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THE DAILY LIST
The World’s Most
Powerful People
BY FORBES STAFF
SERGEI CHIRIKOV/AFP/GETTY IMAGES
NAME
AGE
RESIDENCE / ORGANIZATION
1 VLADIMIR PUTIN
RUSSIA / RUSSIA
62
2 BARACK OBAMA
53
UNITED STATES / UNITED STATES
3 XI JINPING
CHINA / CHINA
61
4 POPE FRANCIS
77
VATICAN CITY STATE / ROMAN CATHOLIC
CHURCH
5 ANGELA MERKEL
GERMANY / GERMANY
60
6 JANET YELLEN
68
UNITED STATES / FEDERAL RESERVE
7 BILL GATES
59
UNITED STATES / BILL & MELINDA
GATES FOUNDATION
8 MARIO DRAGHI
67
ITALY / EUROPEAN CENTRAL BANK
9 SERGEY BRIN
41
UNITED STATES / GOOGLE
9 LARRY PAGE
41
UNITED STATES / GOOGLE
SEE THE FULL LIST AT
www.forbes.com/powerful-people/list/#tab:overall
THURSDAY | NOVEMBER 6, 2014
The world is moving so fast these days that
the man who says it can’t be done is generally
interrupted by someone doing it.
-Elbert Hubbard
KFC Killer: How Popeyes Reinvented
Itself To Win The Fried Chicken War
BY BRIAN SOLOMON, FORBES
Popeyes is crushing rivals
with a mix of upscale marketing and unapologetically
greasy comfort food that
customers—and investors—
can’t resist.
Cheryl Bachelder used to
cringe driving past a Popeyes
restaurant. “We looked like
an old-fashioned chicken
chain from the ’60s. Tired,
dirty and slow,” she says.
DAVID SMITH FOR FORBES
Not anymore. Seven
years after taking over as CEO, Bachelder
Bachelder accepted the top job at Pophas proved that high-calorie greasy food
eyes against the advice of friends. She incan still thrive in America. While the rest
herited a mess. Founded in 1972 by Al Coof the fast-food industry sputters (even
peland in a New Orleans suburb, Popeyes
McDonald’s has been losing customers the went bankrupt 20 years later after it tried
last two years), Bachelder has engineered
to swallow larger competitor Church’s
five straight years of juicy U.S. same-store
Chicken. Reorganized as AFC Enterprises
sales growth. The chain added 126 do(for “America’s Favorite Chicken”), the
mestic restaurants in 2013 and is on track
company added Cinnabon and Seattle’s
to open up to 130 more this year (as rival
Best Coffee. But the conglomerate days
KFC suffers through its ninth straight year were short-lived after the Arthur Anderof declining store counts). Investor praise
sen accounting scandal; AFC had to restate
is fawning: Shares are up an eye-popping
three years of earnings. The other brands
950% since the beginning of 2009.
were sold off, leaving only Popeyes, long
Her secret recipe? Turning a chain of
overdue for a makeover.
dingy chicken joints into restaurants modPopeyes still had loyal customers reciteled on “fast casual” darlings like Chipotle
ing old commercial taglines—”Love That
and Panera. Fried chicken may not be an
Chicken!”—and singing the praises of the
upscale product, but that doesn’t mean
signature flaky buttermilk biscuits. Superyou can’t sell it like one.
Also Inside :
“Popeyes was going to go away,” says
• AS OIL PLUNGES FURTHER, WHY IT
Piper Jaffray analyst Nicole Miller Regan.
MIGHT BE ‘GAME OVER’ FOR THE
“But if you look today, it’s not even in
FRACKING BOOM
recovery anymore. It’s all about growth—
• WILL YOUR FAVORITE TAX BREAK
and that stems from Cheryl coming in and
BE RESTORED?
righting the ship.”
© 2014 Forbes LLC
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fan Beyoncé reportedly served Popeyes
at her wedding. But the business was a
disaster, with declining customer counts in
a shrinking backwater of the fast-food industry. The restaurants, shabbily adorned
with touristy evocations of New Orleans,
like street lamps and Mardi Gras beads,
didn’t help.
The first goal for Bachelder, an exmarketing chief at Domino’s Pizza and
KFC, was to remove the cringe factor. But
she hit a wall. Popeyes’ relationship with
its franchisees had soured. When Bachelder showed the initial restaurant redesign,
franchisees “said, essentially, ‘Hell no,’” she
recalls. They complained about the “Salvador Dalí-esque” design and the projected
costs. Bachelder admits she was naive to
expect frustrated small-business owners
to put hundreds of thousands of dollars
into failing restaurants.
