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ATLANTA — In the final of a two-part series, 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.
Bachelder grew as a leader at global front-runners — as assistant brand manager at Proctor & Gamble, brand manager at Gillette, group brand manager at RJR Nabisco, senior vice president at Domino's and then president of KFC. Bachelder joined as CEO of Popeyes in November of 2007, a time when the price of AFC Enterprises shares had been falling since 2005. It fell further as the Great Recession hit the next month. A year later the price of AFC started turning upward, with shareholders and franchisees steadily gaining confidence. It reached a seven-year high this month.
Industry leader Aziz Hashim, CEO of National Restaurant Development Inc., a multi-unit franchise owner of 60 Popeyes, as well as other brands, has said in quiet circles long before this article was ever conceived that Popeyes' CEO is highly regarded by franchise owners for her spirit of collaboration and cooperation. "Cheryl embodies, what I believe is the new paradigm in QSR leadership," he states. Hashim explains what he thinks stands out about Bachelder compared to other quick service restaurant leaders — she and her team watch the profits of a franchise like a hawk. "Cheryl understands the fundamental notion that franchisee profitability is an essential component of brand success." He adds, "If franchisees are not able to grow profits, it weakens the brand over time, whereas healthy franchisees are vital to sustaining brand success over the long haul." Hashim observes that Bachelder is known for her focus on measurable activities to reach key objectives and align franchisees and franchisor behind core goals.
This last year AFC Enterprises has had a stellar performance, beating out the best. The chain's same-store sales have outpaced the chicken QSR category by 430 basis points and restaurant margins have improved by over 200 basis points in three years, says Ms. Bachelder.
"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?
BMM: In leading a chain, what is the pecking order? There are shareholders, franchisees, consumers, and your own employees. Among these stakeholders, where does a franchise owner fit in?
Bachelder: In our business model, we choose the franchisee as the first customer to serve. The reason for that is if the franchisee's interests are not well served, the unit economics does not work. If franchisees cannot invest and get a return, they can't run a restaurant and make money. If those things are true there is no model for the guests, for the shareholders, for us to hire people at headquarters: the business model does not work.
Franchising is fundamentally about the entrepreneur's business model being healthy, growing and successful, so that the rest of the enterprise can thrive. I know that that's not usually the sequence that chain leaders choose, but I've described that reasoning to my shareholders. I've explained to them that if the business model is not healthy for franchises, there will be no franchisees lined up to open new units.
Today, 75 percent of Popeyes new units are being built by current franchisees. That means they believe in the future of the brand. They believe the leadership is sound and collaborative, and they are willing to continue to invest. That's what a shareholder needs to hear from me: that we're going to be able to continue to build new units because the health of our system, which hinges on the franchisee, is good. Everyone is well served when the franchisee business model is working as it should.
BMM: What sort of style works best in gaining authority and leading franchisees? Does leadership in a franchise system demand an autocratic style, like Moses coming down with the Ten Commandments on how to run a restaurant? Or is it a bureaucratic model, like a Wall Street firm that hires and can easily fire its leaders and employees? I should note that "bureaucratic" isn't a pejorative. It simply describes rational authority that is automatically assumed largely by virtue of the function one is hired into an organization [such as operations manager or CEO] . Or is it most akin to a democratic style that is like a prime minister leading bickering peers of a parliament? Which do you think it is?
Bachelder: I have to think on that a minute. There are words I'd use, but they are not political words [like the ones in the question].
First of all, the autocratic method does not work. I've talked often about how leadership is not about personal power or power in position. That does not lead to many followers and it often leads to abuse of power. It is true that every position, including my role of CEO, has power attributed to it. And I must use that position and that power for the health and benefit of the organization, not for myself. So I'm not a fan of autocrats.
Bureaucrats are laughable in franchising because we work for entrepreneurs, and entrepreneurs abhor bureaucrats. They want nimble, quick, decision making that improves the performance of their restaurant. In fact at Popeyes, I think that's a real strong trait of ours. We intentionally have very low general and administrative expenses (G&A). Our G&A is three percent of system wide sales. The industry average is five percent.
