Mcdonald's, Big Mac, Burger King's Whopper
and Pizza Hut's Deep Pan Pizza—the American fast food industry has
been built on iconic menu offerings that have enticed
millions around the globe. In the summer of 2019,
another cultural phenomenon took place. The launch of Popeyes' chicken sandwich
was an inflection point for the fast-food company and kicked off what
industry insiders have referred to as the "Chicken Sandwich Wars". Chicken has been having a moment
for quite some time now. So, you know, it's hard to say
that this, you know, this one sandwich changed the trajectory of QSR chicken,
but it certainly changed the trajectory for Popeyes. Hype around the chicken sandwich, and
a lighthearted Twitter spat with Chick-fil-A turned the menu item
into an overnight sensation. In November of 2019, Popeye's location
alone sold more than 3,500 chicken sandwiches in a day. And since then, sales at
the company have surged, I'd say so, it's the next sort
of category, again, goes back to the buckets of chicken that were invented as
a whole meal solution that that travel well. In other words, the food doesn't degrade
over time as much as, say, french fries or hamburgers. So it was that next category. It was also created to
be shared like pizza. It's meant to be shared, and so
there's a value proposition there for the family. So can a simple chicken
sandwich save a company that once filed for Chapter 11 bankruptcy protection
and is trailing two major rivals, Chick-fil-A and KFC? Popeyes Louisiana Kitchen got its start
in the early 1970s in New Orleans. Founder Al Copeland grew up poor
in the Big Easy, dropped out of high school at 16 and in
1971 opened Chicken on the Run. Despite some early setbacks, Copeland went
on to reinvigorate the menu to include spicier, Louisiana Cajun-style
recipes and eventually reopen the restaurant under the name
"Popeye's Mighty Good Fried Chicken," after Gene Hackman's character, Popeye Doyle
in the movie "The French Connection." The menu was a hit. Copland opened a second location a year
later, and by the late 1980s, Popeyes ballooned to more than
100 company-owned stores, and 620 franchises. Looking to expand further, in 1989,
Copeland gambled big buying rival Church's Fried Chicken for $400 million,
making the new company the second largest fast-food chicken
restaurant in the U.S. behind chain Kentucky Fried Chicken. But even in the number
two slot, the chain struggled. The deal eventually soured, and by
1991, the company filed for Chapter 11 bankruptcy, due in part to
the remaining debt from the earlier buyout. Copeland stepped down as CEO
and sold his 84 percent ownership of the company for $31 million. By 1994, the reorganized company,
America's Favorite Chicken, had more than 1800 company owned
and franchised restaurants worldwide. The chain looked to diversify,
acquiring Seattle Coffee Company and Cinnabon. The plan was a flop, and
within a few years, Popeyes decided to double down on chicken and
offloaded both companies, Cinnabon at a major loss. In March 2001, Popeyes made
its debut on the Nasdaq, opening up at $19.50 a share. By 2004, the company decided to go
all in on Popeyes, so it downsized even more, selling off its Church's
Chicken restaurant for $390 million dollars. By 2017, shares had soared
to close at almost $79. That same year, Restaurant Brands International,
the owner of Tim Hortons and Burger King, added
Popeyes to their roster. What's exciting about Popeyes is we
have the opportunity to double our footprint in the US and grow
rapidly internationally so there is no better growth runway in front
of a chain than Popeyes. In 2008, the chain took the name
Popeyes Louisiana Kitchen and at the end of 2019, Popeyes had more than
300 venues worldwide, making it the second largest chicken chain by
total number of restaurants. For much of Popeyes' history, its
Louisiana style menu featured items like fried chicken, chicken
tenders and fried shrimp. But after nearly 50 years in business,
in August 2019, the chain rolled out its first ever
nationwide chicken sandwich. The launch, the biggest menu change
since the restaurant added crawfish three decades earlier, and the
ensuing social media debate, sent shockwaves through the
fast-food industry. A few days after its debut,
Chick-fil-A tweeted a thinly veiled critique. Popeye's response: y'all good? The tweet were the opening salvo in
what industry insiders refer to as the "Chicken Sandwich Wars." As I've seen it dubbed the
tweet that changed the quick service restaurant industry last August. Until then, you know, they
were a solidly performing, middle-of-the-road chain that, you know, that certainly was
doing all right, but you know, that nobody would say, hey, you
know, they are really setting themselves apart. We were really excited about
the launch of the chicken sandwich. We spent a lot of time
