This post is part of the On the Margin blog.
When Restaurant Brands International Inc. agreed to pay $79 per share, or about $1.8 billion, for Popeyes Louisiana Kitchen in February, it agreed to pay the largest earnings multiple for a restaurant chain in modern history — 21 times earnings before interest, taxes, depreciation and amortization.
While the sale ended a decade-long era under the helm of CEO Cheryl Bachelder, it also confirmed the chain’s emergence as a force in the industry. The price represented a 500-percent increase from the day Bachelder took over. A small number of restaurant companies can boast those types of numbers.
Same-store sales increased for eight straight years. The chain’s market share in its category jumped from 14 percent to 28 percent. Average unit volume grew from $1 million to $1.4 million. Unit-level profit jumped from 17 percent to 23 percent. The number of locations increased from 1,800 to 2,700, and the chain has plenty of white space for RBI to make its money back on that acquisition.
So how did Popeyes do it? How did this regional chain that specialized in a product — bone-in chicken — that many thought was falling out of favor with the consumer become such a valuable enterprise?
“You could pay [consultants] $5 million each to find white space in QSR, and nobody would come back with fried chicken from Louisiana that was bone-in,” said Dick Lynch, the chain’s outgoing chief brand officer, who arrived shortly after Bachelder was named CEO. “Bone-in chicken was declining in volume. And Cajun cuisine had its 15 minutes of fame in the early 1990s.”
Popeyes’ comeback over that decade is a story of a brand that earned trust with its franchisees, and focused on branding, and a more efficient use of advertising.
One of the first things the chain did? Change its name.
The company had been known as Popeyes Chicken & Biscuits. It changed it to Popeyes Louisiana Kitchen.
That seemingly simple change gave the chain more credibility for its quality.
“When I looked at the amount of labor and precision that went into preparing the food with a unique recipe, we were not getting any credit for any of that,” Lynch said. “Changing the name and the logo was just one step in elevating the brand.”
Interestingly, Popeyes was almost named Popeyes New Orleans Kitchen.
“There was a lot of debate,” Lynch said. “At the time, the brand was much more strongly associated with New Orleans. But Louisiana has much broader culinary credentials than New Orleans, which is certainly known for great restaurants.”
The Louisiana name, however, enabled the chain to talk about its Creole heritage. And it gave the company permission to offer things that aren’t chicken — such as seafood, and especially shrimp, which has become a popular product this time of year. It also enabled the chain to sell boneless products that consumers have gravitated to more recently.
Along with the new name, the chain focused on service and quality to match its Louisiana heritage.
“What we really found potent was the branding was not just relevant to the consumer,” Lynch said. “It was equally relevant to franchisees, the employee base and investors.”
“The brand drives everything about business performance,” he added.
Another strategy was to start advertising on national cable. That was somewhat controversial, Lynch said. The brand had advertised locally for most of its history, and only markets with enough locations could advertise on television.
Yet Popeyes realized that such a strategy was inefficient. “If you took those markets that had enough money for TV, that was actually enough money to buy a television schedule,” he said.
National television also covered all markets, including those without enough locations to advertise, and areas without a Popeyes. The company, after getting permission from operators, tried it once, and then again.
“We could have told them we were doing it,” Lynch said. “But we didn’t. We worked with them and said, ‘Let’s try it.’ We tried it for one promotion, two promotions, four promotions and built the business case. They could see their dollars working harder for them.”
One advantage Popeyes has had over the past several years has been its taste profile, which is spicier than other chicken concepts. American consumers have gotten a taste for spicier food, which has helped the company’s sales.
“When the brand was introduced as spicy 45 years ago, spicy had a narrow appeal,” Lynch said. “Now, more and more people want spicy. Spicy is much more universally desired than it was 30 years ago.”
As for RBI, Lynch said, “They were pretty determined to buy us.”
And, he said, the chain has strong potential in international markets, where chicken is the top protein, and rice — Popeyes’ beans and rice is fantastic — is highly popular. That should help RBI recoup that huge investment.
“The brand travels well,” Lynch said.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze
