Crisis Management Case Study: Kentucky Fried Chicken Crisis of 2018

Crisis Management Case Study: Kentucky Fried Chicken Crisis of 2018

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  1 Crisis Management CaseStudy: Kentucky Fried Chicken Crisis of 2018 Heidi L. Livengood College of Business and Security Management, University of Alaska Fairbanks HSEM F445: Business Continuity and Crisis Management Professor Crystal Hill-Pennington, J.D. December 4, 2022
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  2 Table of Contents Introduction.............................................................................................................................................................................3 Analysis......................................................................................................................................................................................5 CrisisWarning Signs.......................................................................................................................................................................................5 Warning Sign #1...................................................................................................................................................................................5 Warning Sign #2...................................................................................................................................................................................5 Crisis Management Efforts...........................................................................................................................................................................6 Containment ..........................................................................................................................................................................................6 Rule #1.....................................................................................................................................................................................................6 Rule #4.....................................................................................................................................................................................................7 Crisis Resolution ...............................................................................................................................................................................................7 Success or Failure?..............................................................................................................................................................................8 Conclusion ................................................................................................................................................................................8 References ................................................................................................................................................................................9
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  3 Crisis Management CaseStudy: The Kentucky Fried Chicken Crisis of 2018 Introduction KFC, also known as Kentucky Fried Chicken, grew to become the largest fast-food chicken restaurant in the world all from its humble beginnings by Harland Sanders in the back room of a gas station in Corbin, Kentucky in 1929. By the mid-1960s KFC had become the first American fast-food chain to expand its franchise outside the United States. In 1988 KFC became a wholly owned subsidiary of PepsiCo, Inc. Within 8 years KFC was reorganized under a new restaurant division along with Pizza Hut and Taco Bell and managed by Tricon Global Restaurants, Inc. The fast-food giant currently operates over 24,000 KFC outlets distributed between more than 145 countries and territories globally (KFC, 2022; About - KFC 2022). On February 16, 2018 customers were shocked to find their favorite KFC outlet was without chicken. The following day, February 17, 2018, KFC announced this publicly. Complaints about the lack of chicken and the closed restaurants had been flooding social media outlets. A large portion of the 900 franchises in the UK had closed their doors. The restaurants that remained open operated with a limited menu (Allen, 2018). On February 23, 2018, KFC published their one-page public apology to their customers. One week after the initial crisis began only 700 of the 900 KFC locations in the United Kingdom had reopened (Trayner, 2018). Ultimately, mismanagement was the cause for the chicken disaster: The key breakdown in the KFC supply chain centered around the food chain’s recent switch from a specialty food distributor to a mega-freight forwarder, DHL, which, like many third-party logistics (3PL) companies, owns very few physical assets. These 3PL companies rely on a complex patchwork of individual trucking companies and other carriers to deliver their service (Pelli, 2018).
