The CEO of Popeyes on Treating Franchisees as the Most Important Customers

Gregory Miller My first official day as CEO of Popeyes Louisiana Kitchen was November 1, 2007, but the company was holding a big franchisee meeting in Orlando a few days earlier. I wasn’t technically an employee yet, but I decided to attend and make a presentation. My hope was to inspire the entrepreneurs who own and operate Popeyes restaurants about the bright future of the brand. In retrospect, I was naive and overly optimistic. The company had gone through four CEOs in seven years, and sales had been choppy throughout that period. The meeting made it crystal clear that the relationship between Popeyes and its franchisees was strained. One conversation in particular stands out in my mind: A veteran franchisee, a 68-year-old man from Texas, said, “Miss Cheryl, don’t expect us to trust you anytime soon. We’re like abused foster children, and you’re just a new foster parent.” It was a humbling moment. I realized that until we demonstrated some value to our owners, it was unrealistic to expect their enthusiasm for the future. Popeyes is the third food franchising company at which I’ve been a senior executive, and I’ve fallen in love with the business model. From a strategic point of view, it’s asset-light, has a reliable cash flow, and expands a brand by leveraging entrepreneurs’ capital and operating expertise. But what I really love is the opportunity to work with the passionate, talented entrepreneurs who own and operate the restaurants. They’re buying into the brand in a way that traditional employees don’t. They’ve made a huge investment of money and time. Being a franchisee isn’t a job you can quit—it’s your life. At the same time, this business model often results in conflict between franchisees and the parent company, particularly if they aren’t aligned on how to grow the business. To try to turn Popeyes around, my team and I decided to focus intently on the franchisees rather than other stakeholders. We decided to measure our success by their success. Nine years later, our results have improved dramatically—and while our relationship with them isn’t perfect, it is remarkably better than at that 2007 meeting in Orlando. From P&G to KFC After graduating from Indiana University’s MBA program in 1978, I started out in brand management at Procter & Gamble, moved to Gillette, and then joined Nabisco, where I managed snack and candy brands for seven years. My restaurant experience began in 1995, when Tom Monaghan, the founder of Domino’s Pizza, hired me to run marketing and product development. I had no idea that Domino’s was having problems with its franchisees, who filed a lawsuit against the company during my first week on the job. The owners claimed that Domino’s was unfairly profiting from the dough and other supplies it sold to its franchisees. To settle the lawsuit, the management team created an audited, transparent system for the supply business and agreed to share any profits above a certain threshold with franchisees. Meanwhile, I set out to create an advisory group of owners who weren’t involved in the lawsuit to find new ways to gain franchisee alignment and drive the growth of Domino’s business. One of our biggest accomplishments was the launch of an innovation to keep pizzas hot during delivery: heated plates inside insulated bags, named Domino’s HeatWave bags. Shortly after Domino’s was sold to Bain Capital, I was recruited to become president and chief concept officer at KFC, a division of Yum! Brands. KFC had been struggling, and its franchisees, too, were unhappy. Their contracts with KFC gave them much more power than in most franchise models; my assignment was to align the owners on a plan to grow the chicken business. In my 30 months at KFC, we had 16 months of positive sales and 14 months of negative ones. We couldn’t turn the corner fast enough to please the CEO, the board, or the shareholders, so I was fired in the fall of 2003. The most important lesson I took away from that experience is that you cannot serve the people or the enterprise well without delivering strong results. When I left KFC, I decided to take a break. My children were then teenagers, and my husband was a management consultant who traveled frequently. After years of being a leader at the office, I decided our family needed my leadership skills at home. During that time I did some consulting and joined boards, including the hardware chain True Value’s. Then, in 2006, I joined the board of Popeyes. I knew the company well, because I’d competed against it when I was at KFC. I had no idea I would someday become its CEO, but serving as a director turned out to be the perfect way to get a sense of the company’s challenges and opportunities. “Servant Leadership” Popeyes was founded in 1972 in Baton Rouge, Louisiana, by Al Copeland, who was what we would now call a foodie. People tell stories about Al’s passion for the recipes—how he’d stay up all night to perfect his mashed potatoes. Popeyes is called a fast-food restaurant, but it’s known for slow-cooked foods and complex flavors. We use fresh bone-in chicken and marinate it for 12 hours before cooking. We’ve built a competitive advantage around the food. The company went public in 2001, and today we’re in 48 states and 26 countries. We have 71 company-owned stores, but most of our 2,569 locations are owned by our 360 franchisees. The company receives a percentage of franchise sales, and it profits from development fees when new restaurants open. In 2007 Popeyes was struggling for several reasons, including a lack of strategy and too much short-term thinking. Very little consideration had been given to new-product innovation. We had no arsenal of brand-building ideas. We also had no national advertising, so consumer awareness was low. Those problems, along with poor financial results, created an angry and frustrated group of franchisees. At one point some of them showed up uninvited to a Popeyes board meeting to demand changes. After the CEO resigned, I was asked to serve on the board search committee to hire a replacement. We offered the job to two candidates, but both turned it down. When the board asked me to step in as CEO, I knew it would be a difficult assignment. I also knew that it was in my sweet spot: a turnaround of a franchise-based enterprise. After the contentious Orlando meeting, the leadership team convened in Atlanta to create a business plan. We also took a day to explore what kind of leaders we wanted to be. We made lists of our best bosses and worst bosses and described what made them good or bad. (The “worst” list was much longer.) The conversation led us to a model called servant leadership, in which leaders put the people of the enterprise above self-interest. No one has more skin in the game than our franchisees. Then we talked about the company’s various stakeholders: guests, shareholders, franchisees, employees, directors, suppliers. The main question was, Which group would be our top priority? The CFO argued for shareholders, and he had a point—the stock had dropped from $34 to $14. We also discussed our guests. Many of us had worked for franchised