Industrial Overview:

Pandemic world wide for Popeyes distribution

The coronavirus (COVID-19) pandemic is causing increasing damage to the global restaurant industry. Due to measures of social distancing and general caution in public places, consumers have been dining out less and less. According to the source, the year-over-year decline of seated diners in restaurants worldwide was a staggering 100 percent on May 11, 2020 (Source- https://www.statista.com/statistics/1103928/coronavirus-restaurant-visitation-impact/).

Covid-19 scare hits restaurant in China:

For almost all of February, the streets in the busiest cities of the world’s most-populous nation have been empty. As China has battled to contain the novel coronavirus that causes the disease COVID-19, the economy has been nearly shut down and more than 760 million people have been living under varying degrees of quarantine.

The situation has been devastating to the wine and restaurant industries, who have seen business all but disappear. Many restaurants in major cities like Shanghai, Macau, Guangzhou and Hong Kong were ordered to close completely for three weeks. Those who could remain open were mandated to have limited hours and takeout service only. Now that strict measures are gradually being lifted, they are reopening, but business is still drastically down. However, Popeyes seems all but immune to COVID.

Popeyes’ Expansion Strategy:

Popeyes Chicken Sandwich Buyer Demographics

Popeyes Louisiana Kitchen, Inc. develops, operates and franchises quick-service restaurants under the trade names Popeyes Chicken and Biscuits and Popeyes Louisiana Kitchen. The company operates through two business segments: Franchise Operations and Company-Operated Restaurants. The Franchise segment consists of domestic and international franchising activities. The Company-Operated Restaurants segment engages in the operation of company owned restaurants. Its food products include spicy chicken, chicken sandwiches, chicken tenders, fried shrimp and other seafood, jambalaya, red beans and rice, and other regional items. The company was founded in 1992 and is headquartered in Atlanta, GA.

“Popeyes China plans to open more than 1,500 restaurants in China over the next decade, and the strategy is based on our long-term observation of the China market,” Raphael Coelho, CEO of Popeyes China, said. “We hope to set our roots in the China market and grow in the long run and be loved by consumers and clients,” he said.

Coelho said that the Chinese consumer market continues to be a strong attraction for international brands and the Shanghai store is testimony to the demand. The 470-square-meter flagship store incorporates both Chinese and Louisiana design aesthetics and aims to create a premium, unique dining experience for Chinese gourmets.

According to Coelho, after the debut of the brand, Popeyes will continue to expand in the surrounding regions, with plans for new restaurants in Nanjing, Hangzhou, and Suzhou before further expanding to other cities like Beijing, Tianjin, Chengdu, Ningbo, and Wuxi.

The Popeyes Chinese franchise is owned by TFI, or TAB Foods Investments, which is also a major shareholder in Burger King China. TFI is a leading quick-service food operator in Turkey and China, with more than 2,500 restaurants. It debuted in the Chinese market in 2012 with an investment in Burger King, which has expanded to more than 1,300 units in the country in the last seven years.

The success of Burger King in China proved TFI’s thorough understanding of the China market. The positive judgment toward China is based on long-term analysis. “We are very positive on our business,” said Coelho.

In an open letter from Restaurant Brands, Chief Executive Jose Cil, the company said acrylic shields and contactless service has been put in place at its restaurants, tabletop signage designates which tables have been set aside for social distancing purposes, and self-serve soda fountains have been turned off.

Restaurant Brands is increasing its digital ordering capabilities by adding its restaurants to smartphone apps, Cil said. He also noted that the company is making unspecified improvements to its drive thrus and adding curbside pickup service. Inside restaurants, it’s making sure customers are spaced out in all locations, regardless of local regulations.

Popeyes’ Market Presence:

KeyBanc Capital Markets analysts expect demand for Popeyes chicken meals to be strong. “The ‘V-shaped’ recovery at Popeyes was unexpected, and we continue to be amazed by the strong performance and sustainability of recent trends,” wrote analysts led by Eric Gonzalez. “We believe the chain’s impressive performance during this crisis will only increase demand for that brand by consumers and in the franchising community and support accelerating unit growth in the years ahead.”

Restaurant Brands, whose portfolio also includes Burger King and Tim Horton’s, reported first-quarter earnings on May 1. Net income totaled $144.0 million, or 48 cents per share, up from $135 million, or 53 cents per share, last year. Revenue was $1.225 billion, down from $1.266 billion in 2019. System-wide sales at Popeyes were up 32.3% for the quarter, while dropping at Burger King and Tim Hortons, 3% and 9.9% respectively. And same-restaurant sales were up 26.2% at Popeyes while down 3.7% at Burger King and 10.3% at Tim Hortons.

“Popeyes’ success last year was unlike anything any of us have seen in our careers, but its resilience in the face of COVID-19 with dining rooms closed across the country has been equally remarkable,” Cil said on the earnings call, according to a FactSet transcript.

“We’ve made many important adjustments at Popeyes since the global spread of COVID-19, rolling out contactless procedures in the drive-thru and putting additional resources behind delivery and mobile order and pickup.”

KeyBanc analysts say they’re bullish about Popeyes for the long term, though the chain doesn’t get as much attention as it should because it’s so much smaller than the others in the Restaurant Brands portfolio.

Will Popeyes’ strategy survive this pandemic?

Popeyes is trying to bring its signature Buttermilk Chicken Sandwich into the Chinese market during one of the most perilous times for restaurants.

But Popeyes, the new comer to the market, remains confident it can capture decent returns amid all uncertainties.

On Friday, 15th May 2020, Popeyes Louisiana Kitchen opened its first store on the Chinese mainland in Shanghai, attracting a long queue of customers. Following this grand opening, the Huangpu District government is urging people not to crowd in front of the first Popeyes outlet on the Chinese mainland. A dozen police officers were dispatched to the scene to keep order and the queue turned shorter by 1pm.

Popeyes offered 65 percent off discount for its products with a price cut limit of 100 yuan (US$14.08). Also, Popeyes extended the sales to the end of this month, as a means to avoid crowd gathering, while suspending the digital order on its application in the afternoon.

“I think you can’t get a more competitive market in fast food than in the U.S., but Popeyes is recognized and loved, with a loyal customer base,” said Coelho. “We are confident that in China we can replicate the same thing.”

China will become the fast-food chain’s second-largest market in two-to-three years, Raphael Coelho, chief executive officer of Popeyes China, said in an interview Tuesday.

Popeyes’ opening comes after the number of new coronavirus cases has dropped sharply in China, allowing businesses to reopen and consumers to stream back onto the streets while many other countries are locked down.

Moreover, the pandemic did not have much of an impact on their supply chain or its opening plans, as it was also able to lean on TFI’s other China franchise, Burger King, that has 1,300 restaurants in the country.

The company was seeing a good build-up of demand ahead of its opening, based on a mini programme it opened on social media app WeChat through which it can collect orders and recruit members.

The Popeyes deal illustrates that the China market continues to be ripe for American brands after 30 years of steady development. There is no doubt China has quite a bit of luster. For starters, there are about 1.4 billion people in China, many of whom have gravitated toward fast-food restaurants because of busier schedules. In order to compete with brands, like KFC, Popeyes will need to find that same menu innovation and technology synergy. It may also need a bigger development plan. Notably, RBI has done this with its other brands. Therefore, it seems that the company might benefit from this scale of market penetration.

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