working on on a best-in-class sandwich. The heritage of Popeyes has
always been about culinary excellence. And so we felt we had something
really special for a simple but amazing ingredients, a chicken fillet,
Yvonne pickles and mayonnaise. And we were ready for something big. And then we broke the Internet in
early August and that created a craze that we haven't seen, I haven't seen
in more than two decades in the business. While Popeyes, Chick-fil-A, Wendy's
and Shake Shack traded barbs on Twitter, Popeyes nearly
doubled its Twitter followers to 180,000. More importantly, the company saw
sales surge almost 10 percent at stores open more than a year
in the third quarter of 2019, compared to less than one percent growth in
the same period the year prior. With lines out the door, about two
weeks after the launch, the chain ran out of chicken sandwiches. One analyst estimated that while in
stock, Popeyes sold about a thousand chicken sandwiches per store a day. And that the sandwiches alone accounted
for 30 percent of sales. And it wasn't just Popeyes that
saw battlefield gains in the chicken sandwich wars. According to food
traffic analytics performer, Placer Labs, over a typical summer
weekend, Popeyes, Chick-fil-A, Zaxby's and KFC receive about
8.3 million visitors. At the peak of the chicken
sandwich wars, the chains collectively had over ten million visitors. We launched our great tasting chicken
sandwich last year in August. Then, as you well know, we had to
pull it back because of a number of challenges, including supply. And then we relaunched
it in November. And it's been a big part
of our many since then. And what it's done, it's brought a lot
of new folks into the business, a lot of folks that that hadn't really
tried Popeyes or only tries it once every 35, 40 days. By November 2019, the Popeyes chicken
sandwich, made of a chicken breast fillet hand-battered and breaded in buttermilk
coat, and served on a British bun with either spicy or
regular mayo, was back in action. I think what Popeye's has done is
created a sandwich that some people say is better than Chick-fil-A some people
say it's on par with. There's very few people that say
it's worse than, or significantly worse than Chick-fil-A. And so they backed
up their social media firestorm with a really good
product that people wanted. As of August 2020, Popeyes sold
more than 203 million chicken sandwiches. The company reported second quarter
same-store sales in August 2022, grew nearly 25 percent. The fast-food chicken market
in the U.S. is a $32 billion industry dominated
by a handful of big players, according to Technomic, including
Chick-fil-A, KFC and Popeyes. In 2019, Chick-fil-A had sales of $12.6
billion, making it not only the largest chicken fast-food restaurant in the
U.S., but also one of the largest restaurant chains by systemwide
sales behind McDonald's and Starbucks. For comparison, Popeyes,
the 19th largest U.S. chain, according to the Nation's Restaurant
News, pulled in $3.8 billion in sales in 2019. Closed on Sundays, Chick-fil-A first
opened in Atlanta, Georgia, in 1967. As of September 2020, the brand
had more than 2,400 restaurants across the U.S. The key
to the restaurant's success? According to analysts, Chick-fil-A benefits
from having quality food, stellar customer service and unlike
most other fast-food franchises, limiting most operators to
just one store. So Chick-fil-A has got a number
of things going for them, right. And obviously, first and foremost, for
any quick service restaurant is the food. Their food is phenomenal in
any rating that we or other research firms have done, always
indicate that Chick-fil-A's food is phenomenal. But guests that go into
Chick-fil-A are treated to people that are trained to be polite, that
say thank you and please and and, you know, all of these things
that get hammered into them. And part of that is driven
by the way they're structured. Their franchisees structure is such
that really most franchisees only want to run one restaurant. And so they're not torn between
six or eight or 10 restaurants. They're really on-site operators and
are dedicated to growing and improving the operations in the
service at that one restaurant. That focus has driven sales volume
per store at Chick-fil-A significantly higher than rivals KFC and
Popeye's, according to analysts. Their in the $5-6
million range per store. Whereas a KFC might be
the $1-2 million range. I think Popeye's is
approaching $1.7 million. The performance in the way they've been
able to grow and outperform the rest of the industry really is beyond
precedent in anything that you can look at. With the exception maybe now
of at least over the last several years, with the exception of Popeye's
and how they've been growing. KFC was bought by PepsiCo
for $850 million in 1986. And in 1997, PepsiCo spun off
its then struggling fast-food business, launching Pizza Hut, Taco Bell and
