Janet Sparks BusinessWeek guest blogger posted at BusinessWeek and BlueMauMau that the KFC National Council and Advertising Cooperative, Inc. (NCAC) filed a lawsuit last week against the world’s most popular fried chicken chain after KFC’s corporate office made a number of marketing blunders in promoting a new product, Kentucky Grilled Chicken, without authorization. The legal action is seeking an injunction to protect US franchisees’ rights in having control over the marketing group, as the company tries to infringe on its authority. Although the complaint is against KFC Corporation, it clearly points the finger at KFC’s newly appointed president Roger Eaton for his aggressive tactics against council members. The complaint states, “After operating smoothly and successfully under NCAC Certificate and Bylaws…for almost twelve years, from 1997 to 2008…NCAC’s working relationship with KFC changed abruptly.” Their primary reason, “…the appointment of a new president…Roger Eaton.”
Last May, in an effort to promote the launch of its new grilled chicken products, KFC, under parent company Yum! Brands, announced on the Oprah Winfrey show a free two-piece grilled chicken meal through downloadable coupons. But when the response became too much for the chain, KFC sent letters to franchise owner-operators telling them not to honor the promotion. After angry customers were sent away with rain check coupons in hand, a class action lawsuit was filed in July to hold the chicken chain responsible for the marketing debacle.
According to news reports, that suit resulted after Eaton made a startling admission. The KFC president was widely quoted as saying that despite the huge public outcry over KFC’s refusal to honor its coupons, the promotion had been incredibly lucrative: “There’s no one in America right now who doesn’t know we’re selling grilled chicken.” To add insult to injury, Eaton reportedly bragged to the Associated Press that “the critical thing for us was to get people to eat the chicken, whatever it took.”
The complaint filed in the Chancery Court of Delaware alleges that KFC has recently taken the position that it has the sole authority in making decisions for the NCAC. But that isn’t what the contract says. Although the advertising council originally incorporated in 1969, the current certificate and bylaws of the NCAC were adopted in 1997 after extensive negotiations, in connection with a settlement agreement of various class action litigation against KFC in federal court. KFC was limited in its ability to make marketing decisions, being authorized to mainly hire or fire an advertising agency or a public relations firm. In order to induce franchisees to conduct national advertising and make contribution to the fund, KFC agreed that franchise owners could command the NCAC through a franchisee-controlled board.
Read more at: BusinessWeek and BlueMauMau