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Profit Margins Up for Popeyes Franchisees

Popeyes Louisiana Grill
photo/bmm

ATLANTA – During a consumer conference presentation in New York on Wednesday, Popeyes CEO Cheryl Bachelder spoke about the importance of focusing on franchisee profits and operating performance. She said she had never seen a successful franchisor that was at war with its primary operators, its franchisees.

"We want to be a great franchisor," said Bachelder. "That's not just holding hands. We make them money," she emphatically told analysts this week in New York.

Her franchise system is able to watch the financial health of its franchisees to help know what efforts add or detract from their bottom line. How have Popeyes franchisees done? Consider this: At the end of last month Popeyes Louisiana Kitchen, Inc. (NASDAQ:PLKI) reported domestic franchisee EBITDAR profit margins were up over the same period the year before. Average restaurant operating profit margins of Popeyes domestic freestanding franchised restaurants before rent was 21.3 percent in the fourth quarter 2013 compared to 20.1 percent the previous year, and 21.6 percent for the full year 2013 compared to 20.4 percent in 2012.

The Popeyes CEO thinks that technology has reached a point where defining and monitoring business activity is much easier than just a few years ago. "Thank God for the Cloud and the Web," declares Bachelder. Each of the franchise owners receives a report of its profits and can compare bottom line performance to the rest of the system.

The franchisor reported that domestic same-store sales  in the first quarter of 2014, which ended April 20, 2014, increased 4.3 percent compared to 4.5 percent last year. The company said that it now expects same-store sales to grow a percent higher in 2014 over its initial guidance estimate of 2 to 3 percent.

Total system-wide sales increased by 10.9 percent.

"Despite the weather, our freshly remodeled restaurants, our superior food at sharp price points, and our national advertising served up strong performance. In this quarter, we saw positive same-store sales, continued gains in market share, and higher restaurant profitability," said chief executive officer Cheryl Bachelder. "We are excited about the growth Popeyes is experiencing, and so are our franchisees. Our momentum continued with 27 new restaurants added to our system this quarter, on top of the 194 restaurants opened in 2013. These new units are averaging volumes higher than the system average, and are delivering record franchisee profitability. These unit economics are fueling the growth of the brand."

Because the profits are there to buoy up franchisee investment, the chain is seeing store remodeling that is at a faster pace than just about anyone, according to the CEO. Out of 1,735 domestic franchises reported at the end of the first quarter, Bachelder says some 550 stores remodeled last year.

What are the results of listening so intensely to the needs of franchise owners and their profits? CEO Bachelder explains that third-party evaluators say that by the end of the first quarter 2014​, Popeyes has cut out a 2.1 percent larger slice of the market from its chicken competitors. Its domestic chicken-QSR segment reached 22.3 percent compared to 20.2 percent in the prior year.

Look out KFC.

The Popeyes leader thinks that creating new menu items is a recipe for success. "I believe we have become a great innovation leader in the quick service restaurant arena," said Bachelder to analysts at the PiperJaffray Consumer Conference on Wednesday. She said that last quarter they tested some 85 different menu items. "We are a prolific kitchen," she stated.


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