It took two trying years of negotiations
to win them over. In one meeting a veteran
franchisee railed against a chicken special,
yelling at Bachelder, “You nearly bankrupted the system!”
Her counterpunch: data. With new accounting software in over 1,000 restaurants Bachelder could prove the promotion generated record operating profit.
The system tracks restaurant profitability
and delivers detailed quarterly reports
comparing franchisee results against regional and national averages. Many chains
don’t gather such data. “Popeyes is the true
poster child for how collaboration produces for both parties,” says Aziz Hashim, a
fast-food franchisee in Atlanta for 20 years,
who sold off his other stores since coming
to Popeyes in 2009.
Patience—and a remodeling effort that
topped out at $100,000 per location—
paid off. Instead of lawyering up, Popeyes
franchisees are upgrading at a rapid rate.
The chain will have 80% under the new
redesign by the end of this year.
The company’s new name—Popeyes
Louisiana Kitchen—and its new look embrace Cajun spices and classic Southern
fare, a theme pounded home by Popeyes’
first national television ad campaign,
which introduced spokes-character Annie,
the straight-talkin’ African-American chef.
2 | FORBES DAILY
THURSDAY | NOVEMBER 6, 2014
The tag trickles down to restaurants,
where signs tout Louisiana’s “uniquely
American cuisine” and glass jars filled
with chili peppers decorate pantry racks.
Bone-in chicken delivers 60% of Popeyes’ sales, while boneless is the choice
of people under 30, the group Bachelder
wants to woo for lunchtime visits. A recent
success is tenders fried in waffle batter.
Limited-time offers drive traffic—boneless
chicken sales are up 100% since 2008, and
a new fried seafood push is also performing well.
So is the home office. It netted $35.4
million on $221.5 million in revenue over
the most recent four quarters, compared
with $33.6 million on $194.7 million a year
earlier.
One thing you won’t find in Popeyes’
new kitchen: salads. Bachelder thinks rivals promote health food for p.r. purposes.
“I’m not trying to solve the world’s problems here,” she argues.
Customers are just fine with that.
Same-store sales in the U.S. have increased
an average 4.5% in the last three years, and
since 2008 average restaurant operating
profit (before rent) has gone from 17.6%
to 22%. Sales have risen quickly, with new
freestanding locations averaging $1.6 million a year, up over 50% from the old model, and better development metrics have
lowered the failure rate (once between
10% and 15%) to just a handful among the
644 openings in the last five years.
Bachelder sees room to double the
domestic store count, which would put
the chain toe-to-toe with KFC in the
drive-through-dominated suburbs. And
investors are antsy to take advantage of the
runway left overseas. Popeyes counts only
461 restaurants abroad, versus more than
9,400 for KFC. Andrew Skehan, COO for
Popeyes’ international development, says
success at home lets it attack from a position of strength. “We go up against global
brands who are going outside the U.S. because they’re not competing here. They’re
desperate,” he says.
Bachelder can smile at that. Cringe-worthy fare is on someone else’s plate now. FD
New from Forbes,
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on the new American
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car-lite, even car-free.
All over the country, people are
living car-lite — rethinking when
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It’s a shift that will have economic,
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THURSDAY | NOVEMBER 6, 2014
As Oil Plunges Further, Why It Might Be ‘Game
Over’ For The Fracking Boom
BY CHRISTOPHER HELMAN, FORBES STAFF
DAVID MCNEW/GETTY IMAGES
The price of oil fell some more
on Tuesday, down as low as
$75.84 before closing at $77 a
barrel. The decline is blamed
on Saudi Arabia cutting prices
rather than cutting output amid
signs of global glut. That’s discouraging to America’s highly
leveraged drillers, who had
been hoping beyond hope that
$80 would act as a floor on
prices.
If prices don’t recover soon
this could be the beginning of
the end of the Great American oil fracking boom. Already
ConocoPhillips and Shell have
announced a pullback in onshore investment. But the real
pain will be felt by the army of
smaller independent producers.
There’s been a lot of talk
about the breakeven prices per
barrel needed to sustain drilling in various oil plays. Some say
$80, others say $70. If you have acreage in a sweet spot you
might be safe down to $50.
But let’s get real—breakeven just isn’t good enough. Investors need returns on capital, not just returns of capital. And
for myriad small drillers this fall in prices has virtually eliminated any possibility of turning real cash profits. Over the
long run, a company that can’t generate a profit is worthless.
