Why the Popeyes chicken sandwich changed everything

During the holiday season, we at QSR and FSR often get asked the same question from family and friends. Do you review restaurants for a living? Nope, not ever. In fact, I’ve probably only dined at about 10 percent of the brands I write about regularly.

Personally, I’ve worked here for nearly five years and my father still isn’t sure what I do. He asks me every week. But that all changed recently. And you can thank the Popeyes chicken sandwich.

With help from YouGov, I recapped the buzz around the deal in October, and ended up ranking atop Google searches (somehow). My dad read this piece from start to finish. Call it a fried chicken breakthrough of sorts.

While this is an offhand example, it got me thinking about the Popeyes deal and fast food in general. One reason I love this industry is because it’s truly a part of the country’s fabric. Nothing is more American than quick-service restaurants. And you can take the pulse of the consumer, across all industries, by seeing how they eat. Wonder how the economy is going? Look to foodservice. Right now, you’re seeing a guest willing to spend more on experiences, whether that’s dine-in or through delivery. It’s also why restaurants are covering traffic gaps by raising prices, and seeing less kickback than past years. But is there a ceiling? What if we hit a recession and consumer confidence comes down? That’s really going to define this coming decade. And we don’t have the answers just yet. What we do know is we’re not there yet, which is good news for operators. Two-year comps are proving stable despite 2019’s challenges, according to TDn2K.

“Given the relentless erosion of guest counts, the industry is holding its ground surprisingly well when it comes to sales in the most recent months,” TDn2K VP of insights and knowledge, Victor Fernandez, said. “The reason has been the acceleration in guest checks year over year. Consumers have signaled they are willing and able to spend increasingly more every time they eat out.”

That’s the current dynamic nailed to a tee. The question is, will it last?

With all of that said, I thought it would be fun to recap the three top news headlines of 2019 for QSR.

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Just how big of a deal was Popeyes’ chicken sandwich?

In the years I’ve been covering restaurants, this might just be the craziest development I’ve seen. It mirrors IHOP’s IHOb name switch to me. You really can’t understate how brilliant the marketing was. What Popeyes did better than anybody, maybe ever, was create a call to action through social media engagement. Not just here’s this awesome sandwich and creative campaign to go with it, but let’s go after the chicken king (Chick-fil-A) and incite a battle people want to participate in. By taking on Chick-fil-A directly, Popeyes catered to the tribe mentality of social media, and this idea that we’re all superstars on our own platform (in our own minds).

People didn’t just want to try the sandwich, they wanted to take a side, and tell everyone what they thought. Did we really need to know what our neighbor felt? No, but you can make that argument for 98 percent of the posts people write on Twitter. And Popeyes tapped into it masterfully. Once the chain did so, though, it erupted beyond what it was prepared for, with Popeyes selling out just two weeks after launch. It served as many chicken sandwiches in that span as it expected to dole out through the end of September. Apex Marketing Group estimated that Popeyes reaped $65 million in equivalent media value—nearly triple the $23 million media value the sandwich generated in its first few days of sale, according to the company.

Placer.ai found that on August 20 and August 21—just over a week after the Chicken Sandwich’s debut—traffic to Popeyes branches nationwide rose 67.6 and 103.3 percent, respectively, above the company’s summer baseline.

Also give Popeyes credit for leveraging the sold-out story to keep interest flowing until it could fix its supply chain issues. The chain’s 30-second “BYOB” advertising launch, which was an offbeat follow-up to the sandwich selling out, gave Popeyes a boost in awareness and stirred up anticipation. The chain lightly encouraged guests to bring their own bun to make a sandwich with Popeyes’ well-stocked chicken tenders. At the start of August, 19 percent of Americans said they saw an ad for Popeyes. By September, the number jumped to 28 percent.

Did this generate sales in addition to attention? Without question. In Q3, Popeyes reported one of its best quarters for U.S. same-store sales in two decades, with a 10.2 percent increase.

But perhaps the biggest key is what Restaurant Brands International CEO Jose Cil explained recently. He said trial is a top obstacle to purchase intent for Popeyes, but that research shows that customers who try the brand’s food love it and come back for more. The Chicken Sandwich proved enormously strong at driving trial from customers, “many of whom had never experienced the brand or its Cajun-influence menu before,” he said.

In response, Popeyes saw a lift in business for bone-in chicken, tenders, beverages, and even desserts last quarter.

To recap, the chicken sandwich was simply one of the greatest marketing stunts in fast-food history.