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  4 DHL in partnershipwith QSL were appointed in November 2017 to manage the food supply chain “for more than 850 KFC outlets in the UK”, replacing Bidvest Logistics. DHL “would manage the physical warehouse and distribution service”, with QSL, since KFC noted “the pair was chosen specifically based on their reputation of ‘innovation in logistics’”. “DHL said ‘operational issues’ meant several KFC deliveries over recent days had been incomplete or delayed. It added: ‘We are working with KFC and our partners to rectify the situation as a priority and apologise for any inconvenience this may have caused’” (Weaver, 2018). According to Hamidovic’s ISACA Journal article entitled, “An Introduction to Crisis Management,” PAS 200:2011 defines a crisis as an “inherently abnormal, unstable and complex situation that represents a threat to the strategic objectives, reputation or existence of an organization.” Anna Sochocki provides a good definition of what a crisis is: When there is a threat to a system's survival, minimal response time, and inadequate resources to solve the problem, an organization is in crisis. A crisis is a negative issue in an organization that threatens its regular running due to exposure to the public. The threat could be to financial performance or a product the organization offers. The threat could be to the health of consumers, employees, or the community. Causes of threats may include supply failures, accidents, or natural disasters (Sochocki, 2022). Our particular crisis shares characteristics with two, more specific kinds. Hamidovic defines smoldering and sudden crises: From a different perspective, PAS 200:2011 suggests a crisis typology of sudden and smoldering crises. Sudden crises ‘are characterized by their immediate onset. They tend to be unanticipated and escalate very quickly, often as a result of a severe triggering event or incident that may be out of the organization’s control,’ while smoldering crises are those for which the ‘common feature is that impact on the organization and its stakeholders grows, sometimes undetected, over a period of time, whilst indicators of
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  5 potential crisis arepossibly missed, denied, ignored or misunderstood’ (Hamidovic, 2012). The chicken crisis follows both types of crises. In one way it was a smoldering crisis as it had taken time for the operations supply chain to begin failing but once it was set into motion the impact was sudden. Analysis Crisis Warning Signs Before a crisis begins there can be subtle, or not so subtle, warning signs that an event is imminent. These warning signs can be useful to preventing or lessening the effects of a full- blown crisis, but they do have some limitations. The warning signs could be too subtle to be noticed, not deemed credible, difficult to distinguish from routine messages, not being communicated to the right point of contact, or communications are distorted (Hamidovic, 2012). Warning Sign #1 The first warning sign of the inevitable supply chain breakdown that left nearly 900 chain restaurants in the UK without chicken for over a week was vocal criticism from the previous shipping company that warned about the potential logistical problems that would occur once they switched their contract for shipping to DHL. “GMB is a general union which supports members from many professional backgrounds. In a statement, they claim to have warned KFC about the risks associated with changing their delivery partner from a specialist food delivery service to a general delivery company” (BCI, 2018). This statement fell on deaf ears, so KFC was unable to anticipate the things that happened which could have been avoided if they had listened to GMB. Warning Sign #2
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  6 The second warningsign was lax management standards. If management had been able to learn from past mistakes they would have been able to anticipate future supply chain issues. “The leading meat supplier for KFC China, Shanghai Husi Food Company, was accused of sending rotten meat after workers were caught putting rotten meat back on the production line. KFC was, in turn, accused of negligence after the reports” (Sochocki, 2022). Certain people in management seem to be blind to the possibility or history of failure. “KFC ignored the warning signs that Yum shareholders had filed four lawsuits against them for misleading investors about their growth in China. More so, according to reports from the US Department of Agriculture (2016), the Shanghai Husi Company ran on a bankrupt system; hence, they would not provide quality meat to KFC” (Sochocki, 2022). If the management of KFC had learned to be more skeptical of supply chain vendors they would have been less likely to have fallen into the same trap as in 2018. Having well educated and informed management on supply chain and logistics operations can help to mitigate future crises. Crisis Management Efforts Containment “Crisis containment is defined here as the decisions and actions that aim to keep a crisis from growing worse” (Harvard Business School Press, 2004). There are four rules according to Harvard Business School, and rules 1 and 4 helped KFC contain following the declaration of crisis. Rule #1 Containment rule number one is to act quickly and decisively. It was suspected that KFC had a plan in place already so that if a disruption were to take place they would have the ability to guide their franchises on how to handle the situation. Before the first public announcement about the closure of KFC restaurants in response to the lack of chicken delivered, they contacted
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  7 the shipping company,DHL, that was responsible for the error, and they found where the chicken was actually located. KFC tried to put a plan in place to minimize any waste that might happen, but it was not a complete success, as they were unable to distribute the misplaced chicken before it began to spoil. Rule #4 Rule number four is to communicate liberally. KFC took full advantage of the situation and communicated liberally and frequently with their customers and the news media. KFC was able to put in place a public relations plan that informed their customers and the general public about the status of recovery. They had an active Twitter feed and were quick to respond to any complaints that they viewed online so that they could put a positive spin on replies to those inquiries. Crisis Resolution One thing that KFC did very well in helping to resolve this crisis was they communicated relentlessly with the public. Although this incident took place in the United Kingdom it was under a global magnifying class and viewed around the entire world and at the time it was both alarming and comical. Some customers were so upset that they could not find Kentucky fried Chicken that they began contacting local authorities. They made it a point to put out new media updates daily until KFC began reopening each of their locations. The New York Post reported on the story commenting: The Colonel said sorry for the ongoing “KFC crisis” — which has seen more than 600 stores close due to chicken shortages — with a very cheeky ad in Friday’s print edition of the Sun. The takeout giant took out a full-page ad showing an empty bargain bucket with the usual “KFC” logo replaced by “FCK.” The ploy seems to have worked, as people flocked to social media to praise the under-fire firm. (Trayner, 2018).