Though oil prices are down “just” 30%, shares in some
drillers with shaky balance sheets have plunged 60%. It is
always the case that shares in leveraged commodity producers are more volatile than the underlying commodity. Equities are ultimately priced on a company’s ability to generate
profit. Small moves in commodity prices have a huge impact
on earnings.
At $100 a barrel, the average oil company can generate net
income on the order of $15 a barrel. But if prices fall 10% to
$90, leaving a margin of $5, that means profits plunge 66%.
At current prices, the average oil company isn’t profitable at
all, and the weaker ones, loaded up with debt, are the walking dead. A perfect example is Goodrich Petroleum, which
announced some big new discoveries in the Tuscaloosa Marine Shale. While the oil may be there, at current prices it is
3 | FORBES DAILY
simply not economic to drill. Goodrich shares are down 70%
in six months.
The oil industry is a study in contrasts. When you look at
the financial statements of Exxon Mobil, you see a fortress—
the company generates more than enough cash to pay all its
capital spending and still have $20 billion a year left over for
dividends and buybacks. Exxon will survive the downdraft
just fine—its shares are down just 7% this year.
Contrast that with the small shale-only drillers, which
have been borrowing like crazy to acquire acreage and deploy
fleets of rigs. They may post net income every quarter, but
their profitability is only an accounting illusion. Their capex
has outstripped cashflow generation year in and year out.
Without big borrowing (backed by rosy forecasts of future
production growth) they are toast.
So who’s in the worst shape? The companies with a combination of high debt, high costs and relatively poor acreage,
like Goodrich. Another early casualty could be Swift Energy,
which has piled up $1.2 billion in debt in recent years to drill
high-cost wells on marginal acreage. Swift’s investors are
clamoring for change as shares have plunged 50% this year.
Swift’s net debt has climbed to more than three times estimated 2014 EBITDA, or more than 80% of enterprise value.
According to data from U.S. Capital Advisors, other op-
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THURSDAY | NOVEMBER 6, 2014
erators with high leverage that are living well outside their
means include SandRidge, which has debt of 2.6 times EBITDA and 51% of enterprise value; EXCO Resources with debt
4.3 times EBITDA and 83% of enterprise value; and Magnum
Hunter Resources, with debt 4.8 times EBITDA and 38% of
enterprise value.
Contrast that, for example, with the fortress balance sheet
of Occidental Petroleum, which has net debt of just .3 times
EBITDA, a mere 9% of enterprise value.
Investors smell the weakness; year to date SandRidge is
down 42%, EXCO’s down 46% and Magnum Hunter’s off
43%.
According to recent analysis by Credit Suisse, if oil prices
fell and stayed $70 a barrel, Swift, Magnum Hunter and SandRidge would all see their net debt to EBITDA multiples rise
to thoroughly unsustainable levels of more than 6x.
Why do these multiples matter? Lenders like to see ample
cash flow available to cover debt payments. It’s common for
bond covenants to require companies to maintain a debt-toEBITDA ratio of no more than 4x. Get more leveraged than
that and lenders will pressure companies to slash spending
and sell assets—or entire operations.
So why is it more likely that we’ll see a wave of consolidation in the oil patch this time around, when it didn’t happen
back in 2009, when prices plunged from $147 to $35 a barrel?
Because back then companies hadn’t gotten used to high
prices and hadn’t yet begun to remake themselves wholly as
onshore shale drillers. Their reserves were still structured
for a world of sub-$50 oil. This time it is most assuredly different.
Another word on those “breakeven” prices. In recent
weeks we’ve seen lots of stories presuming to tally the breakeven oil prices that various OPEC states need in order to balance their budgets and keep their people placated with social
programs. Ignore all of them, because those numbers are
based on data at least several months old.
What’s changed since then? The foreign exchange value
of the U.S. dollar. Russia’s ruble has plunged 20% against the
dollar this year to record lows. The Saudi riyal, ostensibly
pegged to the dollar, still managed to “tumble” last week.
Even the Canadian dollar has slumped against the greenback.
This matters a lot. Oil trades in dollars, but the government budgets of oil exporters are denominated in their national currencies. So as the dollar strengthens, these countries, upon conversion, are left with considerably more riyals
and rubles than a year ago. Even at a lower dollar-denominated oil price, their purchasing power per barrel sold hasn’t
changed much at all. Thus the pain to OPEC from lower
prices is minor; the pain to America’s marginal drillers will
be severe.
