Fast Casual | November 2013 | By Mary Avant

Poultry Goes Premium

With sophisticated menu items, upgraded interiors, and a laser focus on the customer experience, the chicken segment is moving upmarket.

Zaxby's CEO Zach McLeroy has built a premium fast casual chicken brand.
Zaxby’s CEO Zach McLeroy says the brand’s cook-to-order process differentiates it from other chicken brands. Shannon McCollum
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For some brands, losing the long-held title of No. 1 limited-service chicken chain would feel defeating. But when KFC gave up its leading role this year to fellow quick serve Chick-fil-A, it wasted no time in getting back on its feet by introducing Original Recipe Boneless Chicken—a platform it hopes to make the brand’s biggest focus over the next few years—and, perhaps most noteworthy, by unleashing KFC eleven.

The fast-casual spinoff, which debuted in August in KFC’s home market of Louisville, Kentucky, serves menu items like Sweet Orange Ginger Flatbreads, California Club Chicken Sandwiches, Southwestern Baja Rice Bowls, and Garlic Smashed Potatoes, all made fresh to order in front of guests (and with hardly a single bucket of fried chicken in sight). The sleek interior features wood detailing and a softer color scheme of browns, whites, and greens. Inviting details like art installations and free WiFi encourage guests to kick back and stay awhile.

KFC’s new sister concept is not only proof that even the most storied and traditional brands in quick service are feeling the need to experiment with fast-casual elements—just look at Wendy’s remodel, which includes fireplaces, lounge seating, and HD TVs—but is also a sign that the limited-service chicken segment as a whole is taking on a more premium image in terms of product, service, and environment. Chick-fil-A, Popeyes, and other chicken quick serves have also shown that the premiumization of chicken—whether in the traditional sense of fast casual or not—is in full flight.

El Pollo Loco, a Mexican-style grilled-chicken chain, shies away from calling itself a fast casual, even though it offers premium, fire-grilled, citrus-marinated chicken products in an upscale environment.

“We operate in a place called ‘QSR-plus,’” says Ed Valle, chief marketing officer for the nearly 400-unit chain. “‘QSR-plus’ is a place where the need for distinctive, authentic food meets the need for speed. And the ‘plus’ means better service, better food, and better environment.”

It’s the product side of the equation in particular, thanks to consumers’ increasingly sophisticated palates and thirst for food that’s high quality and unique, that lies at the heart of the push for premium chicken, many industry experts say.

“The consumers are looking for a better product now. They’re more educated; they’re more mobile than they used to be,” says Heather Gardea, vice president of research and development at El Pollo Loco. This shift, she says, benefits the grilled-chicken brand. “We were in a sweet spot to be there before our competitors because we already brought in fresh chicken, we already marinated it by hand, and we fire-cooked it.”

At El Pollo Loco, this emphasis on fresh ingredients and authentic preparation methods is key to the brand’s premium image. The chain has not only upped its take-home meals game—adding superior salads with fresh ingredients like whole avocado, applewood-smoked bacon, pico de gallo, chopped romaine, and made-from-scratch dressings—but it also created new forms of familiar products and existing lines, such as tostadas and quesadillas with bell peppers, onions, and chorizo.

At Zaxby’s, a 23-year-old, Atlanta-based chicken concept that CEO Zach McLeroy calls “the pioneer of premium, fast-casual chicken”—a pioneer that just this year passed the $1 billion sales mark for the first time—it’s the freshness and authenticity of the ingredients and menu items that give it an upscale edge.

“Our food is just premium,” he says. “It’s cooked to order, it’s fresh, unlike what anybody else is doing. Everybody else is cooking out of the bag or cooking in advance. That wasn’t our idea. Our idea was to make it fresh for our guest, and I think it’s what separates us from everyone else in the industry.”

The brand’s emphasis on preparing food in-house also motivates its cooks and kitchen staff, which ultimately translates to a more premium experience for the guest. “It’s something that gives our cooks and our kitchens a sense of pride and differentiation from someone who works in fast food,” McLeroy says. “They’re actually creating things; they’re not just pushing buttons and grabbing something out of a box.”

Popeyes Louisiana Kitchen has discovered that it’s not just what the product is or how it’s made that creates an upscale menu offering, but it’s also about the inspiration behind it. When it launched a major rebranding effort five years ago, Popeyes went back to its Louisiana roots, which global brand officer Dick Lynch says inherently made the chain more premium.

