The Chicken Tycoons vs. the Antitrust Hawks

At Kentucky Fried Chicken, sales tend to peak at the same time every year: Mother’s Day. This has been the case since the 1960s, when the chain began to experiment with TV advertising. In a spot from that era, a man in an office answers a phone call from an anonymous male narrator who asks, “Sir, do you have any idea what your wife has to do to run your house?” Cut to a sped-up montage of an impeccably dressed 30-something as she dusts, irons, vacuums and balances the checkbook. Newly enlightened, the husband shows his appreciation by stopping at Kentucky Fried Chicken on his way home. Cut to a close-up of a happy wife biting into a drumstick. “Colonel Sanders fixes Sunday dinner seven days a week, and it’s finger-lickin’ good.”

The ad-created tradition endured even after the commercials stopped running, with dads and daughters expressing familial devotion by lining up at the drive-through window for eight-, 12- and 16-piece buckets of fried chicken. That’s why Mother’s Day 2014 was such a corporate disaster: Some KFC restaurants ran out of chicken, according to James Olson, a franchise owner and executive involved with buying chicken. Panicked management scrambled to purchase backup truckloads of meat at huge markups, but there wasn’t enough to go around. Franchisees, frantic, shuffled wings and thighs from one location to another to cover the shortages. Stores closed early. Brands spend years and vast marketing budgets trying to establish themselves as part of their customers’ holiday routines. The 2014 interruption threatened to undo five decades of Mother’s Day magic.

The trouble was that KFC’s chickens are small. The bird that made Colonel Sanders a household name is lighter than the raw chicken you buy in the grocery store: KFC chickens weigh in at about four pounds before they are killed, rather than the more common six pounds. That spring, small chickens were becoming harder to find as feed prices fell and the profits to be made from producing larger birds swelled. One of the chain’s suppliers had converted a small-bird processing facility into a large-bird plant, and KFC, as Olson recalled, was having trouble finding the 400 million pounds of small chicken it used each year to fill its buckets. Shifting to large birds was not an option in the near term. The chain’s fryers were all calibrated to cook chicken pieces of specific dimensions for the exact same amount of time — consistency is key in the fast-food industry — and a larger chicken fried according to small-chicken specifications ran the risk of being undercooked.

Soon after the Mother’s Day catastrophe, KFC’s chicken buyers paid McKinsey, the consulting firm, about $1 million to spend six weeks looking into the small-chicken conundrum. The firm found that if KFC didn’t lock down a consistent, long-term supply of small birds, it could lose as much as $1.5 billion in sales.

The KFC team buys its chicken through a bidding process. Its suppliers — chicken companies like Tyson Foods, Pilgrim’s Pride and a handful of others — are expected to compete with one another for KFC’s business by submitting confidential bids for contracts to sell to the fast-food chain’s franchises. One chicken processor might bid for business by offering 63 truckloads of chicken per week for $0.977 a pound, while another might send in a bid for fewer truckloads at a slightly lower price. KFC’s buying team spreads business among these suppliers according to transportation costs and other considerations, awarding the biggest contracts to the most attractive bids. In the summer of 2014, prompted by the Mother’s Day shortages and McKinsey’s warning, KFC’s buyers solicited bids for three-year contracts, hoping to stabilize their supply of small chickens.