America’s Favorite Chicken Company, Inc.

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America’s Favorite Chicken Company, Inc.

Two Concourse Parkway
Suite 600
Atlanta, Georgia 30328
U.S.A.
(404) 901-6200
Fax: (404) 901-6202

Private Company
Incorporated: 1972 as Popeyes Famous Fried Chicken and Biscuits, Inc.
Employees: 13,057
Sales: $415 million
SICs: 5812 Eating Places; 6794 Patent Owners & Lessors

America’s Favorite Chicken Company, Inc. (AFC), is the parent company to two fast-food chicken restaurant chains, Popeyes Famous Fried Chicken and Biscuits, Inc. and Church’s Fried Chicken, Inc. AFC as a whole ranks second in size among fast-food chicken operations, trailing Pepsico’s Kentucky Fried Chicken (KFC) chain by a large margin. The Popeyes chain, specializing in a Cajun-style fried chicken that is spicier than most conventional recipes, consists of 917 units, 694 of which are franchised. Popeyes restaurants are located in 38 states, and include 30 units around the world, with locations in Germany, France, Japan, Dubai, Guam, Korea, Saudi Arabia, Honduras, and the Philippines. Total sales for the Popeyes system were $550 million in 1991. Church’s, which features a Southern-style menu, numbers 1,087 units, 621 of which are company-owned. Church’s has domestic sites in 30 states, as well as 127 international restaurants in Canada, Mexico, Puerto Rico, Taiwan, Malaysia, and Singapore. The Church’s system recorded sales of over $513 million in 1991.

AFC is held in majority by Canadian Imperial Bank of Commerce (CIBC), which owns 82 percent of the company’s common stock and 89.3 percent of its preferred stock. CIBC obtained control of AFC as a result of two years of bankruptcy proceedings in Austin, Texas. Acting as an agent for a syndicate of lending institutions, CIBC submitted a plan that was ultimately accepted by the Federal Bankruptcy Court for the reorganization of Al Copeland Enterprises, Inc., previous owner of Popeyes and Church’s. Under the plan, Copeland Enterprises lost ownership of the two chicken chains and was replaced as parent company by the newly created AFC in October 1992. AFC also assumed control of Copeland Enterprises subsidiary Far West Products, a manufacturer of food service equipment such as refrigerators, freezers, and fryers.

The first Popeyes was opened by company founder, Al Cope-land, in June 1972. Copeland’s success with Popeyes is a classic rags-to-riches tale. A native of New Orleans, Copeland dropped out of tenth grade at age 16 to help support his ailing mother and, after working for some time as a soda jerk, was hired by his older brother who ran a chain of donut shops. At 18, Copeland sold his car for capital to open his own one-man donut operation, thereby becoming his brother’s first franchisee. He quickly turned the shop into the chain’s biggest money-maker, and went on to spend ten modestly successful years in the donut business. The opening of a Kentucky Fried Chicken store in New Orleans in 1966, however, caught Copeland’s eye when he saw that KFC—with a shorter workday—was making about four times as much money per week as his donut shop. Inspired by KFC’s success, Copeland used his donut profits to open a restaurant in 1971 named Chicken on the Run.

After six months of operation, Chicken on the Run was grossing only $1,100 a week—$900 short of the break-even point—which prompted Copeland to close the store and begin planning for another donut shop. In a last-ditch effort at success in the chicken business, however, he chose a spicier Louisiana Cajun-style recipe and reopened the restaurant under the name Popeyes Mighty Good Fried Chicken, after Popeye Doyle, Gene Hackman’s character in the film The French Connection. In its third week of operation, Copeland’s revived chicken restaurant brought in $2,100 of receipts, breaking the profit barrier for the first time.

Copeland opened his second Popeyes in New Orleans about a year later, by which time the original location was selling over $5,000 worth of chicken a week. By the end of 1974, there were fifteen Popeyes in operation, and within only two years of the second Popeyes the number had grown to 24. Unable to find a bank willing to finance the chain’s early expansion, Copeland relied upon the company’s own cash flow. In 1975, what would become the company’s most popular advertising campaign was launched, featuring the “Love That Chicken” jingle performed by local musician Dr. John. The jingle became wildly popular in New Orleans, so much so that it was once spontaneously sung in unison by the Superdome crowd at a New Orleans Saints football game.

