand damage. If brand damage happened, it will affect the
operating sales itself where the society are angry and want to go to other rivals.
Therefore, having a strong supply chain strategy has its own benefits.

Fourthly, making sure on the contract right. Before making any closure
agreement, the parties that are involved should ensure all details of the contract. An
ideal contract should indicate the consequences KFC would be facing and set out a
countermeasure if worst case scenario happens. News recently has brought out a
well-known name in business, which stated KFC are unable to operate hundreds of
their restaurant due to their new supply provider failure. Both parties need to be clear
with their roles and responsibility written in the agreement contract before signing it.
The management of KFC need to ensure the details of delivery activities and making
sure of the suitable facilities for the distribution warehouse, meanwhile DHL need to
ensure they have they sufficient manpower to get the job done and licensed delivery
trucks. However, in this case DHL has failed to deliver the supply needed to operate
every outlet in Britain. Thus, KFC need to take a recovery action to manage this matter
that could harm the business in the long run. If possible a great way to save the empire
of KFC is to terminate the contract as it can damage the reputation of the company.

Lastly, sets out a probation period. Before appointing a company to be a supply

provider, one’s should study the possible risks it could happen. KFC should set out a
probation period to DHL, where they need to agree in their closure agreement. As
what had happened to KFC recently is that they decided to switch their supply provider
to DHL. Which had cost them to loss the customers trust, brand damage and decrease
in sales. To implement an effective probationary period, regular meetings should take
place to allow the performance and the specific goals that needed to be achieved by
the other party. Once KFC’s management has satisfied with the performance from

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DHL, they can assign DHL as their new service provider. Thus, it can help to avoid
any mistakes happen in the future.

In conclusion, being in a business world means there will be many uncertainties

that may harm the business itself. However, there are several ways that can be
implement in order to avoid such mistake from happening.

4.0 POSSIBLE REASONS BEHIND THE APPOINTMENT TO DHL

KFC is a leading company in fast food industry which is famous for its chicken
and spices. With the recent events that unfold, when KFC decided to switch from their
long-term partner Bidvest to DHL, there’s a possible reason on why KFC made that
decision.

Changing their service provider from Bidvest to DHL is all due to cost saving.
KFC that they will face the same problem like Burger King when they ended their
contract with Bidvest to DHL six years ago as mentioned by Rix (2018) GMB’s national
officer (as cited in Su-San Sit, 2018). The main decision to switch service provider is
to reduce the costs. However, the decision has led KFC with even more problems due
to the lower cost offered by DHL which only need one warehouse to run the delivery.
It does offers tremendous savings to KFC. This is the main reason on why KFC has
chosen DHL.

Another reason would be brand image. As DHL is an enormous company on

logistics, well-known around the world, changing to DHL would likely bring brand
confidence to KFC as customer would look this as a partnership that will gain their
confidence.

To conclude, as in business, shaving cost where is possible is one of the

fundamentals for the business to survive. As in KFC, they chose a well-known brand
at a cheaper price to cut cost in courier service.

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CONCLUSION

To summarize everything, every decision made in an organization may affect

the business itself. Even for KFC which is known as a strong organization, but they
had to face these issues that could affect their brand image. Before making any
decision, management teams should consider any possible ways that it could avoid if
any mistakes happen in the future to be successful in business.

REFERENCES

Barnes R. (2018). Due Diligence in 10 Easy Steps.

Retrieved from

https://www.investopedia.com/articles/stocks/08/due-diligence.asp

Su-San Sit. (2018). KFC was 'warned DHL would fail'.

Retrieved from

https://www.cips.org/supply-management/news/2018/february/kfc-warned-that-dhl-
would-fail-its-supply-chain-says-union/

The Star Online. (2018). KFC counts its chickens as UK stores hit by shortages slowly
reopen.

Retrieved from

https://www.thestar.com.my/news/world/2018/02/22/kfc-counts-its-chickens-as-uk-
stores-hit-by-shortages-slowly-reopen/