food companies that prioritize guests first, and we’d seen how that can go wrong. Some chains try to legislate their way to better customer service by creating rules that must be followed. (For instance, the restrooms must be cleaned every 30 minutes.) But a number of intermediaries separate a chain’s corporate headquarters from the customer in line at a quick-serve restaurant—the franchisee, the general manager, the shift supervisor, the restaurant team member. Unless all of them work together, the effort will certainly break down. At one point in my career, I was touring restaurants to talk to team members about the importance of serving guests well. I met a young man who was not excited about my “lesson.” He asked who I was. “I’m Cheryl,” I said. “Well, Cheryl,” he said, “there’s no place for me to hang up my coat in this restaurant, and until you think I’m important enough to have a hook where I can hang up my coat, I can’t get excited about your new guest-experience program.” It was a crucial reminder that we are in service to others—they are not in service to us. The more my team and I talked about it, the more we saw the franchisees as our primary customers. They have mortgaged their homes or taken out large loans to open restaurants. They have signed 20-year agreements. No one has more skin in the game—they have no plan B. If we use our influence on the franchisee, he can bring his influence to bear on the restaurant manager and the frontline team members. To get a benchmark, we conducted our first franchisee satisfaction survey. We also began focusing on the metric that matters most to owners, which is restaurant-level profitability. Franchisees depend on those profits for their income and for the cash flow to open new locations. We hadn’t even been measuring that number, but we began tracking it closely. A Big Ask Early on, we called a meeting of our vice presidents and directors and discussed a range of issues facing Popeyes, such as the speed of our drive-through windows (which was poor). We did that classic exercise in which everyone puts a Post-it note on the problem he or she thinks should be solved first. The most revealing moment came when someone named Sondra, who’d worked at Popeyes for more than 20 years, said, “We put these problems on the wall every year, but nothing ever changes.” I was initially shocked, but I appreciated her candor. It was a reminder of the energy wasted in corporate America while people focus on work that isn’t producing results. Even CEOs shy away from hard things—they worry about getting the board aligned, or finding the money to pay for a project. I told Sondra that we wanted to be the group that finally fixed problems—not all of them, but the few on which we could focus to make the most impact. We ended up listing seven priorities on our strategic road map, and in the end we accomplished only three of them—but we did them brilliantly. The pivotal moment in the turnaround came when we tried to sell our business plan to the franchisees. We met 10 franchise leaders in a windowless hotel conference room in Chicago. At that time, all Popeyes advertising was controlled locally, and each franchisee contributed 3% of sales to pay for ads. Our plan called for increasing that number to 4% and creating a national ad campaign, to coordinate the brand message and drive awareness. We brought in an outside expert who described the chain as being at an inflection point: The time was right to make the move from local to national advertising. The franchisees asked us to sit in the hallway while they debated the idea. When we came back in, they said they’d agree—if the company would invest $6 million to increase the number of weeks of advertising. That was a big ask. It would require board approval and would lower our earnings, disappointing Wall Street. But it was essential to gaining systemwide franchise alignment. We committed the dollars and saw it through, even when the economy went into recession in the fall of 2008. National advertising was the first critical step in driving the Popeyes turnaround. In franchising you’re only as good as yesterday’s results. We made some missteps along the way. We introduced some value-oriented items, including a mini chicken tortilla wrap, and people traded down to the cheaper choices, lowering the average check. But we kept at it, we found some winning new products, and sales and profitability began to improve. We developed a cadence for new-product launches. We began using sophisticated software to help franchisees choose the best locations for new restaurants, dramatically increasing their success rates. Our market share grew from the teens to the mid-20s. We attracted franchisees who owned other fast-food restaurants and wanted to open a Popeyes. A third of our stores have been built in the past five years. We’re opening more than 200 global locations a year, which puts us in the top tier of quick-service restaurants. We’ve had eight years of success—an unusual streak of steady growth in our industry. An Act of Stewardship Although our numbers got better, the franchisees’ trust in us didn’t improve as much as I had hoped. Franchisees have elephants’ memories. As the turnaround took hold, we had some meetings with owners that required outside facilitators to keep everyone calm; the two sides would be in opposite corners, as if in a boxing ring, with arms folded across their chests. In franchising you’re only as good as yesterday’s results—there is no emotional bank account into which you can make deposits. It feels unfair sometimes, but it’s our job to keep modeling and earning trust. Despite that complicated dynamic, I believe deeply in the franchise model. Starting a business from scratch is very risky, and franchising allows people to invest in a proven brand, reducing that risk. It lets them pursue the American dream: 40% of Popeyes franchisees in the U.S. are first-generation immigrants. Franchising is at the heart of a thriving economy, because it lowers risk for start-ups and creates a large number of entry-level and management jobs. One-quarter of Americans say their first job was in a restaurant—often a fast-food franchise. The Popeyes turnaround has become a case study in what happens when leaders think about serving others—in this case, our franchisees. Leadership is an act of stewardship, not a practice that’s solely for your personal benefit. The test of our leadership is simple: Are the people entrusted to our care better off? That lesson is not discussed much in business schools, and it’s not the model that many leaders of my generation have demonstrated. In fact, a lot of Baby Boomers are too concerned about their own résumés, their wealth, and their next job. Instead, we need to be teaching young leaders how to serve—as a path to generating superior results. I’m excited about that opportunity. Today young leaders are more purposeful and intentional than my generation, and they’re hungry for a new model of leadership that will make a positive difference in the world.

The CEO of Popeyes on Treating Franchisees as the Most Important Customers

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