FDD Talk 2015: The Popeyes Louisiana Kitchen Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

In this FDD Talk 2015 post, you’ll learn the following:

• Section I – Background information on the Popeyes Louisiana Kitchen franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Popeyes Louisiana Kitchen franchise, based on Item 7 of the company’s 2015 FDD

• Section III – Presentation and analysis of Popeyes Louisiana Kitchen’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:

• 2014 average sales for free-standing, in-line, convenience store, mall food court, and other food court Popeyes Louisiana Kitchen Restaurants (company-owned and franchised) that were open throughout the company’s fiscal year ended December 28, 2014 and not closed at the end of the fiscal year

• 2014 average sales, food and paper costs, labor costs, controllable costs, marketing costs, non-controllable costs, and restaurant operating profits for 1,142 franchised free-standing Popeyes Restaurants and 46 company-owned free-standing Popeyes Restaurants that were continuously operated during the period from December 30, 2013 through December 28, 2014

Section I – Background Information

Popeyes finally owns its own recipes.

In June 2014, Diversified Foods and Seasonings LLC, the supply company owned by the estate of Popeyes founder Al Copeland, sold Popeyes Louisiana Kitchen Inc. the recipes the chain uses to prepare many of the core items on the menu. Previously, the company paid a $3.1 million royalty each year. The purchase price was $43 million.

The exclusive supply agreement with DFS to manufacture and supply the spices and other Popeyes ingredients was also extended.

“With the cooperation of the Copeland family, this transaction now brings important intellectual property – Popeyes’ core recipes – under brand ownership for the first time in our company’s history,” CEO Cheryl Bachelder said.

“The purchase eliminates the $3.1 million annual royalty that was previously scheduled to be paid by the company until 2029,” Bachelder said in a press release. “The supply terms beyond 2029 were uncertain. Popeyes now owns its recipes in perpetuity for use worldwide and has clarity of supply and pricing terms through the balance of the supply agreement. We thank the Copeland family for reuniting these treasured recipes with the brand Al Copeland Sr. created.”

500 International Locations

Popeyes Louisiana Kitchen finished 2014 with 2,379 operating restaurants in the U.S., Guam, Puerto Rico, Cayman Islands and 26 other countries. Popeye’s surpassed 500 international restaurants in 2014, including 80 new international locations.

The chain opened 201 stores in 2014 and expects to open 200 to 225 in 2015, 85 to 95 of which would be international locations.

Switching Recipe, Name Sparked Popularity

Popeyes began in 1972, when Copeland started serving Southern fried chicken in his restaurant, Chicken on the Run, in Arabi, Louisiana, a New Orleans suburb. Copeland did better with a switch to spicy New Orleans chicken and a new name. Popeyes was inspired by Popeye Doyle in the movie “The French Connection,” but the chain later acquired the rights to use the cartoon character Popeye in its marketing (that relationship later ended).

Popeyes entered Canada in 1984 with a restaurant in Toronto, Ontario. The chain’s 500th restaurant opened in 1985 in Landover, Maryland. In 1991, Popeyes opened its first restaurant outside North America in Kuala Lumpur, Malaysia. Popeyes reached 1,000 locations in 1999 and 2,000 in 2011.

The chain was purchased in 1992 by America’s Favorite Chicken Company (later AFC Enterprises Inc.). AFC Enterprises changed its corporate name to Popeyes Louisiana Kitchen Inc. in January 2014, reflecting the name used in the restaurants since 2008.

Pregnant Fired Employee Strikes Back

Marissa Holcomb, the pregnant Popeyes manager who was fired in March 2015 after an armed robber stole $400 from a Houston Popeyes, is asking the company to pay her $5.5 million in damages to avoid a lawsuit.

The restaurant was robbed March 31 when a man with a gun ordered employees to the floor and stole nearly $400 from the cash register, at one point holding a gun on Holcolm. The Houston Chronicle reported April 30 that Holcomb was told she had to make up the loss because she had left too much money in the register drawer, but she refused and was fired.

Popeyes reported April 22 that the franchise owner had apologized to Holcomb and offered to rehire her, but she instead started working at a different Houston Popeyes.

Red Stick Chicken Tells a Story, Inspires an App

Popeyes brought a story to the menu in March 2015 when it added Red Stick Chicken as a limited-time offering. Tabasco peppers, harvested on Louisiana’s Avery Island, are grown until their color matches a little red stick painted the shade of a perfectly ripe pepper. Red Stick Chicken features premium chicken tenderloins marinated in a cayenne and Tabasco pepper blend before being battered, breaded and fried.

Popeyes and agency partner Mithin launched a mobile app, “The Red Stick Staredown, A Game of Chicken,” which uses facial recognition technology to get players into a staring contest with a chicken. The game is available for iOS and Android devices.

Also new or returning limited-time offerings:

• Popeyes Butterfly Shrimp Tackle Box, February 2015.
• Ghost Pepper Wings, December 2014.
• Buttermilk Biscuit Butterfly Shrimp, October 2014.
• Beer Can Chicken, September 2014.
• Chicken Waffle Tenders, May 2014.

Leadership Changes

Popeyes Louisiana Kitchen Inc. made a number of corporate leadership promotions and appointments in the past year and a half.

• John K. Merkin was appointed as chief operating officer-US in March 2015. Andrew G. Skehan was promoted to president, international, in March 2015.
• William P. Matt was named chief financial officer in August 2014.
• Vice President of Marketing Hector Munoz was promoted in September 2014 to vice president and chief marketing officer-US.
• H. Melvin Hope III, senior vice president and chief financial officer, left Popeyes in May 2014 to explore other opportunities.
• Ralph Bower, the company’s U.S. president, resigned in August 2014 to accept a new position.
• Todd Burke was named vice president of corporate communications in July 2014.

Section II – Estimated Costs

• Please click here for detailed estimates of Popeyes Louisiana Kitchen franchise costs, based on Item 7 of the company’s 2015 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis