The ridiculous popularity of Popeyes' fried chicken sandwich is definitely a shot across the bow of industry leader Chick-fil-A. But the return of the limited-time offer from Popeyes -- a Restaurant Brands International (NYSE:QSR) chain -- is a much bigger threat to McDonald's (NYSE:MCD), which still doesn't have a viable chicken sandwich of its own.
After the hit sandwich popped up at Popeyes Louisiana Kitchen in August, McDonald's admitted its own sales "did go a little bit the opposite way" in the third quarter, although it gained hamburger market share.
Now with Popeyes bringing the sandwich back this month, and notwithstanding all the other turmoil McDonald's finds itself in these days, it suggests the burger chain could be tarnished once again as it continues to struggle getting customers to visit its restaurants. Without an attractive chicken sandwich response, McDonald's franchisees are left standing on the sidelines.
Ruling the roost
Popeyes knows fried chicken, having been in business for over 45 years. But before its buyout in 2017 by Restaurant Brands International, it was largely an also-ran behind Chick-fil-A, which has long been the favorite of teens and adults alike, and Yum! Brands' KFC.
Yet the acquisition infused the chicken chain with a new sense of purpose as Restaurant Brands wanted to see innovation occur at a faster pace. The fried chicken sandwich landed at just the right time because chicken has become the favorite protein of American consumers as beef fades.
According to the National Chicken Council, per capita consumption of chicken is expected to exceed 95 pounds this year, compared with about 57 pounds for beef and 51 pounds for pork. Back in 1992, chicken and beef were about even at 66 pounds per capita.
The popularity of chicken catapulted Chick-fil-A into the third largest fast-food chain by sales last year, pushing it ahead of Taco Bell, Burger King, and Wendy's and knocking Subway out of third place. McDonald's remains tops, with Starbucks second.
Ruffling the industry's feathers
The response to the sandwich was phenomenal. Systemwide sales were up over 15% in the third quarter on top of an 8% gain last year, and comparable sales -- an important metric to understand if you invest in restaurant stocks -- soared 9.7% versus a negligible 0.5% gain in the year-ago period.
No doubt Popeyes fried chicken is as good as everyone says. But it took some snarky tweets to get social media to notice before the sandwich actually gained traction, and now it's almost a cultural phenomenon. When the sandwich hit restaurants on Nov. 3, there were lines out the door at my local Popeyes, and it was no coincidence it was relaunched on a Sunday -- the one day of the week Chick-fil-A is closed.
Hoping to avoid the shortages that occurred last time, Popeyes promised there would be plenty of chicken sandwiches to go around, though in some areas it still reportedly ran out. And franchisees were hiring more staff to handle the crush of customers clamoring for the sandwich.
As rare as hen's teeth
It doesn't bode well for McDonald's. While it responded with a limited-time chicken offer of its own after Popeyes ran out, it didn't really pay off. Comps rose 4.8% for the quarter, but that was based on promotions, store remodels, and higher prices. Customer traffic was still negative, and it will only further agitate franchisees who have complained about the lack of a premium chicken sandwich that could compete against the likes of Chick-fil-A.
As a national chain and the industry leader, it's surprising McDonald's doesn't have one on its menu, the McChicken sandwich notwithstanding. Still, its chicken sandwich is just one of the things that needs fixing, and with Popeyes coming back with a second helping that so far seems just as popular as the first, investors might be left squawking when McDonald's reports fourth-quarter earnings.