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Popeyes' Chicken Sandwich Drives a Massive 42% Sales Spike

Restaurant Brands International (NYSE: QSR) reported eye-popping sales at its Popeyes Louisiana Kitchen chain as its spicy chicken sandwich hit a cultural-relevancy sweet spot at just the right time. But with plant-based burger sales slowing at Burger King and the Tim Hortons coffee chain still struggling to grow, investors need to ask whether this is as good as it gets.

Sales at Popeyes soared 42% in the quarter on a 34% surge in comparable store sales. Burger King's gains seem muted by comparison at 8% and 3%, respectively, even though it represents the burger joint's best showing in over two decades. Tim Hortons, however, saw sales fall 2% as comps dropped 4% year over year.

While the chicken sandwich's popularity marked it as a huge success for the restaurant operator, what does it do next quarter as customers no longer line up around the corner for the sandwich? It also creates an incredibly high hurdle that will be difficult to climb over next year.

The now-legendary Popeyes chicken sandwich. Image source: Popeyes Louisiana Kitchen.

A phenomenon rarer than hen's teeth

The Popeyes chain isn't a one-hit wonder, but its chicken sandwich is definitely a one-off surprise hit that will be tough to duplicate, since there was a lot of social media buzz that helped develop the results Restaurant Brands saw this quarter.

Data analytics firm Placer.ai said its measurement of store traffic patterns showed visits to Popeyes surged 114% over the baseline in November after the chicken sandwich was reintroduced. And though traffic at the chain has trailed Yum! Brands' (NYSE: YUM) rival chain KFC for years, the chicken sandwich has now put them on equal footing, and Popeyes traffic was ahead of KFC's in December and January.

But that kind of momentum can't be kept up indefinitely. While Popeyes will be sure to still report elevated chicken sandwich sales, they won't be the same sort of crazy numbers the chain saw this past quarter.

Planting the seeds of change

That's sort of what Restaurant Brands is seeing at Burger King with its plant-based Impossible Whopper. There was a large amount of interest initially as people wanted to see what the fuss was all about, but earnings at Carrols Restaurant Group (NASDAQ: TAST), the largest Burger King franchisee (and a significant owner of Popeyes restaurants, too), indicate the initial rush is over.

The franchisee saw comps jump early on in the quarter after the Impossible Whopper was rolled out nationally in August, but as the quarter progressed, comps faltered. They were only buoyed by the reintroduction of the Popeyes chicken sandwich.

Restaurant Brands has been working to catch up to McDonald's (NYSE: MCD) and initiated investments in digital technology, which should help supplement the gains it's seen by introducing plant-based burgers. During the quarter, the chain upgraded 800 restaurants to its Burger King of Tomorrow concept, which features self-order kiosks and will soon have digital menus at the drive-thru. Yet that's still far behind McDonald's, which changed over 2,000 restaurants to its new design last year and deployed artificial intelligence drive-thru technology at 8,000 restaurants from its acquisition of the tech company Dynamic Yield.

As stale as day-old coffee

Obscured by the chicken sandwich and Burger King's own outsize performance is the fact that Tim Hortons remains a troubled concept, whose performance CEO Jose Cil said "did not reflect the incredible power of our brand."

For example, plant-based meat alternatives didn't pan out for the chain when it tested them in Canada, so Tim Hortons will be going back to basics and focusing on its roots. While it will also be installing new digital menus, it will be adding a new coffee brewing system (in place at 2,000 restaurants already) to replace the pots it previously used, while adding skim milk and almond milk to keep up with changing consumer preferences.

Tim Hortons remains a work in progress, but one that hasn't worked too well so far.

One and done

At 26 times earnings and 3.5 times sales, Restaurant Brands International's stock is not cheap, which should have investors thinking twice about jumping in to cash in on the massive growth at Popeyes.

Duplicating those results will be difficult, even if the chain becomes a steady performer. It needs to prove that Burger King can be consistent and that Tim Hortons can turn itself around. And that's a tall order with a high hurdle coming that may prove impossible to surmount.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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