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  8 This unique andcustomer centered public apology was perhaps the best recovery strategy that the company had ever devised. Success or Failure? KFC was partially successful in their handling of the chicken shortage crisis through following the rules of containment: to act quickly and deliberately and communicate liberally. Because of their quick response to the crisis through alerting the public they were able to turn a PR and logistics nightmare into a bad dream. Even responsibility for the issue is hard to place on KFC due to this campaign. But two months following the initial event less than 300 of the 900 UK restaurants had resumed offering a full menu. By May 2018 KFC reported that the supply chain breakdown would continue to negatively impact the chain’s earnings. The supply chain and logistics operations crisis recovery was not as successful as the PR recovery had been. The complexity of the supply chain compared to the social media campaign prevented as swift a recovery. Conclusion Based on my research and findings it was clear that from a communications and public relation standpoint KFC did exceptional while recovering from this crisis. However, KFC has time again proven to have issues with their supply chain independent of their location. There were three areas of improvement that were identified: 1. the need to learn from past mistakes, 2. Thoroughly research their supply chain before radically restructuring, and 3. Listen to experts or others that may have information that can provide business insights.
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  9 References About - KFC.(n.d.). Retrieved December 5, 2022, from https://www.kfc.com/about Allen, F. (2018, February 28). Here's why KFC ran out of chicken and what their cheeky apology was about. The Sun. Retrieved December 4, 2022, from https://www.thesun.co.uk/money/5611251/kfc-run-out-chicken-kentucky-fried- chicken-stores-open-now-near-me-apology Bci. (n.d.). Supply chain failure closes more than half of KFC fast-food outlets. The Business Continuity Institute (BCI). Retrieved November 18, 2022, from https://www.thebci.org/news/supply-chain-failure-closes-more-than-half-of-kfc-fast- food-outlets.html Hamidovic, H. (2012). An Introduction to Crisis Management. ISACA Journal, 5, 1–3. Harvard Business School Press. (2004). Containment: Preventing a bad situation from becoming worse. In Harvard Business Essentials: Crisis Management (pp. 66–76). essay. KFC Corporation - Company Profile, information, business description, history, background information on KFC Corporation. Reference for Business. (2022). Retrieved December 1, 2022, from https://www.referenceforbusiness.com/history2/99/KFC- Corporation.html Pelli, T. (2018, May 29). Avoiding supply chain breakdowns: Learning from the KFC debacle. Recently Filed RSS. Retrieved November 18, 2022, from https://www.scmr.com/article/avoiding_supply_chain_breakdowns_learning_from_th e_kfc_debacle
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  10 Sochocki, A. (2022,November 18). Discussion Board- Crisis Containment and Resolution [Discussion post]. Retrieved December 1, 2022, from https://canvas.alaska.edu/courses/9787/discussion_topics/87808?module_item_id=5 05054 Trayner, David. (2018, February 23). KFC issues full-page apology for its chicken 'crisis'. New York Post. Retrieved December 1, 2022, from https://nypost.com/2018/02/23/kfc- issues-full-page-apology-for-its-chicken-crisis/ Weaver, M. Guardian News and Media. (2018, February 19). Most kfcs in UK remain closed because of chicken shortage. The Guardian. Retrieved December 4, 2022, from https://www.theguardian.com/business/2018/feb/19/kfc-uk-closed-chicken-shortage- fash-food-contract-delivery-dhl