Popeyes Is Eating KFC's Lunch


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Recently, a lot of attention has been paid to the way Chick-fil-A has leapfrogged KFC to become the nation's biggest chicken concept. But that doesn't mean that KFC's customers are all eating chicken sandwiches.

In fact, the chain that appears to be taking most of KFC's business is Popeyes.

On Thursday, the Atlanta-based chain reported that its same-store sales rose 4.3 percent, continuing Popeyes' lengthy run of success. By contrast, KFC's first-quarter same-store sales fell 5 percent. We can quibble about weather and regional differences and all that, but that's a 9.3-percent difference.

Indeed, there is a direct correlation between Popeyes' growth and KFC's decline.

Since 2010, KFC has shed more than 500 domestic locations. Over that same period, Popeyes has added nearly 200 domestic units, but its average volumes are a bit higher.

By our estimate, KFC's domestic system sales have fallen by about 10 percent over that period, a decline of roughly $500 million.

That's about the same amount by which Popeyes' system sales have grown. In 2010, the chain reported system sales of $1.86 billion. Last year, it was $2.37 billion.

To be sure, a good portion of Popeyes' system sales growth has come from its international business, where its unit count has grown by 15 percent, or 59 locations. But most of the increase in system sales over that time has come domestically.

And keep in mind that Popeyes is not Chick-fil-A. It has a long way to go before it can catch up to KFC, which remains about twice its size. Oh, and KFC has this massive international presence.

It's also too simplistic to say that all of KFC's business has simply moved over to Popeyes (unless, that is, you live in Minneapolis, where most of the KFCs have, in fact, been replaced by Popeyes). Other chicken chains are doing well, too: Church's and Bojangles, for instance. And we can't count out grocery stores that sell an awful lot of fried chicken that's typically cheaper than the buckets that KFC sells.

But the upshot is that consumers haven't abandoned bone-in chicken like many people think they have. Diners have just shifted their loyalties from KFC to other concepts. Popeyes has a unique, spicier taste profile that works well for consumers that like a little more kick than they once did. And KFC has struggled with its message, and its new product introductions like grilled chicken and boneless chicken have been marked by major operations problems that tend to drive customers away.

Not long ago, we thought that KFC would do well by coming out with more chicken sandwiches and other boneless items. We still think they should work on those fronts (and do them right). But the chain can't forget where it came from, either. Consumers still like their drumsticks and bone-in chicken breasts. And the success of Popeyes proves that.

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