Popeyes Chicken Chases Suburbs as KFC Focuses Overseas

Photographer: Gabriela Maj/Bloomberg

Customers at a Kentucky Fried Chicken (KFC) outlet at the Dubai Mall. Close

Customers at a Kentucky Fried Chicken (KFC) outlet at the Dubai Mall.

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Photographer: Gabriela Maj/Bloomberg

Customers at a Kentucky Fried Chicken (KFC) outlet at the Dubai Mall.

Look out KFC. Here comes Popeyes Louisiana Kitchen.

Led by former KFC executive Cheryl Bachelder, the chicken- and-biscuits chain is going national and ramping up the pressure as Yum! Brands Inc. (YUM) focuses overseas, letting its U.S. KFC operations languish in the process.

Long a regional outfit concentrating on the urban market, Popeyes is courting suburban white diners with a new menu and ads. Bachelder plans to double the number of U.S. Popeyes stores to 3,200. KFC has about 4,780 U.S. locations, about 600 fewer than in 2006.

“We’ve really reached the hearts and minds of a much broader customer base,” Bachelder said in an interview in her office at Popeyes’s Atlanta headquarters. While 40 percent of the chain’s customers are black, that’s changing as Popeyes opens eateries in places such as Sparks, Nevada, where about three-quarters of residents are white.

Popeyes, which is owned by AFC Enterprises Inc. (AFCE), will generate sales growth of about 13 percent this year, according to data compiled by Bloomberg. By contrast, U.S. fast-food restaurant sales will grow 1.9 percent overall this year to $170 billion, researcher IBISWorld Inc. said in a report last month. KFC’s U.S. same-store sales rose 1 percent in its most recent quarter, while Popeyes’s increased 8.1 percent.

“We feel good about our strategy going forward,” Virginia Ferguson, a Yum spokeswoman, said in an e-mail. “We’re focused on delivering the world’s best chicken to our customers.”

Shares Surge

Shares of AFC surged 52 percent over the past 12 months, compared with 14 percent for the Bloomberg U.S. Quick-Service Restaurant Index and 33 percent for Yum.

Still, Popeyes has its “work cut out to suburbanize,” Bob Goldin, executive vice president at Chicago-based researcher Technomic Inc., said in an interview. ’Burb dwellers are more likely to frequent the likes of Panera Bread Co. (PNRA), he said.

Twenty years after Col. Harland Sanders founded KFC in 1952, Alvin Copeland opened his first fried-chicken restaurant. The Popeyes name isn’t a tribute to the spinach-scarfing cartoon; Copeland named it after Gene Hackman’s character, Jimmy “Popeye” Doyle, in the 1971 film “The French Connection.” The chain’s chicken caught on after Copeland spiced up his recipe and by 1985 there were about 500 Popeyes locations. AFC, then called America’s Favorite Chicken, became the parent of Popeyes in 1992 and went public in 2001.

Learning Restaurants

Bachelder, 56, got her start at Procter & Gamble Co. (PG) before managing the LifeSavers and Planters nuts brands at Nabisco, where Louis Gerstner mentored her. In the mid-1990s, Bachelder helped turn around sales at Domino’s Pizza Inc.with flavored crusts and insulated delivery bags. After rebuffing an offer to work at Yum’s Pizza Hut chain, in 2001 she became chief concept officer at KFC, where she learned how to run restaurants and deal with struggling franchisees.

Bachelder said she became disenchanted with KFC’s relentless focus on quarterly results and left in 2003.

“It just wasn’t a patient, long-view environment,” she said of KFC. “It wasn’t right for me.”

Four years later, she signed on as chief executive officer of AFC. Bachelder was throwing in with a company where profits had stagnated and relations with franchisees were less than felicitous, according to AFC Chairman John Cranor.

“You had a culture that was contentious at best and frankly there were no clear-cut visions for the future,” Cranor said in a telephone interview. “That was sort of like serving up a feast to Cheryl.”

National Ads

Bachelder’s first task: getting on the good side of store owners. She distributed headsets and timers to restaurants, cutting the average location’s drive-through time by 40 percent to 180 seconds. She insisted on national ads, more effective than local TV because they reach more people, and convinced the board corporate should chip in on the advertisement fund.

She also hired another former Yum executive, Ralph Bower to lead the U.S. business. Bower, who also used to work at Domino’s and KFC, scores and ranks every store each quarter and helps the 305 U.S. franchisees track costs weekly. Bower said he regularly has hour-long phone conversations with franchisees, who own 98 percent of domestic locations.

In 2008, Bachelder and her team rebranded the chain, ditching the Popeyes Chicken & Biscuits name for Popeyes Louisiana Kitchen and replacing the cartoonish red, yellow and blue logo with an orange “P” set in a ring adorned with a pair of matching fleur de lis.

Healthier Menu

Last year, Popeyes introduced a healthier menu, Louisiana Leaux, with so-called naked chicken wraps and a BBQ chicken po boy sandwich. Still, the chain continues to sell the fare that made it famous: bone-in fried chicken, chicken tenders and shrimp. With U.S. economic growth weak and consumer confidence in July at the lowest level this year, Bachelder is keeping the food affordable, selling combos for $3.99 and $4.99. KFC, meanwhile, is advertising a $19.99 family meal.

The biggest threat for the company is if Bachelder or other leaders were to leave, said Sam Yake, an analyst at BGB Securities Inc. in McLean, Virginia. “Losing their talented executives would be by far the biggest risk,” he said.

Bachelder, who reads one self-improvement or business book a week and started a library at company headquarters, is working on what she calls developing servant leaders to manage Popeyes when she’s gone.

“That’s where I’ve shifted a ton of my energy,” said Bachelder, who last month met with 14 vice presidents to discuss their careers. “I want them to have everything in place to continue the success.”

Still, she betrays no signs she’s looking for a new gig, saying, “it’s going to take me quite a while to get that done.”

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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