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Kentucky Fried Chicken Firm’s Risk Management Analysis

Introduction

This case study will focus on a well-known fast-food restaurant chain KFC. Despite being one of the world’s largest companies specializing in foodservice, the company is still vulnerable to substantial risks. Starting from the corporate model of expansion and up to the choice of meals on the menu, KFC faces numerous dilemmas, which may threaten its financial stability. Although the company is a corporate giant with large marketing experience and many competitive advantages, there are still financial, strategic, and public threats, which may undermine its success (Jeynes, 2009, p. 92). Understanding what constitutes the main risks to KFC’s stability is essential in ascertaining an appropriate risk response plan.

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Identification of Risks

The first major risk the company faces is supply chain disruption. As most fast-food restaurant chains, KFC does not produce food on its own but rather uses outside ingredients to prepare its unique meals. Subsequently, the company relies on other business entities to function. Specifically, not only do the actual food producers have to sell the processed ingredients, but these items have to be shipped from factories to the restaurants. The entirety of these operations comprises a system known as a supply chain. The more third parties there are in the network, the higher the possibility of disruption and subsequent delays will be.

The second risk is the possibility of the franchise system backfiring. The primary strategy of KFC’s expansion is franchising, which means issuing licenses to local sellers to conduct commercial activities using the general brand name. It is a fast and effective way of infiltrating new markets. However, the abundance of stores that are individually managed can create issues for the franchisor, especially in foreign countries. The less control the company has over its outlets, the higher the chance of ineffective management will be.

The third risk is the public perception of KFC and the fast-food industry in general. As the culture of healthy eating becomes more widespread, many people start to view fast-food restaurants as primary sources of unhealthy food. Nowadays, Internet users are constantly reminded that well-known products of famous brands, such as McDonald’s, Chic-fil-A, Burger King, KFC, and many others, are high in fats and sugar. Most of these companies, including KFC, do not deny the fact of their foods’ potential harm. As a result, the advancement of health consciousness has the capability of damaging the company’s reputation and reducing the influx of customers.

Analysis

In all three cases, there is the problem of weakening brand attractiveness, brand loyalty, and reduction of revenues. Baryannis et al. (2019, p. 2181) argue that KFC has already encountered complications on such a scale in 2018 when a large number of the company’s stores in the United Kingdom were closed due to the deficit of chicken. Not only did the company lose half of its assets in the UK, but it also lost thousands of employees and managers. The company had to quickly restructure its logistics in order to resume its services.

Franchising is a risky strategy because the company relies on local sellers to manage the store on their own. This means that brand name and the range of products are the only unifying elements across all stores. Whereas some restaurants can show exemplary customer service, others can fail at delivering the same quality. The problem is that in both cases, it is the brand that gets the most attention (Madanoglu, Castrogiovanni and Kizildag, 2019, p. 240). Even if the franchisor was not directly responsible for the actions of its franchisee, its reputation would still sustain damage as the store wore the same symbol.

Finally, the paradigm of the virtues of healthy eating creates a moral and marketing dilemma for KFC. It is scientifically proven that excessive amounts of high-calorie food are damaging to health. Yet, these foods are exactly what KFC is about – quickly prepared nourishing meals with addictive taste. Unless KFC chooses to address the rising awareness of junk food’s harm and adjust its marketing accordingly, the public perception of this brand is likely to worsen.

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Measurement

Risk measurement should be determined by the nature of the problem, which threatens the company’s stability. In terms of the supply chain and healthy eating tendencies, the risk can be measured in quantities. Each store’s effectiveness is judged by the amount of money it has generated through the sales. However, both these threats can negate these revenues partially or entirely. When the restaurants no longer receive ingredients, they cannot sell the food. When the customers stop viewing the brand as suitable for their needs, they will not but from this retailer. Subsequently, the management can estimate how much losses the company will sustain if the food ingredients are not supplied. Similarly, it is possible to calculate the approximate number of customers who will not visit the store. In both cases, the managers can use the average purchase value, which will not be generated when the customers do not arrive, or the food is not sold. The resulting value will constitute KFC’s quantified financial risk. The same algorithm can be applied to the estimation of franchising risks, where the average purchase value is compromised by the franchisee’s incompetence.

Control

Although not all aspects of supply chains are controlled by KFC, the company can influence the terms of agreement with its contractors. For example, it can use its 2018 experience as an argument for greater supplier accountability in the case of disruption. The resulting agreement should have both bear financial responsibilities. If the suppliers fail to provide the necessary ingredients, they will have to compensate for the subsequent financial losses. As long as this nuance is covered in the contract, the company will be able to control such a risk.

A similar approach can be used when enabling the franchisee to use the brand name. Management can write a specific set of requirements, which will apply to all KFC restaurants indiscriminately. These regulations may concern customer service, working hours, methods of payment, and other aspects, which can damage customer satisfaction. If a licensed restaurant violates some of these requirements, they may be held accountable, thus hedging the larger company’s potential losses in revenue.

Conclusion

Finally, in terms of increasing health consciousness, KFC can change its marketing policy. Instead of emphasizing the taste and flavor, the company can accentuate nourishment. There is no such product, which would be completely harmful to health. The human body needs fats and carbohydrates as long as they are not consumed uncontrollably. Therefore, KFC can highlight the nutritional value of their products, thus making them appealing to conscious eaters. Such a change in marketing strategy will allow the company to retain its image of a crowd favorite while publicly acknowledging the problem of excess. As a result, the risk of negative public perception is controlled and minimized.

Reference List

Baryannis, G. et al. (2019). Supply chain risk management and artificial intelligence: state of the art and future research directions. International Journal of Production Research, 57(7), pp. 2179-2202.

Jeynes, J. (2002) Risk management: 10 principles. Oxford: Butterworth Heinemann.

Madanoglu, M., Castrogiovanni, G. J. and Kizildag, M., 2019. Franchising and firm risk among restaurants. International Journal of Hospitality Management, 83, pp. 236-246.

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StudyCorgi. (2023, January 12). Kentucky Fried Chicken Firm’s Risk Management Analysis. Retrieved from https://studycorgi.com/kentucky-fried-chicken-firms-risk-management-analysis/

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