Chickenomics

Glenn Hopper
Feb 19 · 5 min read

The Economics of Fried Chicken Sandwiches

In 1946 when Atlanta restaurant owner Truett Cathy slapped a boneless grilled chicken breast and a couple of pickle slices between two pieces of bread and dubbed it the “Chick-Fil-A,” he started a slow-roasted fast food revolution that his restaurant empire dominated for decades.

The Helen of Troy of the Fried Chicken Sandwich Wars

But success has a way of breeding copycats … or copy chicks as the case may be. And in 2019, longtime also-ran chicken contender Popeyes escalated the battle for dominance of the fried chicken sandwich market with the introduction of its new crispy chicken sandwich (a vaguely familiar sounding fried chicken filet with pickles and mayonnaise served on a brioche bun).

It didn’t take long for the battle for chicken sandwich supremacy to move to the barbarous, anarchistic forum where all modern wars are waged: the internet. After a few snarky barbs on Twitter, the sandwich went viral. And quicker than a cat meme on covfefe, chicken aficionados and underemployed internerds were in a froth to try Popeyes new sandwich and make their voices heard in the Great Chicken Sandwich Debate of 2019. After all, assailing a fast food restaurant to get a chicken sandwich should have been waaay easier than the other social movement of 2019 — Storming Area 51.

Until it wasn’t.

The demand for the new chicken sandwich was so great that Popeyes sold out in just over two weeks, during which time Popeyes customers (and employees) lost their collective minds. There were reports of hours-long lines, insults, and outright violence at Popeyes locations across the country. Punches were thrown, someone was stabbed, a woman was body-slammed in Tennessee and a gun was drawn in Texas.

“Demand was so overwhelming that the supply we secured to support an aggressive sales forecast over several months ran out in approximately 14 days,” Jose Cil, CEO of Popeyes parent company Restaurant Brands International, said. It ultimately took the restaurant chain almost two months to restock its supply of chicken breasts and bring the sandwich back to the market.

The Economics of Chicken Sandwiches in Monopolistic Competition

Economic theorists must have marveled at the madness as this case of “irrational exuberance” made its way to the fast food marketplace. Instead of tulip bulbs, dot-com stocks, or California real estate, there was a frenzy for fried chicken sandwiches.

The furor was all the more puzzling considering there are arguably many close substitutes for a fried chicken sandwich. There are more than 1,500 Chick-Fil-A locations across the country that happily serve chicken sandwiches any day of the week except Sunday. KFC serves a Crispy Colonel Sandwich. Wendy’s also has a chicken sandwich; as do other burger-centric chains McDonald’s, Burger King and Arby’s.

Which is to say, the fast food industry is a perfect example of monopolistic competition — where many competitors offer products that are similar (but clearly not perfect) substitutes. All of which were available with virtually no risk of stabbings. But the competitors’ offerings were no match for the viral boost of Popeyes new offering.

Just as with all bubbles, Popeyes reign will not last forever. Economic theory suggests that in the long run, demand in a monopolistic competition is highly elastic; and the battle for consumers will revert to the economic fundamentals of tastes and preferences, price, and competition.

Just as with other firms who compete in monopolistic competition (e.g. sportswear, soft drinks, and airlines), demand elasticity will soon settle in and consumers will make decisions from their wallets instead of their hearts (or waistlines). Product differentiation will remain important, but unless Popeyes sandwich is an order of magnitude better than that of its competitors, differentiation will become difficult. As with all companies in monopolistic competitions, marketing and advertising will be significant drivers of long-term success. Pricing decisions and marketing messages will drive demand going forward.

Chickens & Eggs: The Supply Side of Provisioning Chicken Sandwiches
Strangely, the Popeyes chicken sandwich shortage wasn’t the only supply-side issue for fast food chicken restaurants in the last couple of years. KFC (which stands for Kentucky Fried CHICKEN, lest anyone has forgotten since the rebranding) famously ran out of its signature ingredient in the United Kingdom in early 2018 and had to temporarily close more than 600 restaurants while they sorted out their supply chain issues.

Should the current upsurge in demand hold, there is potential for even more chicken shortages on the horizon.

While chicken has been the most popular meat in America for years (Americans consumed an average of 93.5 pounds of chicken per person last year, according to the National Chicken Council), there is another constraint on the supply of fast food fried chickens:

“Consumers don’t want tough and tasteless big chickens,” said Scott Sechler, owner of poultry producer Bell & Evans. There’s “increasing consumer demand for smaller, premium-quality birds.”

That’s right. When it comes to chicken sandwiches, not any old bird will do. The specs required for the perfect chicken sandwich start with birds under 4.25 pounds. In a market where average bird size has grown from 2.5 pounds in 1925 to more than 6 pounds each in 2019, the smaller birds are tastier and more tender. The smaller chickens are also costlier and more scarce than their hormone-fed brethren, and were recently priced at nearly three times that of “jumbo” nine-pounders.

Market pressure will increase further as competitors gear up for their own chicken sandwich offensives. Not to be outdone, the other fast food chicken contenders have refocused their attention on their offerings. McDonald’s is adding two new chicken sandwich recipes to its menu, adding to the McChicken and buttermilk crispy chicken sandwiches already in their portfolio. The new crispy and deluxe crispy chicken sandwiches include butter and pickles for the base model with the addition of lettuce, tomato and mayonnaise for those springing for the upgrade.

With limited supply of small, tender chickens and seemingly infinite demand from American consumers, Popeyes and their competitors will put increasing pressure on their suppliers, which will continue to drive up prices for the highly-sought-after little birds.

In an industry with notoriously thin margins, fast food restaurants will be tempted to pass on these extra costs to their consumers. This strategy would, however, be difficult to maintain if all competitors don’t also raise prices. Fast food restaurants (like all companies in monopolistic competition) are technically price setters, but due to the increasing availability of substitutes, demand for their products is highly price elastic — meaning if they outprice the market, consumers will go elsewhere.

As the chicken sandwich wars show no signs of abating in 2020, it could be a banner year for lovers of fried chicken, pickles, butter and brioche buns. And as long as their logistics teams are up to the task and can avoid turning their restaurants into Texaco stations in 1973, the future appears loaded with d̶i̶a̶b̶e̶t̶e̶s̶,̶ ̶h̶e̶a̶r̶t̶ ̶d̶i̶s̶e̶a̶s̶e̶ ̶a̶n̶d̶ ̶o̶b̶e̶s̶i̶t̶y̶ poultry as far as the eye can see.

Do the chickens have large talons?

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