KFC’s Poultry Preparation

The city of Preston is a place steeped in history, from the town’s links to industrialist Sir Richard Arkwright to legendary footballer Sir Tom Finney. However, what is less known about the Lancashire metropolis is its culinary past. Preston had the honour of being the first city outside of the US to open a KFC branch, all the way back in May 1965. KFC was a pioneer in the UK fast food industry, predating the arrivals of fast food heavyweights McDonald’s, Burger King and Pizza Hut.

Fast forward to 2018 and there are now 900 KFC restaurants located in the UK with a combined turnover of £684.5m, leading to a staggering 60,000 metric tonnes of chicken being consumed annually. Taken from a number of suppliers across the country and delivered fresh to outlets at least three times a week, the system seems simple.

“To put it simply, we’ve got the chicken, we’ve got the restaurants, but we’ve just had issues getting them together…” tweeted KFC during mid-February. It was an embarrassing admission from a shop that is famed primarily for its chicken. In one of the worst logistical failures in recent years, the restaurant was forced to admit that its new distribution partner DHL was “experiencing teething problems”. Although the announcement was a little tongue in cheek, or beak in this instance, the result was a disaster for KFC with nearly two thirds of branches having to close. They were unable to fulfil their culinary obligation whilst a 180,000 square foot distribution warehouse in Warwickshire lay largely dormant.

During what the press had dubbed “The Great Chicken Run of 2018”, KFC’s problems caused much merriment on social media, however the issue was far from paltry. Although the firm was quick not to blame its new logistics partner and did largely avoid a major PR disaster, the saga highlights the serious consequences of an infrastructure malfunction. The issue is made all the more poignant when looking at stalling Brexit negotiations over trade, with the potential for border checks and customs delays after the UK formally leaves the EU.

It seems the blame lies firmly with DHL. Having recently won KFC’s contract from specialist food logistics company Bidvest, DHL had clearly counted their chickens far too early. Promising to “rewrite the rulebook and set a new benchmark” in deliverance back in November, DHL is now reeling from a public backlash.

Logistics are vital to food services, fresh chicken even more so. A chicken bred for KFC has a life cycle of up to 45 days to make it from egg to shop counter. In that time, the logistics firm must meet a range of food standards, from temperature to handling all with the clock ticking.

With just one warehouse, compared to Bidvest’s six specialised centres, many believe this is where DHL has overstretched itself. Interestingly, parallels have been drawn with the recent collapse of Carillion. In the “race to the bottom” culture of outsourcing, DHL’s tender was considerably cheaper than Bidvest’s, with KFC even receiving warnings from the GMB union about DHL’s ability to run their operations. With a public mood that is growing increasingly sour towards outsourcing and privatisation, many see KFC’s woes as another company unwilling to shell out in the name of increased profits.

Although the financial damage is likely to be significant for both KFC and DHL, some good news could still come from this fiasco. Scarcity creates demand and if nothing else, the recent news has reminded people about KFC even if they haven’t been to one for years. With the company now at the forefront of public psyche, bumper numbers of visitors have been forecast to flock back to the restaurant just to see what the fuss is about.

KFC’s Poultry Preparation first appeared in the Cumberland Place Newsletter for March 2018. Click here to view a PDF version.


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This article is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Any opinions expressed in the Investment newsletter are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.


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