“When you think of the great Louisiana Cajun and Creole food, it is by its nature not expensive, but it’s certainly premium because it’s an interesting regional American cuisine,” he says. “As we used that as our inspiration, we just naturally heightened the culinary bar in [quick service]. We raised expectations about what you can and should expect from chicken [quick serves].”

Lynch says Popeyes is focused on premium product platforms like its Wicked Chicken, Butterfly Shrimp, and Handcrafted Tenders, all of which it continues to innovate through a range of flavor proliferations (such as Garlic Pepper Wicked Chicken, Zatarain’s Butterfly Shrimp, and its most recent release, Chicken Waffle Handcrafted Tenders).

Though chicken is the natural focus for brands in the segment, premiumization is coming on the non-chicken side of the menu, too. For guests looking to indulge, the addition of high-quality desserts—namely, milkshakes—has lent a high-end feel to many chicken chains’ menus. Zaxby’s recently replaced its standard milkshake menu with the popular Birthday Cake, Banana Pudding, and Chocolate Cookie flavors, which helped the brand grow from an average 12 shakes sold each day per store to more than 50. Chick-fil-A has also been expanding its milkshake game over the years, adding a Mocha Milkshake as a recent limited-time flavor.

Aside from desserts, a notable portion of innovation in the premium chicken segment has centered on wraps and salads, says Darren Tristano, executive vice president of foodservice research firm Technomic. With a growing minority of limited-service customers looking for healthier options in all segments of the industry, nutritious offerings, whether in the form of grilled chicken, salads, or other better-for-you menu items, play a role in the upscaling that’s underway in the chicken segment.

Zaxby’s has capitalized on the desire for healthy products with the rebranding of its salad lineup, which it gave the name “Zalads” several years ago.

“Literally overnight, we went from selling about 30 a day per store to over 130, and I think that number tops over 200 in some of our outlets today,” says COO Robert Baxley. “It’s a product that we haven’t been satisfied with where we are. We’ve just been constantly moving the needle on that.”

Chick-fil-A has also been mixing up its salads, scrapping the old lineup entirely and opting for a trio of hand-prepared salads, along with a new wrap and fresh dressings, earlier this year. The salads include premium ingredients like roasted corn kernels, crumbled bacon, blue cheese, and honey Thai almonds.

Because it specializes in grilled products, Valle says, El Pollo Loco gets an added benefit from serving these items to consumers who crave something both healthy and higher quality. “The nutritional part is very important for people when they think about the flavor from the grilled chicken [combined] with the nutritional benefits of it,” he says. “For us, that combination has worked exceptionally well over the last two years in terms of how our business is doing.”

But the use of grilled and otherwise healthy products in the chicken segment isn’t the only way to up the premium game, and it certainly won’t push traditional fried chicken aside, says Dennis Lombardi, executive vice president of foodservice strategies for restaurant consulting firm WD Partners.

Popeyes is one brand that’s proved that even bone-in fried chicken, a product that often has the stigma of cheap fast food served in bundled family meal deals, can reach new heights when given the proper attention. Its Bonafide Chicken, marinated in Louisiana seasonings for at least 12 hours then hand-battered and hand-breaded, has taken on a premium image that’s paid off handsomely.

Though Popeyes’ boneless chicken business has grown between 10 and 20 percent in volume over the past three years, Lynch says, its bone-in business has increased nearly 10 percent, too. “We don’t feel the need to make a choice between bone-in, which is the core of the fried chicken business, and boneless,” he says. “We believe in what we call ‘the genius of the and,’ and our numbers prove it.”

Its focus on upscaling both sides of its chicken business—bone-in and otherwise—has helped Popeyes outperform the rest of the quick-service chicken category in sales growth for 21 straight quarters.

“If anybody is waiting for fried chicken on the bone to go away, they better get comfortable, because it’s going to be a really long wait,” Lombardi says. “It’s a very popular product; it’s going to stay a popular product.”

Though product is certainly king in the quest for premium, brands are discovering that creating an upmarket chicken concept isn’t all about the food. For many chains and customers, the atmosphere, physical appearance, and service weigh heavily, too.

McLeroy says Zaxby’s “curb appeal” lies in the experience and atmosphere that greet guests when they walk through the door. “It’s very much a casual-dining experience served fast,” he says. The brand’s big, comfortable booths and attentive team members offer “a different level of service” that doesn’t hurt either, Baxley adds.

At Chick-fil-A, going premium is all about making guests feel special both in the store and at the drive thru, whether it’s through good-quality food, being treated with respect and concern, or having the ability to relax in a comfortable environment, says Mark Moraitakis, director of hospitality and service design for Chick-fil-A.

