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Can KFC Franchisees seek compensation for the chicken shortage?

The KFC twitter account follows eleven people. Five Spice Girls and six guys called Herb. The same brilliant minds at the KFC marketing team went into overdrive last week when 900 outlets ran out of chicken. One of the three words in their name. Or as the PR team put it afterwards: FCK.

Why did the KFC restaurants run out of chicken?

The great chicken crisis was caused by the failure of new delivery contractor DHL to get the chicken out through its distribution networks in time. This caused up to £1 million per day of damage to the company and its franchisees. KFC recently changed its delivery contract from Bidvest to DHL in an attempt to cut costs. The GMB Union has claimed that the crisis has arisen as a result of the attempt by DHL to run its delivery service out of a single distribution centre.

It has been reported that the employees who are generally on zero hours contracts will be compensated by KFC as a result. This may not have been the case if this was not so heavily publicised in the media. The question is where does this leave francisees who are left at a loss as a result of the decisions of KFC which they had no control over?

What was the impact on KFC Franchisees?

The crisis also demonstrates the dependence of franchisees on their parent company for support. Franchisee agreements are often standard form documents that are heavily weighted towards the parent company.

KFC franchise owners are asked to put up as much as £1 million cash up front to run a franchise and then hand over up to 10 per cent of their revenue to KFC. The franchisee is then completely reliant on their parent for essential services such as marketing, training and, of course, chicken delivery.

That arrangement can leave franchisees exposed if something further up the chain or beyond their control goes wrong. In this case, it’s difficult to put an exact figure on the financial cost suffered by the failure to deliver chicken over a week, but each franchisee impacted is likely to be nursing significant losses.

If 555 stores were closed on Monday 19 February 2018, this means the total losses might reach as high as £1million for that day. Some estimates put the cost as high as £2,000 per day, per franchise.

What can franchisees do to be compensated for the loss of earnings?

Many franchisees will now be wondering what, if any, action they can take against their parent company for this debacle. Crucially, the answer will lie in the franchisee agreement.

While franchisee agreements often favour the franchisor, there can be scope for franchisees to take action or seek redress in the event of a crisis. Franchise agreements will set out very carefully who is responsible for which part of the process of getting chicken from the farm to the customer, so check yours to see if you are entitled to compensation if there is a delivery failure by a KFC or a contractor.

It is also worth checking if KFC have ‘indemnified’ you for any losses that are caused by the failures of their contractors. Check any indemnity clauses to see if this is the case in your agreement. You may be able to claim compensation for breach of contract. If you are not sure and would like a lawyer to look at this confidentially please get in touch for an initial free consultation.

The jokes about these chickens having trouble crossing the road might make great twitter material, but for 900 franchisees out there, the KFC chicken crisis is not a joke.

If you are a KFC franchisee who has suffered as a result of the KFC chicken shortage and would like to confidentially investigate the possibility of seeking compensation you should call the team at Slater and Gordon lawyers who will work with you to see if we can fight for this on your behalf. For an initial free consultation call 0808 175 8000 or contact us online