Copeland began franchising Popeyes in 1977 and brought in his brother Bill to handle the expansion program. At the time, there were already about 50 company-owned stores in the chain. Although the Popeyes system increased its sales in 1977 to $21.5 million—about $5 million more than the previous year—the company recorded a $391,381 net loss. In 1978, the company nearly folded when the chain’s rapid expansion led to overextended credit. Rather than scale back the pace of growth, however, Copeland continued his aggressive marketing tactics and proceeded with developing a strong territorial franchising system. By mid-1978, Popeyes restaurants were located in 28 cities, for a total of 125 units ranging geographically from El Paso to Miami to Detroit. That same year, company-owned stores averaged over $12,000 in sales per week, while franchised units brought in roughly $9,000. Popeyes advertising continued to emphasize the company’s New Orleans roots, featuring local landmarks and the jazz music of Louisiana-based artists. Popeyes menu included, along with its trademark spicy chicken, homemade onion rings, corn on the cob, deep-fried clams, and Louisiana Dirty Rice dressing.

By the early 1980s, Popeyes was the third largest fast-food chicken chain, behind KFC and Church’s. Under Popeyes corporate structure, company-owned stores—which numbered 76 in November 1982—were held by Al Copeland Enterprises, Inc., while the 239 outside-owned franchises were overseen by a subsidiary of Al Copeland Enterprises named Popeyes Famous Fried Chicken and Biscuits. In the Popeyes system, stores were franchised five at a time; buyers paid $25,000 for the first unit, and $10,000 each for options on the other four. Franchisees typically operated 15 to 20 restaurants in an area for which they were licensed. By late 1982, Popeyes restaurants were located in five countries, with a roughly half-and-half mix between urban and suburban sites. Copeland Enterprises’s sales for 1982 were about $185 million, about $20 million higher than in 1981. New menu items included chicken tacos, barbecued beans, red beans and rice, and, most importantly, a new biscuit. The biscuit alone was responsible for an over 20 percent unit-sales increase. To ensure consistent product quality, all mid-level managers were required to participate in a two- to three-day training course in biscuit preparation at company headquarters.

In 1983, Popeyes began test-marketing breakfast items, including grits, eggs, and fried potatoes, and sandwiches made with Popeyes popular biscuit. Beer and wine were also tested in some stores. In 1984, Copeland Enterprises launched a chain of more upscale full-service Cajun-American restaurants, appropriately named Copeland’s. Debuting in New Orleans, Cope-land’s featured a 100-item menu overseen personally by its owner. The same year, the Popeyes chain consisted of about 400 outlets in 35 states and 5 foreign countries, generating sales of $250 million and earnings of $6 million. Sales slumped somewhat, however, partly as a result of McDonald’s newly introduced Chicken McNuggets, which brought in about $1 billion. Popeyes was slow to counter with its own version, due to Al Copeland’s dissatisfaction with the quality control of his company’s entry into that market.

By the mid-1980s, with a personal fortune of close to $100 million, Copeland had become a noted celebrity around New Orleans. His hobbies included racing 50-foot powerboats, touring New Orleans in Rolls-Royces and Lamborghinis, and decorating his Lake Pontchartrain with lavish Christmas decorations, including half a million lights and a three-story-tall snowman. Copeland’s wealth was derived primarily from his 100 percent ownership of Copeland Enterprises and his 95 percent interest in the Popeyes franchising arm. By 1985, Cope-land Enterprises operated about 100 company-owned Popeyes outlets, approximately half of them in the New Orleans area. The chain’s total of over 500 stores included locations in Puerto Rico, Panama, and Kuwait. Popeyes most visible advertising campaign in 1985, produced by its new agency, Doyle Dane Bernbach of New York, depicted eating spicy Cajun-style chicken as a “hair-raising experience.” Customers eating the chicken were shown with their hair literally standing on end after tasting the product. The spots continued to use the ten-year-old “Love That Chicken” slogan. In 1985, the Popeyes system spent 3 percent of gross sales for advertising expenditures, a relatively low figure for the industry. The following year, Popeyes separated from its agency and began producing its commercials in-house.

In 1986, sales for the entire Popeyes system reached $420 million. That same year, Popeyes began to test-market Cajún popcorn shrimp in nearly 100 Chicago and New Orleans stores, as well as home delivery in New Orleans and Houston. In New Orleans, where 4 of 50 company units were involved in the experimental home delivery program, a central computer relayed orders to the appropriate Popeyes outlet. The program was discontinued in 1987, however, as its high costs resulted in a $4.7 million loss for Copeland Enterprises—leaving the company in the red for the year. Also in 1987, Popeyes introduced 39-cent miniature chicken sandwiches called Little Chickadees, consisting of a Cajun-spiced one-ounce square chicken patty, pickles, and a mayonnaise-based sauce all on a toasted bun. The sandwiches were a response to plans by KFC to launch a similar product. Popeyes advertising budget for 1987—between $12 million to $17 million—was largely spent on a new campaign showing Popeyes as the clear winner in side-by-side taste tests with KFC and Church’s.

