AFC Enterprises CEO Cheryl Bachelder addresses franchisees. photo/AFCE

ATLANTA — Cheryl Bachelder, chief executive officer of AFC Enterprises Inc (NYSE: AFCE), holding company for Popeyes Louisiana Kitchen, speaks to Blue MauMau about the art of leading.

A big believer in measuring, Bachelder actually monitors the bottom line of Popeyes franchises — 2,044 restaurants altogether, 40 of which are company-owned. That's because she believes the key to a franchisor's success is focusing on individually lifting the profits of franchised establishments.

Under her leadership, Popeyes says customer ratings have improved by over 20 percentage points in just the past year. In last month's earnings report, Bachelder declared, "According to independent data, our 2011 domestic same-store sales outpaced the chicken QSR category by 430 basis points." Actually, the chain has outpaced the QSR sector in same-store sales growth for three of the last five quarters. In a time of squeezed profits because of creeping commodity costs, Popeyes restaurant margins have become better by over 200 basis points in three years.

"2011 was the third year in a row that we have delivered increased, absolute profit dollars to our franchisees," declares Bachelder. How many franchisors can say that?

Darren Tristano, executive vice president of researcher Technomic Inc. observes that there has been a shuffle in the fried chicken marketplace. Chick-fil-A, Popeyes and Bojangle's have gained market share while Church's and KFC have declined. "As KFC keeps its growth aimed at international markets and specifically China, other fried chicken brands have an opportunity to grow and grab share in this mature U.S. QSR chicken segment," says Tristano. "Popeyes has improved its image through rebranding, broadening its menu and differentiating through flavor profiles and brand positioning. Their success in growing sales and units during our difficult economic climate over the past five years is a testament to their management team's efforts and their strategy."

Bachelder knows these companies well. She cut her management and leadership teeth with consumer goods giant Procter & Gamble and later Gillette. She joined Domino's Pizza in 1995 as vice president of marketing and product development. From 2000 to 2003, she served as president and chief concept officer of KFC, a restaurant division of Yum! Brands, Inc.

Her peers think highly of the CEO of Popeyes. Domino's Pizza CEO Patrick Doyle says of Bachelder: "Cheryl hired me into Domino's and taught me a great deal about the business." Doyle, who was recently honored as CEO of the year for 2011 by CNBC's Herb Greenberg and Brian Sullivan, adds of his mentor: "What has made her highly successful is her focus on building great consensus with her franchisees whenever possible, and building that through a fact-based approach to the business. It's not at all surprising to see the level of success she is having with the Popeyes brand."

The following is part one of a two-part interview. It is part of a series in which Blue MauMau has tried to single out the best leaders and innovators in the franchise world and to share their insights on the complexities and challenges of leading a franchise chain.

BMM: You worked with David Novak, CEO of Yum Brands. What did you learn at KFC with Yum Brands that helped you with AFC Enterprises?

Batchelder: I would say that the biggest lessons I've learned at Yum Brands were the importance of the metric moving score card with restaurants, measuring guest experience, and the importance of reviewing analytics with franchisees on a quarterly basis. I'm a huge fan of a man named Aylwin Lewis who was the chief operating officer of Yum Brands at that time.

I often give him credit for teaching me everything I needed to know about restaurant operations.

BMM: Where is Mr. Lewis now?

Bachelder: Aylwin is the CEO of Potbelly Sandwich, based in Chicago.

BMM: The stock market loves Yum Brands, but its subsidiary KFC has been struggling for some time here in the US and the developed world. I understand that this may be difficult to talk about, but I have to ask. Are there things from Yum Brands and KFC that you learned about what not to do in running a chain?

Bachelder: The main lesson of leadership that I took away from that experience is the importance and power of partnering with franchisees. I really enjoy working with the entrepreneurs who own our restaurants, which has been true for me since I worked with Domino's Pizza. I think Tom Monaghan [founder of Domino's] taught me the power of that relationship. That's what I learned there and that's what I have applied here. We say our number one customer at Popeyes is our franchisee, because if we serve them well, all of our other constituents are well served: guests, shareholders, the board, etc. Towards that end, for franchisees the most important pillar in our plan is making them more money. They came into this business to make a return on their investment and to have a strong cash flow to support them to reinvest in the business and put their kids through college. So my job as the leader of the franchisor is to make sure the unit of economics of our business model delivers on that most important goal for the owner.

BMM: Is it easier to operate one brand like Popeyes by itself compared to Yum Brands that until recently had five?

Bachelder: I believe focus is extremely important. That can happen within the brand leadership team.

At Popeyes, we just have one brand and everybody is deliberately focused on the strategies that will grow that business. That has kept us from being sidetracked or distracted by other things. It also allows us to replicate our results. We strive to constantly improve, where we learn from everything we do and apply those lessons to be even better the second time around. I do believe focus, a stable team, and continuous improvement are the tenets of how you deliver sustained performance.

BMM: Tell me about your four pillar platform, particularly the third pillar, franchisee profitability.

Bachelder: Our strategic plan has four pillars of what we believe constitutes running a great restaurant company.

1. The first one is building a distinctive relevant brand.
2. The second one is running a great restaurant.
3. The third one is growing profitability for the owners.
4. The fourth one we like to say, if you do the first three you get the privilege of accelerating quality new openings in your system.

That's exactly how we've moved this brand forward. First, we as the franchisor have lived up to our role of providing a strong brand, distinctive and relevant to its guests. We have a pipeline of innovative promotions and new products. We have messaged the brand very effectively with our "Annie" (ad) campaign.

