Recovery...What recovery? More pain ahead

by Patricia Sellers

So much optimism in the air....and yet, so many people seeing black clouds.

Last week, I told you about the gloomy economic view of Meredith Whitney, the influential financial-services industry analyst.

This morning I had breakfast with Cheryl Bachelder, the CEO of AFC Enterprises (AFCE) and president of Popeyes Louisiana Kitchen. That's right, the chicken chain. Like Whitney, Bachelder sees more pain than gain in the year ahead.

"Now we have sustained, long-term unemployment," Bachelder told me. Popeye's targets young, middle-class families--where the unemployment rate, she estimates, hovers above 15%. These consumers feel more squeezed than ever. "They've tapped into their savings. They've traded down. They're shopping at Wal-Mart. What more can they do?"

Scrimp even more. Which is why companies are discounting across the land. McDonald's (MCD) is selling dollar drinks and fries. Burger King (BKC) is promoting dollar breakfast sandwiches. Bachelder says that 40% of Popeyes' sales this year will come from promotional deals--as they did in 2009, but that's vs. 30% two years ago. Meanwhile, Wal-Mart (WMT)--whose same-store sales in the U.S. recently fell--just launched a "Rollback" campaign to cut prices on thousands of items. "It's going to be crazy this summer," Bachelder predicts.

Meanwhile, she's paying attention to the mood of entrepreneurs. That's because franchisees are Popeyes' lifeblood. (Popeyes has 1,900 units in 28 countries, and only 37 of the stores are company-owned.) "Entrepreneurs are the most cautious and freaked-out people right now. I've never seen them so anxious," says Bachelder, who once was president of KFC, part of giant YUM Brands (YUM).

So many pressures on small-business owners--three minimum wage increases, rising commodity prices, fears about health-care reform--will galvanize them to act, Bachelder believes. "I'm waiting for a march on Washington by America's entrepreneurs."

Does she know about something brewing in D.C. that we do not? "No," she says. "That's Cheryl's idea. But if they do it, I'm going to march with them."