Put some of the blame on Popeyes Louisiana Kitchen for how much you're paying for chicken at the supermarket. Its ridiculously popular chicken sandwiches have sparked a chicken sandwich war among fast-food chains that is helping to push poultry prices upward.
While meat in general is just more expensive right now, chicken prices are at record highs, putting the quick-serve chain's growth at risk. Popeyes is finally adding a member loyalty program to keep its customers coming back, but that might not be enough to help it overcome the impacts of rising costs.
Popeyes rules the roost
Even during the gloomier stages of the COVID-19 pandemic, Popeyes' chicken sandwiches were in high demand. Restaurant Brands International (NYSE:QSR) reported system-wide sales for the chain grew 18% in 2020, driven by 14% growth in comparable-store sales, and comps growth of almost 16% in the U.S. That was on top of an 18.5% sales gain in 2019, when comps rose by 12%.
The enduring popularity of Popeyes' chicken sandwiches eventually compelled McDonald's (NYSE:MCD) to launch three new chicken sandwiches of its own, and even Chick-Fil-A felt the need to tweak its iconic meal with a limited time offer to gin up interest.
Popeyes' sister chain Burger King also introduced a chicken sandwich, though the strategy of pitting two related restaurants against one another is questionable. While Burger King needs to remain competitive, its new offering could pull customers away from Popeyes, leaving Restaurant Brands International with no real net gain.
A bull run in protein prices
Between fast-food chains stocking up on chicken and consumers buying more poultry because beef and pork prices have also hit exorbitant levels, chicken prices now exceed the previous highs they hit back in 2014 and 2015, when an avian flu outbreak required large quantities of the birds to be culled.
All proteins are expensive today because the pandemic interfered with meat processing operations and transportation systems, resulting in a beef shortage. Wendy's (NASDAQ:WEN) even took burgers off the menu at around a fifth of its restaurants for a few weeks last year because its suppliers were unable to meet the chain's needs for fresh ground beef.
U.S. beef prices are now 3% higher than they were at this time last year, and the recent ransomware attack on meatpacker JBS (OTC:JBSAY), which supplies 20% of the country's meat, exacerbated the situation.
That's going to be a problem for the fast-food chains banking on consumer appetite for chicken sandwiches to help them recover from pandemic-induced sales downturns.
Double dose of risk
Restaurant Brands International could find itself especially at risk because it owns both Popeyes and Burger King (as well as the troubled Tim Horton's chain).
Obviously, Popeyes is particularly vulnerable because it has ridden the popularity of its sandwiches to enormous gains. Between the first quarter of 2019 and 2021, the chicken chain's revenue grew by more than 40% and it expanded its restaurant footprint by a similar percentage to meet demand.
But comparable sales growth is now decelerating. It rose by just 1.5% in the first quarter. It was going up against a big 26% surge in comps last year and is facing tough comps again this quarter as they were up over 24% a year ago, but now Restaurant Brands also needs to worry about Burger King.
RBI's burger chain could lure customers away from Popeyes when the smaller chain can least afford it, while soaring poultry prices will erode margins. Operating income as a percentage of revenue slid from 68% in the first quarter of 2019 to 65% in 2020. That will likely worsen.
A meaty opportunity
A winner could emerge from the chaos, however. Beyond Meat (NASDAQ:BYND) has struggled to convince the broad mass of U.S. consumers that its plant-based beef alternative products are a viable substitute for animal protein, though they have gained enough popularity to earn places in the meat cases of thousands of supermarkets and grocery stores.
The retail segment accounts for 80% of Beyond Meat's U.S. sales and 75% of its global sales, and though its beef, pork, and chicken substitutes are on the menu at a number of restaurants too, only a relatively small percentage of the population is buying the pea protein meat substitute. High meat prices might help push that percentage higher.
One of the main reasons that Beyond Meat hasn't been generating more sales is that the price of a pound of ground Beyond Meat is about twice as much as a pound of real ground beef. Soaring meat prices, though, could narrow the gap or make it disappear completely, making plant-based alternatives much more attractive for consumers.
The plant-based meat alternative company still faces many structural issues, and global expansion is a key component of its growth strategy. Still, record-high protein prices could make Beyond Meat the better investment choice today than Restaurant Brands International.