Counting chickens
Popeyes Louisiana Chicken is coming to SA. Fast-food connoisseurs or unapologetic fans of greasy comfort food will need no introduction, but for the rest, the brand is a global player in the fried chicken segment of the quick service restaurant industry. Its rivals are KFC and Church’s Chicken.
This might interest you: Beyoncé reportedly served Popeyes at her wedding. If that didn’t, this will: Popeyes is owned by Restaurant Brands International (RBI), the company formed from the 2014 merger of Burger King and Tim Hortons.
RBI is controlled by Brazilian private equity firm 3G Capital and, to a lesser extent, Warren Buffett’s Berkshire Hathaway. They forked out Us$1.8bn for Popeyes earlier this year after the epic Unilever buyout flop. Remember, 3G owns Kraft Heinz, which is struggling to increase revenues and is looking for a big, “consumery” deal to keep growing amid a packaged foods industry slowdown.
It was, I believe, the first time 3G had been told to shove off.
Popeyes, which rebranded a few years ago to embrace the brand’s New Orleans heritage, was doing well, raking in about $270m in annual sales. CEO Cheryl Bachelder, who stepped aside after the takeover, took the brand upscale and is largely credited with turning its fortunes around.
The $1.8bn price tag marked a 27% premium based on Popeyes’ 30-day volume-weighted average price as of February 10, the last trading day before potential merger news broke.
According to Bloomberg, the transaction valued the fried chicken chain at more than six times the revenue it generated last year — that’s the highest sales multiple ever paid for a North American restaurant company.
At the time of the deal, Popeyes had a 2,600-store footprint that was 98% franchised, obviously making it less capital intensive.
In Popeyes, the serial deal makers also saw: a) the opportunity for their great hallmark — financial engineering (read: eliminating expenses and squeezing budgets); and b) a brand with a cult-like following that could be scaled up outside the US.
Competitor Yum! Brands, which owns KFC, has been a first-mover when it comes to international expansion; most of Popeyes’ international franchised restaurants are in Canada, Turkey and South Korea.
e:
Local flavour
At both ends of the LSM profile, chicken is big in SA — it’s the most widely eaten and cheapest protein source for South Africans. We consume just over 3.6 Mt of poultry, beef, lamb and pork a year — and poultry consumption represents more than 60% of this.
This is the thing though: chicken is the toughest category to get into when it comes to the food service sector. Kevin Hedderwick still winces when he talks about how Church’s Chicken failed in SA in 2001.
First, the poultry industry is in a crisis due to the import saga, which has put chicken margins under severe pressure.
Next, KFC, Nando’s and Chicken Licken are deeply entrenched. They have — and it’s taken them years — got the flavour profiling right with local consumers and, very importantly, they have great sites.
Still, I reckon Popeyes has a damned good shot: if there’s one thing SA consumers love, it’s a global brand. Also, the company has ex-burger King boss Jaye Sinclair heading local operations. He has the hindsight of what it takes to launch an international brand in the country.