CORRECT: Popeyes Hopes Gallon-Size Thirst Will Boost Drink Sales
June 30 2011 - 7:38PM
Dow Jones News
NEW YORK (Dow Jones)--AFC Enterprises Inc.'s (AFCE) Popeyes is
coming out with gallons of lemonade and seasonal monthly soda
concoctions as it transitions chainwide to Coca-Cola Co. (KO) and
Dr Pepper Snapple Group Inc. (DPS) products.
By July 1, Popeyes Louisiana Kitchen, known for its fried
chicken and Southern fare, will complete the rollout of Coke and Dr
Pepper products to nearly all its roughly 1,500 restaurants, as
part of a five-year deal for Coke and Dr Pepper products, signed in
December. Some franchisees have contracts with Pepsi that will
continue until those agreements expire.
Popeyes is ending its ties with PepsiCo Inc. (PEP) and making
the move to its first uniform chain-wide drink system to receive
better rebates and to increase product innovation so it can
capitalize on higher beverage profit margins.
Pepsi, which had partnerships with various Popeyes franchisees
for years, was the beverage of choice in about 40% of Popeyes
stores at the time the national contract was signed. The rest of
the primarily franchised chain already sold Coke and Dr Pepper
products.
Popeyes said the chicken industry has traditionally lagged the
competition in drink sales because of its heavy drive-through
business, leading families to resort to drinks at home when they
buy their bucket of chicken or box of shrimp.
However, the company began to see some improvement after
launching Popeyes' sweet tea about a year ago. Now, it's looking to
capitalize on the higher margins beverages bring.
"Beverages are much more profitable than food, so it's in the
best interest of our business to do more drink sales," Chief
Marketing Officer Dick Lynch said. "A big opportunity we saw was
selling our sweet tea in gallon sizes for people ordering take
out...It's been extraordinarily successful for us, and it's nearly
100% incremental."
As a result of the success, Popeyes launched gallon-sized Minute
Maid lemonade this month and is now testing peach tea in certain
markets. "Programs like this would have been more difficult if we
were still a split system," Lynch said.
Popeyes also said industry data suggests fruit-flavored drinks,
such as orange or strawberry soda, were selling more than
traditional soft drinks.
To bank on the trend, Popeyes is rolling out a marketing
campaign in July that will feature a monthly "Flavoriety"
combination of flavored drinks to go with each month's food
promotion. July's mix of choice is the Big Easy Cooler, made with
Fanta Strawberry with Minute Maid Lemonade, to complement July's
Firecracker Butterfly Shrimp. Popeyes found that Coke was more
appropriate for the deal, with its ability to provide more flavor
combinations than Pepsi, Lynch said.
Popeyes first began exploring ways to capture a bigger a piece
of the growing beverage market about two years ago, Lynch said, and
moving to a single provider became the clear choice
financially.
Beverage companies allot marketing funds and rebates to
restaurants using their products, and Lynch said the company
couldn't get the full benefits of these deals with just half its
chain on board.
"This was not just a contest of who can sell us soft drinks the
cheapest and who can transition the system faster," Lynch said.
Popeyes was instead focused on strategies for innovation of flavors
and getting customers to "pour more."
Lynch said he couldn't disclose specific terms of the deal.
The leader in beverage sales within the quick-serve category has
traditionally been Sonic Corp. (SONC), where fountain beverages and
frozen treats comprise 39% of sales. Since McDonald's Corp. (MCD)
has spurred increased interest in the beverage business with the
formal launch of its McCafe line two years ago, other players have
been scrambling to get a foot in the door before it's too late.
"We can't ignore the work McDonalds is doing, and other
competitors, with beverages and mixology," Lynch said. "Going back
two years, we started looking at all the ways we could drive
beverage business, and of course we looked across the aisle at our
competition too."
-By Annie Gasparro, Dow Jones Newswires; 212-416-2244;
annie.gasparro@dowjones.com
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