Popeyes grew to 700 units by 1988. For the first time, Copeland realized that Copeland Enterprises had outgrown its management structure, and that he needed to delegate some of his responsibilities. As a result, he created the positions of president, chief financial officer, and executive vice-president of operations. Copeland then recruited a pair of executives from Church’s in a move that brought about accusations of company secrets being given away by defectors. Later in the year, Cope-land made a play for control of Church’s with an unsolicited $296 million bid. The day after Copeland’s $8-a-share offer, active trading elevated Church’s stock to an $8.25 price. The move came on the heels of a 1987 takeover attempt by Church’s former president, Richard Sherman, whose $12.25-a-share buyout offer was declined by company management.

In February 1989, Church’s agreed to be acquired by Al Cope-land Enterprises, Inc., for $392 million. Under the terms of the agreement, $11 per share was paid for the first 86.5 percent of Church’s stock, and the remaining shares were swapped for .44 shares of newly created preferred stock in the merged company. The new company, named Al Copeland Enterprises, Inc., controlled about 17 percent of the $10 billion fried chicken market, but together the two chains were still only about one-third the size of KFC. Within a couple months of the takeover, Copeland fired 12 percent of Church’s staff, including Ernest Renaud, the company’s president and chief executive. Copeland himself replaced Renaud as CEO and also became chairman of Church’s board, while James Flynn, president of Copeland Enterprises, became Church’s president.

The acquisition of Church’s soon proved to be lethal to Cope-land Enterprises. To finance the acquisition, Copeland Enterprises borrowed about $450 million from a group of lending institutions led by the Canadian Imperial Bank of Commerce and Merrill Lynch and Company. This move, however, created interest costs of at least $100,000 a day and could not be covered by Church’s revenues, which had been declining since 1985 to the point of a $14.5 million loss in 1988. Since a far higher percentage of Church’s outlets were company-owned than Popeyes, Copeland Enterprises began selling Church’s franchises to their managers in an effort to raise money. The drive brought in only $21 million, however, and in 1989 Cope-land Enterprises reported a net loss of $35.9 million on revenue of $415 million—a loss largely due to interest payments of $55.6 million to CIBC and Merrill Lynch.

In November 1990, Copeland Enterprises announced itself in default on $391 million in debts and that it was in danger of bankruptcy if payment was demanded by one of its lenders. The company, operating at a net loss of over $11 million for the first three quarters of the year, failed to make payments due in September of $3.3 million in bridge-loan interest and $4.2 million on principal. By that time, Popeyes had overtaken the struggling Church’s chain for the number-two spot in market share, garnering 11.4 percent on sales of $547 million at 783 stores, to Church’s 10.7 percent on sales of $514 million at 1,163 outlets.

Copeland Enterprises filed for bankruptcy law protection in April 1991 when attempts to restructure its debts failed. During the summer, a settlement plan appeared imminent which would result in Merrill Lynch owning about 85 percent of the company. The tentative agreement also called for Al Copeland to relinquish ownership of the company and his secret recipe, and to receive $31 million in cash, five Popeyes stores, and a company jet. In return, Copeland would have a $3 million personal debt to the company forgiven and would retain a contract to supply the chain with spices. When Merrill Lynch began to withdraw its support for this plan, however, the court invited CIBC, Copeland Enterprises, and Copeland himself to submit individual reorganization plans. The plan submitted by CIBC called for full ownership of the company to be given to CIBC, for Merrill Lynch to come up empty-handed, and for Copeland to continue receiving royalties for his ownership of the Popeyes recipe. Under the plan entered by Copeland, Cope-land would retain ownership of the company while creditors would receive reduced debt payments after the company emerged from bankruptcy.

In October 1992, Judge Frank Monroe chose the CIBC reorganization plan, and shortly thereafter America’s Favorite Chicken Company, Inc., was created as the new parent company to Popeyes and Church’s. Named AFC chairman and chief executive was Frank J. Belatti, former president of Arby’s Inc., the fast-food roast-beef sandwich chain. AFC established headquarters in Atlanta, and in November 1990 announced a 100-day action plan for Popeyes and Church’s. The plan, set to go into action in 1993, included programs to enhance the system’s image, to improve employee and franchise relations, and to upgrade operational efficiency and quality. Today, as the second-largest fast-food chicken corporation, AFC appears to have a secure niche in the industry. Whether the company’s new management is able to return AFC to a position of profitability and more reasonable growth, however, as well as to chip away at KFC’s market dominance, remains to be seen.