Winner Winner (No) Chicken Dinner – KFC and Supply Contracts

KFC has recently hit the news for all the wrong reasons, due to a huge amount of stores running out of fresh chicken. Out of 900 restaurants only a reported 254 of these remained open, the majority of which could only offer a limited menu and reduced their opening hours. This major issue allegedly stemmed from KFC’s partnership with its new supplier DHL.

The supply chain with previous logistics partner Bidvest was based around six warehouses; in a stark contrast to DHL’s single distribution centre. Commentators have noted that whilst it is possible to reach the UK market from one warehouse, it is the size of the contract with KFC and the restrictions that came with it that posed the challenges when things went wrong.

Around 750 KFC stores are franchised, but in times of failed delivery and shortage the franchisees are bound by the same contracts KFC have signed with their supplier. Previously there was a 24-hour turnaround period for store ordering and delivery, which DHL was seemingly not equipped for. Due to the contract with DHL, franchisees were not permitted to purchase chicken from a wholesaler or put the KFC name over chicken it has not supplied. This left the restaurants with no alternative but to close.

A highly publicised incident such as this serves as a strong reminder that supply chain agreements need to be clear as to who does what, and what the remedies are, when things go wrong. Provisions that surround performance failure, loss of profit and business, and remedies to cover consequential and indirect losses are key, considering the huge losses that have been experienced by KFC and its franchisees over a matter of days.

Whilst KFC have attempted to keep public opinion positive with their playful “FCK” apology and #WheresMyChicken campaign, reputational damage can financially outweigh the initial loss of sales made in instances like these. Having the correct indemnity clauses within supply contracts can attempt to make this kind of loss quantifiable and accelerate recovery.

A professionally drafted and robust written contract can help keep standards and expectations for both parties crystal clear, and provide remedies under the law for when problems arise. If you require assistance with the preparation of your commercial contracts, terms and conditions, or would like assistance on any other commercial law matter; contact John Pickervance, Associate Solicitor within the Commercial department by email john.pickervance@forbessolicitors.co.uk or phone 0333 207 1134.  Alternatively, send any question through to Forbes Solicitors via our online Contact Form.

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