KFC losing minimum of £4.2 million a week in supply chain debacle

SUMMARY:

The KFC chicken outage is costing the company a small fortune. We crunch some of the numbers. They’re eye watering.

The KFC chicken outage continues with no sign of coming to an end. So how much is at stake? We crunched some numbers and came up with a revenue loss of at least £920,000 per day, assuming that sales have not fallen since 2016. Here’s how:

KFC

 

If you check the above, which come from the latest available accounts, (PDF) you’ll see that Kentucky Fried Chicken UK pulled £479 million in 2016.

According to data published by Statista, growth in the consumer price index for restaurants and cafes between 2016-17 rose as follows:

consumer price index restaurants and takeaways
via Statista

Assuming KFC followed a similar pattern, then you come out with a figure of £951,000 per day. Now – we need to exercise some care here because KFC’s revenue stream follows two distinct paths. However, we can assume that both revenue streams are reasonably linear.

First there is the direct sales element and, in this case, Kentucky Fried Chicken UK Ltd also includes overseas revenue. Second, the company shows franchise revenue as a separate line item. As follows:

So – what about gross profit? This is a bit trickier to calculate but we can make some reasonable guesses as follows: (241,888/(412,817/428,235)*950/920)/52 = £4.2 million, assuming that the scale of the outage was across the board, neither favoring KFC owned outlets nor franchises.

According to Metro UK, which claimed to see a ‘small mountain of rotting chicken’

It has been claimed the delivery chaos is costing the firm £1 million a day while it is feared staff on zero hour contacts will miss out on pay.

While reports are a tad unclear, Metro UK said:

One insider told The Sun: ‘Some DHL lorries were sat in traffic for hours and it kick-started a huge backlog of deliveries. ‘They couldn’t get enough drivers together to clear the backlog then in the chaos trucks were delivering wrong stock or out-of-date stock which had to be sent back.

What about franchises?

According to the company’s UK site, they’re closed for new entrants. Even if you wanted to get on the finger lickin’ bandwagon then you’d need to show £5 million in assets and £2 million liquid – ie cash.

According to BusinessInsider, KFC charges 10% of revenue in license and royalty fees. That’s in addition to a slew of other charges.

However, that doesn’t square up to other stats that say 80% of UK KFC operations are under franchise. If that is the case then franchised KFC outlets would be turning over much more than the assumed annual £0.5 billion you get from running the numbers as reported and adjusted. We have to assume that KFC is running a UK tax avoidance scheme to offshore licensing to a lower tax regime. Likely Ireland.

Regardless, the numbers are substantial as KFC UK is the largest in the EMEA region.

There is a silver lining to this tale of woe. According to the company’s Twitter account:

How soon things get back to normal is anyone’s guess.

However, what we do know is that computer software glitches operated by the ‘innovative’ DHL FU’d big time.

We can also reasonably expect that franchises will have a LOT to say about how they get compensated in the coming days.

The UK’s restaurant and fast food industry is hard enough as it is. Check what celebrity chef Jamie Oliver has had to do in recent days. KFC’s problems just adds pain to an industry already struggling to keep above water and where tastes are changing rapidly. As we said in our earlier coverage – without a Plan B, KFC put itself in a precarious position.

Bonus points – a local wag posted this on Facebook:

 

Image credit - via public sources and KFC

    Comments are closed.

    1. Phil Wainewright says:

      £4.2m is just the gross margin hit. Also add in the cost of writing off unsaleable chicken stock and loss of future business as customers replace their KFC habit with local alternatives they hadn’t previously tried out.

      The reputational hit to DHL (plus any penalties under their KFC contract) must be pretty bad too.

    2. Apology to DHL/KFC and customers from supply-chain logistics software provider QSL
      http://www.quick-service-logistics.com/