Steak ‘n Shake temporarily closes restaurants

This story really began in October 2018 when Steak ‘n Shake dropped a stunner on the restaurant franchising world. In an effort to foster an entrepreneurial spirit throughout its organization, the company said it would start selling corporate stores to franchisees for a mere $10,000. The idea being to create a single-operator system similar to the one Chick-fil-A deploys. Essentially, a restaurant company where every unit is run by someone heavily invested in its success.

By September 2019, 106 of those units were temporarily closed as owner Biglari Holdings actively worked to “identify franchise partners for these stores.”

While hopefully a good move for the future of the classic restaurant chain, founded 1934 in Normal, Illinois, it took a toll on the bottom line in 2019. On December 31, 2018, the brand had 413 company-run restaurants and 213 franchises. Today, there are 302 corporate stores and 217 franchises. So, 626 versus 519. This includes the permanent closure of five company locations. Steak ‘n Shake shuttered 111 corporate units this year alone, more than a quarter of the restaurants it ran to start 2019.

The chain lost $861,000 in Q3, less than Q3 2018’s $3.2 million. However, for the first nine months of the year, Steak ‘n Shake was down $22.776 million versus $1.5 million in the comparable period.

Why was this a critical move? Steak ‘n Shake was headed in the wrong direction. Last year, for the first time since 2008, restaurants took a loss in operating earnings at $25.8 (in dollars in 000s). As a company, the figure was negative $10,657. It was negative $30,754 in 2008 before trending positive year-over-year until 2018.

The temporary closures also dropped Q3 net sales to $136,651, a decrease of $49,717. Measure it across the first nine months of the year and Steak ‘n Shake’s result is $454,344—a sizable difference of $109,392 compared to the year-ago period.

While this is happening, Steak ‘n Shake’s current base is struggling to generate momentum as well. Q3 Same-store sales fell 6.5 percent, year-over-year, as traffic plummeted 13.3 percent. So far this year, the brand’s comps are tracking negative 6.4 percent, with traffic approaching a double-digit sink at 9.7 percent.

This concerns company-run restaurants open at least 18 months, providing a glimpse into why Steak ‘n Shake is so eager to refranchise mature, in-house units.

As far as what this means for the future of the chain, it’s hard to say right now. The company has not provided a hard timetable or benchmark for refranchising. Some units could close, too. It’s just difficult to predict from where we stand today. But it’s a story worth tracking this coming year for sure.

McDonald’s new tech is about to change the restaurant industry

When McDonald’s forked up $300 million for decision-logic company Dynamic Yield in late March, it sent an eyebrow-raising ripple throughout the restaurant landscape. Firstly, the fast-food giant might have deep pockets (a market value of $142 billion), but it doesn’t dip into them for acquisitions very often. That’s an understatement. Prior to the deal, McDonald’s last sizable purchase was a $173.5 million move for Boston Market. That was 20 years ago (McDonald’s later sold the chicken brand to Sun Capital Partners).

The other obvious question was, why did McDonald’s spend brand-acquisition-type dollars on a tech platform?

It’s simple, really. McDonald’s had to evolve with its changing market and consumer dynamics. Incremental progress just wasn’t going to cut it. In other words, the brand needed to play one step ahead instead of using scale to catch up to more innovative companies.

That’s something McDonald’s has struggled with in the past—this notion of the pace of change inside restaurants being eclipsed by the pace of change outside.

In the past two years, McDonald’s has been among the most forward-thinking companies in all of foodservice. The chain spent much of 2018 investing in broad—and often expensive—initiatives meant to keep McDonald’s ahead of a rapidly changing consumer. An attempt to restructure and be closer to guests, and faster at the point of impact.

Dynamic Yield, in particular, is a big bet on machine learning—the idea that it’s not just a passing fad, but will become the backbone of customer service and marketing for restaurant chains everywhere. Shyam Rao, the co-founder and CEO of Punchh, a widely used loyalty platform for brands, called McDonald’s purchase of the company its “Amazon moment,” saying it would be remembered as the point at which the brand became so good at anticipating and catering to consumer behaviors and desires that it would force other competitors to evolve or fall by the wayside.

Dynamic Yield puts predictive abilities into McDonalds drive-thru menuboards. It gives McDonald’s the chance to create a more personalized experience by varying outdoor digital drive-thru menu displays to show food based on time of day, weather, current restaurant traffic, and trending menu items. It can instantly suggest and show additional products to a customer’s order based on their current selections.

The plan is systemwide integration at the drive thru by year’s end. This is really a huge deal for McDonald’s. But also for fast-food restaurants in general. The drive thru remains one of the classic components of the industry, and where upward of 70 percent of sales flow through, but it hasn’t evolved as much as some other in-store elements.

AI and the upselling capabilities that follow could be the unlock operators have searched for. Here’s a look at just how much revenue this tech could drive for McDonald’s. And it’s only the beginning.

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