That is our job as the franchisor to provide that differentiated marketing and messaging that drives traffic to the restaurants.

The operations part, which we call "Run great restaurants," is a shared responsibility. The franchisor (AFC Enterprises) is responsible for bringing the systems to the table, like need of service systems, production planning systems, labor model systems, and cost control systems. Franchisees, of course, are responsible for executing those to the best of their ability.

That leaves the third pillar of growing profitability for the owner. We have been extremely intentional about measuring and improving the profitability of each restaurant. We think that's fundamentally what we do for a living and what meets the needs and goals of our franchisees. The result of that is we immediately started tracking the restaurant profitability in our systems. That means that we started collecting P & L's from every restaurant in our system.

That was unheard of and it had not happened in any prior brand that I worked on.

BMM: Right! Sadly, I can't think offhand of another franchisor that does that.

Bachelder: We set a goal for ourselves of getting data in-house so that we could make better decisions that would lead to better profitability. It really has worked phenomenally well.

We now collect P & L's [store profit and loss statements] on over 1,000 restaurants every quarter. We collect food and paper and labor costs every week from those restaurants so that we're never in the dark on how our profitability is performing at the restaurant level.

AFCE data by YCharts

The important thing is we then share that data with the franchisees so that they can compare their own operations to others' best practices. They can go through the P & L line-item by line-item for improvement opportunities.

And the second thing we did is we brought [individual store and average store] profitability to every business meeting we conducted with franchise leaders. We have an association of franchise leaders we meet with quarterly, each promotion event and every month of the business year. We review not only sales performance but also restaurant operating profit. We have made better business decisions because of tracking that. Today, we have incentivized our field team by giving bonuses when they improve the profitability of the operators they serve. I think that too is unheard of in our industry.

It's a powerful alignment — of the franchisor and franchisee sharing the same goal. It has led to some fabulous improvements shown in restaurant profit and loss statements that were initiated by our supply chain cooperative. Because again, we measure P&L. We focus on where we can add value: creating better value and cutting expenses in our co-operative. In the first year that we went after savings, we saved $16 million for our franchisees. That's a full margin point. The next year we saved another half a margin point. The next year we saved yet another half a margin point [in food costs].

And you can imagine at a time where commodities were up 2 1/2 points, that meant a lot to our owners.

BMM: How do you engage your franchise owners? Franchise systems usually have an advisory council to which either the franchisor selects the board members or the franchisees elect representatives to give advice to the franchisor. How do franchisee councils work at Popeyes?

Bachelder: Our system has an organization called PIFA, for Popeyes International Franchise Association. Franchisees elect ten franchise leaders to serve each year on the PIFA board. Almost all of these representatives chair a separate committee of various kinds. We have a marketing committee. We have a new product development committee, profit and technology committee, operations committee, and so forth.

Those committees are where we do the hard work of reviewing operating data and make decisions for the next couple of quarters looking out. So we have about 50 or 60 total franchisees involved in our decision making process on a regular basis, coming to the home office quarterly for a three-day meeting, where we have both the 10 leaders meet at the beginning, and set the agenda with us for the three days. Then the committees meet and then we debrief on the third day. It's very productive, very focused, and very collaborative.

BMM: Other systems have elected franchisee advisory councils. Give me an idea of why you think your system is collaborative compared to the rest?

Bachelder: In Popeyes we have a trait of collaboration that we call, "We listen carefully and learn continuously." We have another trait that says, "We are fact based and 'planful.'" Another one that says, "We are personally accountable." When you work with those traits, there is a lot of listening and learning going on. Fact based, "planful" and personal accountability over time builds trust.

Trust is the essence of any franchisor-franchisee relationship. It is: "I did what I said I was going to do. I listened carefully to your concerns and took that into account. And I organized our plan around the input you gave me." Those are the conversations that should happen. When they do, they deliver this collaborative environment where all the parties feel comfortable expressing their views and believing that they were part of the decision-making process.

BMM: Was there ever a time when you decided you needed upgrades, but the franchisee delegates said no? What did you do when you came to loggerheads?

Bachelder: Yes, conflict is a normal part of a franchisor-franchisee relationship. It is to be expected.

We have had numerous topics that were debated over the last few years. The first one that comes to mind is when we debated on whether to move to national advertising. We were a local media only advertiser, and in the fall of 2008 we became a national one. That change was hotly debated and discussed among franchisees and our staff.

We collected facts. We presented them to every demographic market area in the United States, every cooperative, so that they could see the facts for themselves. We asked each franchisee to commit to that decision. We got outstanding majority support. It was not 100 percent, but it was a strong majority. On that basis, we pursued national media, which has been one of the single largest drivers of our sales success over the last four years.

Read Part 2 of the interview with Popeyes CEO: Franchisees Are the First Customer to Serve

More in Blue MauMau's "Leaders" series:

• The Three Legged Stakeholders Chair as explained by Domino’s CEO Patrick Doyle

• Franchisees Should be Equal to Franchisors, Franchisee Aziz Hashim on how to treat franchisees and lift the system

• Engaged Franchisees Key to CKE Success, Hardy's and Carl's Jr CEO Andy Puzder on working with independent franchisee associations

• A Network Designed to Hear, Auntie Anne's chief customer officer Crain and COO Dunn

• Franchisees Run Better Chains, the story of one of America's most successful product launches, the $5 Footlong from creation, supply and national marketing by franchisees. A Podcast interview of Keith Miller, Subway franchisee and past chairman of the North American Association of Subway Franchisees

• Hotel Owners Govern the Brand at Best Western, insights into the complexities of franchisee governance structures by Best Western's CEO David Kong