Lest we be too pessimistic, it’s worth giving the final
word to an optimist. “A six-month decline in oil prices will
not cause any producers to actually go bankrupt,” says Brian
Bradshaw, a principal with BP Capital’s TwinLine mutual
fund. “A lot of pain has already been felt. If you want to know
the most likely bankruptcy candidate I think it is the entire
country of Venezuela.”
So maybe the fate of America’s small drillers won’t seem
so bad after all. FD
FOLLOW CHRISTOPHER HELMAN AT
www.forbes.com/sites/christopherhelman/
Will Your Favorite Tax Break Be Restored?
BY ASHLEA EBELING, FORBES STAFF
Hoping for a big tax refund and one
that’s on time? Call Congress. The fate
of 50-plus tax breaks that expired at the
end of December 2013 could determine when and how much you get as a
tax refund when you file your 2014 tax
return next spring. That’s because they
include a bunch of individual breaks
that help teachers, students, commuters, struggling homeowners, donors and
conservationists. It could mean $250—
or thousands—off your taxes.
The problem is Congress let these
4 | FORBES DAILY
tax breaks expire on Dec. 31, 2013, leaving taxpayers in limbo. “You don’t know
what the rules are going to be,” says an
exasperated Mel Schwarz, director of
tax legislative affairs in Grant Thornton’s Washington, D.C. office, adding,
“It cheapens the entire tax system.”
While businesses are bemoaning the
uncertainty around big-ticket breaks
like the research and development tax
credit and bonus depreciation, these
are the major individual tax extenders
at stake:
• The deduction for state and local
sales taxes.
• Above-the-line deduction of up to
$4,000 for higher education expenses.
• Tax-free distributions from an
Individual Retirement Account for
charitable purposes (the IRA charitable tax rollover) for taxpayers over
70 ½.
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THURSDAY | NOVEMBER 6, 2014
ROY SCOTT/GETTY IMAGES
• A $250 above-the-line deduction
for school teachers for supplies.
• Parity for employer-provided mass
transit and parking benefits ($250 a
month, up from $130 a month).
• The ability to exclude a discharge
of residential mortgage indebtedness from gross income.
• The deduction for mortgage insurance premiums.
• Enhanced rules for donating real
property for conservation.
It’s déjà vu. There have been five,
soon to be six retroactive extensions
of most of these tax breaks, Schwarz
counts. Twice relief came in October, two times in December (December 17th and December 20th)
and most recently, in January (of the
year after the tax breaks expired).
• The American Taxpayer Relief Act
(ATRA) of 2012 was signed into law
on Jan. 2, 2013. (The extenders were
made retroactive to Jan. 1, 2012 and
good through Dec. 31, 2013.)
5 | FORBES DAILY
• The Job Creation Act of 2010 was
signed into law Dec. 17, 2010. (The
extenders were made retroactive to
Jan. 1, 2010, good through Dec. 31,
2011.)
• Three acts designed to deal with
the financial bailout during the great
recession were signed into law on
Oct. 3, 2008. (The extenders were
made retroactive to Jan. 1, 2008,
good through Dec. 31, 2009.)
• The Tax Relief and Health Care
Act of 2006 was signed into law
Dec. 20, 2006. (The extenders were
made retroactive to Jan. 1, 2006,
good through Dec. 31, 2007.)
• The Working Families Tax Relief
Act of 2004 was signed into law Oct.
4, 2004. (The extenders were made
retroactive to Jan. 1, 2004, good
through Dec. 31, 2005.)
One consequence of Congress’ faltering is that the 2015 tax filing season
may not start on time, and that could
mean delayed refunds. IRS Commissioner John Koskinen admonished
Senate Finance Committee chairman
Ron Wyden (D-Ore.) and his cohorts in
a letter last week to take action on the
extenders. “It would be detrimental to
the entire 2015 tax filing season and to
millions of taxpayers if Congress fails to
provide a clear policy direction before
the end of November.”
Congress will address the extenders. “It’s just a question of when do the
extenders get done,” Schwarz says. At
this point, nothing is going to happen until after the November elections
when Congress reconvenes in the lame
duck session. One possibility would be
for the extenders to be added to the
federal budget continuing resolution.
It’s also possible that they could move
separately and maybe become a vehicle
for other legislation. A combination of
extenders and emergency spending is
also a possibility. Expect to hear that
there’s no time for picking and choosing which extenders to drop and which
to make permanent.
So that makes another temporary
extension likely. My bet: another twoyear extension covering 2014 and 2015.
That leaves room for serious tax reform
in 2015. FD
FOLLOW ASHLEA ABELING AT
www.forbes.com/sites/ashleaebeling/
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