Popeye's Chicken Buys Its Recipes for $43 Million: Why It Didn't Own Them Is Even More Interesting

Another fried fast food heart attack special. It's amazing, on one level, how much of this stuff we humans are willing, even eager, to consume.

And we know from Coke's secret recipe to McDonald's secret sauce that there is value in those recipes. Even for a regional specialty chain focused on so-called southern cooking.

So when the announcement came out that Popeye's Chicken was buying its recipes for $43 million the first thought that probably occurred to many people was, wow, that's a bunch of money for figuring out how to mix lard, bread crumbs and a couple of spices in a manner probably familiar to any self-respecting mom raised in that milieu.

 The second thought might well have been, after counting backwards, that that meant a lot of people buy this stuff. But the third, and arguably most thought-provoking notion was - and is - that Popeye's must, at some point, have sold its recipes as collateral for a loan or as the core asset in a sale-and-lease agreement based on anticipated sales and profits. Which is to say that the value of the intangible, a recipe, exceeded the value of the tangible (and tangy) chicken.

The implication being that intellectual property is becoming an increasingly acceptable and fungible financial asset without our thinking much about it. And that is probably going to define as well as establish such values for the future of global commerce. JL

Venessa Wong reports in Business Week:

The $43 million value represents a discount on the expected 15 years of future royalties.
Food companies go to great lengths to safeguard their coveted recipes—KFC’s (YUM) and Coca-Cola’s (KO) are stored in vaults—no doubt because they’re considered to be any successful brand’s secret weapon. Yet curiously, a recipe isn’t always owned by the restaurant. Such has been the case at fried-chicken chain Popeyes (PLKI), which announced on Tuesday that it just bought several recipes used in its core menu for $43 million. (The chain won’t specify which recipes.) How did it not own its recipes?
Until now, the recipes have belonged to Diversified Foods and Seasonings, a Louisiana food manufacturer started by Popeyes founder Al Copeland in 1984 after he opened Popeyes. For the last 23 years the chicken chain has paid DFS a $3.1 million “spice royalty” to license the use of its recipes.
It’s a peculiar arrangement dating back to the early 1990s, when Copeland was forced to step down as chief executive of Popeyes’ parent company following a bankruptcy reorganization. It left him as a franchisee of 26 Popeyes and Church’s restaurants, and with a 12-year contract to supply DFS products to the chain. DFS makes biscuit, cake, and meat mixes; batters; seasoning blends; gravies; soups; sauces; and sides like macaroni and cheese, spinach and artichoke dip, and jambalaya and grits, according to its website. After he left Popeyes, Copeland retained ownership of Popeyes’ recipes and continued to collect royalties for their use. Copeland died in 2008, and DFS is now owned by his estate.

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DFS had an agreement to supply Popeyes through 2029, and the $43 million value on Tuesday’s deal represents a discount on the expected 15 years of future royalties. The sale doesn’t sever ties between DFS and Popeyes: DFS will continue to be the exclusive supplier of spices and other products to the chain.