Industry News | August 16, 2012 | QSR Exclusive Brief

Popeyes Reports Double-Digit Sales Increase in Q2

Though Popeyes Louisiana Kitchen is continually growing and constantly improving, President Ralph Bower says consistency is hands-down its key to success.

“For four years, we’ve been consistently focused on the same strategic plan,” he says, referring to the brand’s four-pillar strategy that aims to build a distinctive brand, run great restaurants, grow restaurant profits, and accelerate quality restaurant openings. (A fifth pillar was added this year to create a culture of servant leaders).

“The franchisees understand that plan; all of our teams understand that plan, and the fact that it hasn’t changed has really allowed us to get some traction,” Bower says.

In fact, the brand saw a net income of $6.6 million in Q2, compared with just $5.5 million in the same quarter of 2011, Popeyes reported in its second-quarter earnings call this morning.

In addition, Popeyes experienced global same-store sales increases of 7.5 percent—up from just a .7 percent increase in Q2 last year—as well as global system-wide sales growth of 11.5 percent.

Domestic same-store sales increased by 8.4 percent in Q2, outpacing its chicken quick-serve competitors for the 17th consecutive quarter and the quick-serve category in general for the third consecutive quarter.

Internationally, same-store sales increased by .9 percent, representing the 10th consecutive quarter of positive same-store sales.

Bower says this growth is in part based on a move toward national marketing in 2008 that has helped build a stronger brand and doubled advertising awareness.

He also says restaurant operations have never been better, with speed of service reduced by two minutes throughout the quarter. By the end of Q2, 75 percent of domestic restaurants attained a drive-thru service time of less than 180 seconds.

Bower says the brand will continue on this growth path by focusing on product innovation and offering a “fair value” to customers.

“That doesn’t mean low price points that aren’t profitable,” he says. “But it does mean fair price points that are attractive to the consumer and can be possible for our franchisees.”

In Q1, Popeyes franchisees also saw their highest profit margins ever recorded since the brand began tracking the metric four years ago, despite commodity cost inflation of 2.5 percent. These margins are projected for the second quarter, as well.

In today’s earnings call, Bower said the penchant for high top-line sales puts Popeyes in an “enviable position” to navigate through the current commodity situation, which stems mostly from the rise in corn prices due to drought conditions in the Midwest.

Bower said the company has locked in corn and meal prices through September, and the brand’s supply chain partners are actively adding additional coverage through the remainder of the year as prices fluctuate.

He said in the call that the brand expects to see higher commodity costs in the second half of 2012, “resulting in a 3 percent increase in food costs for the year.

“And while you would normally expect that increase to have a 1 percent impact on full-year restaurant operating profits, we believe … that strong top-line sales performance, supply chain savings, and in-restaurant control will more than offset that effect,” he said.

Though the brand opened 51 new units by the end of Q2, Bower says development—especially domestically—is still a top-of-mind priority.

“We’re fairly underpenetrated in many markets throughout the country,” he says, noting that its largest competitor has almost three times the number of domestic restaurants as Popeyes (which has almost 1,650 locations across the country).

“We feel like we have a lot of room for expansion in our existing markets, but we also have room in markets where we have little or no restaurants,” such as Indianapolis, where the brand has one company-owned unit, Bower says.

He says this growth potential and focus on domestic expansion is what sets Popeyes apart from other quick-serve brands.

“If you look in QSR today, most folks are really focused on the international growth opportunity,” Bower says. “And while Popeyes definitely has that opportunity—our taste profile lends us to a bigger international presence—we also have the ability to more than double in size domestically, and that’s why I think our story is particularly exciting.”

Popeyes is also trying to ramp up business with its recent reimaging project that capitalizes on its unique Louisiana heritage. By the end of Q2, 14 percent of Popeyes’ domestic locations had incorporated the new brand image, and it hopes that one-third of U.S. units will have the new restaurant image by the end of the year.

Bower says the remodel should see 90 percent domestic involvement within 36 months, due in part to its low cost.

“We’re very proud of the fact that our remodel can be done for less than $100,000 in the average restaurant,” he says. “In the QSR industry today and with the restaurants of our size and type, generally what you see is $200,000 and $300,000 or more for a remodel.”

Another improvement Popeyes made this year involved its Guest Experience Monitor (GEM) process, a customer satisfaction measurement that was revised in the first quarter. So far, the brand had seen twice the number of guest survey responses, and in Q2, 70 percent of guests said they were “overall delighted” with their Popeyes experience.

While Bower says this number is average for many brands, he wants to see the brand reach 85 percent “delighted.”

“We’re happy with the progress we’ve made, but we’re focused on continuing to improve our guest experience to that upper echelon of QSR,” he says.

He even points to guest experience as the area in which Popeyes has the most room for improvement. The first step, he says, is making sure the employees are taken care of.

“One of the things that we say is that your guest experience will never exceed your team members’ experience,” he says. Bower wants Popeyes to be a fun place to work “so that when our guests come into the restaurants, they can see that and we can deliver that same happy, fun experience to our guests.”

By Mary Avant