We are a small nimble team. If we choose to do a new project, we must stop doing another because we have limited resources of being small. We like that. It makes us focused, quick, and nimble. That is essential in retail. It's essential in franchising. Franchisees cannot have business challenges and then wait six months for somebody to respond.
The business model that we have chosen is a combination of what we call servant leadership and achievement. Our purpose statement says that we want to inspire servant leaders to achieve superior results. It is a concept of operating the business in a way that collaborates with our franchisees and in a way that delivers results better than the competition. They both matter. But I have come to understand and believe that how you do business is as important and perhaps more important as what strategies you choose.
The culture that we have established here as we're growing is one I would say is deeply respectful of the people we serve. It is about the enterprise performing, not about individual performance. It is about coming together. You describe that as democracy. It is the democracy of each person coming together to do their part so that the enterprise can perform in a superior fashion. That's how I describe how we're doing things at Popeyes.
BMM: You've experienced some fascinating things. You were in Domino's Pizza in 1998 when it was sold to Bain Capital. Was there anything interesting that you learned during that period? Of course, nowadays Bain is famous because presidential candidate Mitt Romney comes from there.
Bachelder: Yes, I worked for Tom Monaghan [founder of Domino's Pizza] from roughly 1995 until that transaction in late '97. I then worked for Bain Capital until I left at the end of 2000. What did I learn from that process?
Bain Capital is the most rigorous, analytical company I have ever worked for. They have very talented people on their staff that taught me a lot about how to create shareholder value and how to create business metrics to ensure improving the right things. A lot of what I learned about accelerating new unit growth in the industry I learned in partnership with some of the consulting team members who served on board the business at Domino's. So I have the highest respect for Bain Capital and Bain Consulting. They are very smart people. They are practical and applied people as well.
BMM: Popeyes has done something that your competitors struggle with — finding a balance in replacing aging restaurants in decaying neighborhoods with newer openings in up-and-coming neighborhoods. You seem to be freer to replace aged restaurants than your competitors. How? I mean, does having larger multi-unit franchisees allow you to take a more long term and balanced growth approach?
Bachelder: Well, our system average operator has approximately five operating units in the U.S. That means there are some people who own 1 and some people who own more than 70. It's quite a wide spectrum. I will tell you that the way we have upgraded the real estate of our system is by the performance of our business. As the business has grown both top line and bottom line, it's easier to make decisions to close and exit a poor-performing, low-volume restaurant that's outlived its trade area, because there are new vibrant trade areas to go to build high value Popeyes and a brand new image.
Today, I would tell you that our new unit restaurants are opening at 40 percent higher volume than the average Popeyes. And our closures are roughly 60 percent of our average, so every new unit opening is improving our system and making it stronger. We have done that by being rigorous users of data. We have a [market] model that profiles every trade area and every specific site we evaluate. We have purchased that model from a company called Birchwood in the industry. We keep that model up-to-date so that its predictive powers remain strong. With that we can evaluate either a current restaurant or a site for a new restaurant and get a strong sense of its future performance. That is the real heart and soul of how we've improved the performance of units — by choosing the real estate more wisely than ever. And choosing not to scrape and rebuild or open on a poor performing trade area with a poor piece of real estate.
BMM: Describe to me your strategy going forward internationally. Yum Brands, particularly the KFC brand, has concentrated on developing in international markets. Their international units, particularly restaurants in China, do higher volumes on average than those in the United States. Is Popeyes looking for a big splash in Japan, China or India?
Bachelder: Our strategy is to fully exploit the growth opportunities here in the United States, of which there are many. I've said publicly on a number of occasions that we have the opportunity to double our footprint in the United States. That is our first priority.
After that, we have opportunity to rapidly expand around the globe. Popeyes will do international expansion the same way we have done domestic expansion. It will be based on a sound foundation of strong unit economics for the owners, strong real estate for every opening, profitability in every restaurant, so that I am attracting franchisees that go from country to country who can expect a top performing business model in their country. I think for Popeyes, it is exciting to be part of the second wave of quick service restaurant international development. McDonald's and KFC have been there forever. Our brand performs very well in large, fresh, flavorful and festival kinds of environments that we create in our restaurants, whether it is in Dubai or Singapore.
Read Part 1: Popeyes Bachelder Lifts Franchisee Profits
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