Why Popeyes Bought Popeyes

Popeyes plopped down $43 million for more reasons than meet the eye.

Jun 24, 2014 at 9:19AM

Consumers have come to enjoy some Louisiana inspired fried chicken, which has propelled Popeyes (NASDAQ:PLKI) to the No. 3 spot among chicken chains in sales behind Kentucky Fried Chicken of Yum! Brands and Chick-fil-A. But it's not just consumers who are in the mood for Cajun chicken. Popeyes just spent $43 million to buy, well...Popeyes. What's this all about, and what does the business get out of the deal?

The transaction
Al Copeland founded Popeyes in 1972. Once he created the spicy kick for Popeyes' signature flavor, the chain really took off. From the mid-70's to the mid-80's around 500 locations opened up. However, the expansion came at a cost and Copeland took on unsustainable debt. He was forced into bankruptcy court, where he lost control of the chain.

But Copeland did retain one very important thing: the recipes. Corporate Popeyes had no choice but to pay an annual royalty to the tune of $3.1 million to use these intellectual properties.

That all changed on Monday. The company announced that it had finally reunited the famous recipes with the Popeyes brand. The move is said to give "clarity of supply and pricing," but what other motivation is behind it? 

The motivation
For added clarity, it's important to note that the current deal between Popeyes and the recipe owners was only good through 2029. After that, renegotiation would have been necessary. By paying $43 million now, Popeyes essentially paid the remaining royalties on its current agreement, only it now owns the recipes outright.

But this wasn't exactly a money-saving move. In the press release CEO Cheryl Bachelder stated that Popeyes will now apply the $3.1 million which it had been paying in royalties to improving the guest and employee experience.

Bachelder expounded further by saying "We believe the best performing restaurant chains view their human capital as a competitive advantage." I have to agree with that statement wholeheartedly, which is why I believe this is a fantastic move by Popeyes.

The employee advantage
A great work environment has a link to business success. Google consistently ranks among the top dogs in employee satisfaction, and is this year's No. 1 company according to Fortune. But this is bigger than Google. Salesforce.com (NYSE:CRM), Intuit (NASDAQ:INTU), and Camden Property Trust (NYSE:CPT) all ranked in the top 11. Not surprisingly, all three of them have beaten the market over the last five years.

INTU Chart

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So what about these companies makes them such good employers? Each one is unique, but a common thread connects them.

Salesforce.com already compensates its employees well for their work -- with up to six figures -- but it doesn't stop there. To encourage its crew to give its all, it also makes merit-based compensation available.

Intuit employees get four hours a week to work on any project their hearts desire. Some of these pet projects have developed into actual products, and each year Intuit recognizes and rewards the creators.

Camden Property Trust has been beating earnings expectations over the last couple of years. You'd think that a public company would return its earnings surprises to shareholders, but that's not the case. In 2013, every non-executive employee received a surprise $2,000 bonus for the company's excellent year.

The common denominator here is that all three companies make their employees feel important. It's as William James -- the father of American psychology -- once said, "The deepest principle in human nature is the craving to be appreciated." By giving its employees sincere praise for their work, these companies are getting the very best from them which in turn drives their businesses forward.

To sum it up
Popeyes bought its recipes, which is great, but I like the emphasis that the CEO places on her employees. How exactly she plans on improving the employee experience with that $3.1 million remains to be seen, but I'll be watching with extreme interest. If she can create an environment like those of these other companies that we've discussed -- an environment that gives employees a sense of importance -- look for Popeyes to stay on the up and up. 

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Jon Quast has no position in any stocks mentioned. The Motley Fool recommends Google (C shares), Intuit, and Salesforce.com. The Motley Fool owns shares of Google (C shares) and Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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