Why Popeyes Bought Popeyes

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.

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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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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 12, 2014, at 11:14 AM, TMFPennyWise wrote:

    I think CEO Bachelder is doing an excellent job in leading Popeyes to the next level. I've seen her interviewed a few times and she never fails to impress. Her transformation of the company to attract a bigger market share of the chicken business has been remarkable.

    And an excellent point about how important employees are to the success of an organization. We have a long shopping street with countless fast food places and we find ourselves choosing Chick fill-a again and again mostly because their employees create an atmosphere of hospitality, cleanliness, and pride in their company (not so with the McD, BK, Taco B. or KFC joints along the road--we don't have a Popeyes).

    If Chick fill-a were publicly traded I'd buy some stock in that. And I've got Popeye's Louisiana Kitchen on my watch list.

  • Report this Comment On July 15, 2014, at 11:06 AM, thequast wrote:

    @TMFPennyWise

    Thanks for the compliment. Unfortunately I think you're more likely to win the lottery than Chick-fil-A going public. It's one of those companies that doesn't want to have to compromise any corporate values (like being closed on Sunday) that investors would demand of a public company.

    But yeah, what Popeyes has done over the last couple years is extraordinary.

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