“When we think about ‘premium,’ we think about those areas of the business: our food, our hospitality, our environment,” he says. “We want to make sure we have food that tastes really good … and we want to have people who care that serve that great-tasting, craveable food.”

Everything from the exterior of the units to the number of tables inside can influence the atmosphere and the overall customer experience, Moraitakis says. In an attempt to deliver a high-end experience at all touch points, Chick-fil-A provides relaxing interiors, WiFi, and double drive-thru lanes to speed up service when customers are in a hurry—all in addition to employees who go the extra mile to serve guests and guarantee the best experience possible.

The brand’s ascent to the top spot in the limited-service chicken segment further proves that customers tend to reward brands that go above and beyond to deliver on both product
and service.

“Ultimately, people like to spend money where they feel it’s appreciated,” Moraitakis says. “Our focus is on making sure when you choose Chick-fil-A, you feel like you’ve gotten your money’s worth and that you were truly valued and appreciated.”

Beyond product and experience, chicken chains are even taking an upscale approach to marketing and branding. El Pollo Loco, for example, has adopted new imaging and advertising that communicate the aspects of the brand that differentiate it from others in the segment.

“We’ve remodeled about a quarter of our stores and we’ve created within the stores something called the ‘customer journey,’ where we really talk about the great lengths we go through to make this great chicken,” Valle says. “We educate them from when they hit the door all the way through to the counter, past the salsa bar, to when they’re actually sitting. We communicate that it’s great chicken—the way we cook it and with the great lengths we go to—that makes great entrées.”

Though the brand once marketed itself like a quick serve, with an emphasis on pricing and discounts, it now focuses on premium touch points, “from remodels on the outside to remodels on the inside to POP that doesn’t talk about price but talks about the differentiation of our product,” Valle says.

A large chunk of Popeyes’ rebranding initiative involved altering both its image and advertising, which it’s done through a new spokeswoman, Annie, who focuses on the premium elements of the brand’s food and heritage in advertisements.

“All she does is talk about the care and the quality of the food,” Lynch says. “While other [quick serves] are telling you other messages about their brands, … we talk about the food and our Louisiana distinctiveness with laser-beam focus.”

The brand also brought its elevated image to life through a restaurant remodel that’s nearly halfway complete. New and remodeled units feature elements such as a center-of-the-store spice rack with decorative, oversized jars of red peppers, rice, and other Louisiana spices that make Popeyes’ food distinctive; wall murals that tell the brand’s heritage; and mosaics that represent the seven cultures that melded to form Louisiana.

In addition, the brand redesigned its logo, scrapping the name Popeyes Chicken & Biscuits in favor of Popeyes Louisiana Kitchen and bringing in a new red and orange color scheme. In 2011, the logo redesign was cited by the Smithsonian as one of the 15 best brand refreshes in the past 15 years.

With all of the elements that combine to deliver an increasingly upmarket experience at chicken chains, Lynch says, some customers may assume premiumization comes at the expense of their wallets. But Popeyes sees “premium” as something that makes a concept more desirable and authentic, not more expensive by default, he says.

“It means something different, something better, something unique, something distinctive,” Lynch says. “But it doesn’t necessarily mean a higher price point. And that’s a little part of our magic, that we’ve been able to give our customers something … different, distinct, unique, elevating, but providing them at a price point that’s very competitive.”

Chicken brands offering higher-quality products do need to face the fact that serving an upscale product and experience can mean that the costs—both to the business and to customers—inch higher. Fortunately, so does the value.

“I’m not hyper-focused on whether our cost of goods are the lowest in the industry, because I think if we’re going to be truly offering a premium product, that should be represented on the P&L,” says Blake Bailey, CFO of Zaxby’s. “We’re not hyper-fixated on cost; we’re hyper-fixated on value and providing that to the guest.”

Perhaps it’s the value aspect that’s made customers feel most comfortable with the shift toward premium chicken concepts, a shift that’s only set to grow as more upscale chicken chains hit the market and regional players like Bojangles’ continue to expand nationwide.

Tristano says the emergence and growth of premium regional chains like Bojangles’ and PDQ—a Florida-based brand whose large units deliver hand-cut salads and hand-squeezed lemonade to the tune of AUVs upward of $2.5 million—not only expand the upscale image of limited-service chicken, but can also be a real threat to chains within the segment.

“Traditional [quick-service] and chicken restaurants are struggling,” El Pollo Loco’s Valle says. “The people that serve more distinctive food; that have more real ingredients; that do more authentic preparation; that have food that people look at as bold, flavorful, and with nutritional benefits are the ones that are going to succeed.”