KFC into a new publicly traded company that would later
be renamed Yum Brands. By 2019, KFC had more than 2,400
restaurants, 83 percent of which were located outside of the U.S. Though it's seen growth internationally in
the years leading up to 2020, the company has faced fierce
competition in the U.S. and at the same time struggled
to reinvent its chicken sandwich. Up to 2011, KFC was the leader
in market share in the U.S. limited service chicken segment. A year later, Chick-fil-A was
in the top spot. But like other fast-food chicken restaurants,
KFC has seen sales surge during COVID-19. In July 2020, Yum Brands
reported that second quarter U.S. same-store sales at KFC were
up almost seven percent. And to compete against rivals, the
company tested an upgraded version of its chicken sandwich in the summer
of 2020, according to industry insiders. Well, KFC went through
a transformation period where they invested the company invested its own
capital in turning around the business. You know, they reformulated the
menu, they, you know, invested in digital technologies. And really, it's become, during this
COVID crisis, it's actually become a hotspot for lack of a better term. But it may be Popeyes
that has benefited the most. Popeyes reported same-store sales rose twenty
five percent in the second quarter, ending June 30, 2020. During the same period,
Restaurant Brands International's other businesses reported same-store sales at Burger
King fell 13 percent, and Tim Hortons declined 29 percent. For decades, burgers have been one of
the top choices for consumers at restaurants across the U.S. Americans ordered an 8.6 billion burgers
in the year ending February 2019, compared with four
billion chicken sandwiches. But according to the NPD Group,
the chicken sandwich is only getting started. The big story over the past 30
or 40 years has been the rise of chicken consumption. Chicken went in the late 1970s from
being a minority meat, at least relative to beef and pork to now. Today, it's the most consumed
meat in the United States. One reason Americans have
consumed more chicken: affordability. Over the past several decades, the
availability of chicken has increased dramatically as consolidation in the
meat processing industry has allowed companies like Tyson Foods,
Pilgrim's Pride and Sanderson Farms to increase production while at the
same time keeping costs low. So the industry in chicken is
much more vertically integrated, which means that you have companies say, like
Tyson, that own most of the supply chain. They've been able
to improve genetics, improve feed, improve housing situations, and that's really
been able to pull down the price of chicken quite considerably. And while low prices have kept
consumers coming back for more, perceptions of health and wellness have
led to carnivores choosing white meat over red meat. Organizations like the World Health
Organization and the U.S. Department of Health have linked red
meat with cancer and heart disease Particularly in the 80s and 90s, there
was a lot of concern among consumers about the consumption of
fat and cholesterol and chicken really benefited from from these concerns
on the part of consumers because chicken was consumed, you
know, perceived as a healthier alternative, a less
fatty alternative. And hamburger chains are looking to take
a bite out of Popeyes' newfound success, too. In August 2020, Wendy's
added a new spicy crispy chicken sandwich to its four
dollar value menu. And according to Telsey Advisory
Group, fast-food giant McDonald's is expected to launch a new crispy
chicken sandwich sometime in the next year. Going forward, I mean, McDonald's
is not...is looking at this and saying, well, we have a pretty
good chicken business as well. So McDonald's is just sitting back
and letting everybody take share. They, we expect them to launch
a chicken sandwich early next year. They've tested a number
of different versions. The last I heard was they maybe
settled on a version that they're going to roll out. So we
expect big things from that. And analysts say chicken chains like
Popeyes could face a greater threat from a potentially cheaper and
healthier source of protein. New alternative meat products like plant-based
meat or the emergence of a lab-based meat products. They are more expensive now, but
could someday be cheaper to produce. One provocative way to think about this is
that over the past 20 or 30 years, chicken has displaced beef and pork
on our dinner plates by being perceived as more healthy and
as by being more affordable. And it's not crazy to imagine
that some of these alternative meat products might do to chicken what chicken
did to beef and pork, that is, have a perception of healthiness and
at least the potential—they're not there yet, but the potential to come
in at a more affordable price point.
