Financing

Burger King’s owner finds the U.S. a tough market

Domestic same-store sales for the burger chain, Popeyes and Tim Hortons all fell in the third quarter.
Photograph by Jonathan Maze

The U.S. market proved difficult for fast-food operator Restaurant Brands International over the summer, the company reported on Wednesday, as domestic same-store sales declined at all three of its chains.

Burger King’s same-store sales declined 0.7% in the U.S. in the third quarter ended Sept. 30.

Tim Hortons’ same-store sales rose 0.9% in the period and 0.6% globally, implying a decline in the U.S.

And Popeyes Louisiana Kitchen’s same-store sales declined 0.2%.

At both Popeyes (total same-store sales up 0.5%) and Burger King (up 1%), international markets fared much better, suggesting a more challenging domestic restaurant business.

“The industry has been quite competitive,” Restaurant Brands International CEO Daniel Schwartz said on the company’s earnings call Wednesday. RBI stock was up slightly on Wednesday.

Burger King shifts to cheap nuggets

Schwartz blamed Burger King’s sales weakness on “less compelling value” and difficult comparisons from a year ago, when a 2-for-$6 promotion helped generate 4% same-store sales growth in the third quarter of 2017.

The company is shifting to what Schwartz calls “a more balanced approach,” including more compelling promotions and product innovation to fill in gaps in the chain’s menu. That includes a $1, 10-piece chicken nuggets promotion “that has driven good results for us already.”

“It’s a more competitive environment than we’ve seen historically,” he said. “We didn’t have quite the right balance for the environment we’re in. But we made the shift and we expect to perform better in the coming quarters.”

The company said it recently introduced a new redesign, called the “Burger King of Tomorrow,” which features an open “kitchen theater,” double drive-thru with digital menu boards and more technology.

Schwartz said that franchisees would renovate their restaurants to the new image as renovations come due on their franchise agreement. He also said the company gives royalty breaks to operators that renovate their restaurants early.

The company would make contributions to remodels on stores where it controls the real estate, or 10% of the U.S. system.

Schwartz also said that the company expanded delivery, now in 2,000 restaurants in North America and 5,000 of its 17,000 worldwide locations. It also has mobile order and pay on its new smartphone app. “We’re playing catch-up” on technology, Schwartz said.

Tim Hortons kids meals

Tim Hortons’ same-store sales in Canada represented an improvement over recent quarters, when the chain reported relatively flat same-store sales.

RBI executives said that the improvement came in large part to the chain’s recent addition of “Breakfast Anytime” there, which led to “high levels of incrementality,” both for sales and profitability, Schwartz said.

But he also promised more efforts to build sales there in the future. One such step: a new kids menu.

“We have more families coming to our chain than any other restaurant,” Schwartz said. “But we didn’t have a dedicated kids meal. This is something we’re really excited about.”

The chain is also working on a loyalty program and remodels. It has 100 renovations under its new image and promises “hundreds” of renovations in the last three months of 2018.

But Schwartz would not tell investors Wednesday whether the renovations generated improved sales, saying it’s “too early” to talk about sales lift.

“They’re geared toward driving long-term sales growth,” rather than an “immediate sales jump.”

Popeyes’ unit growth accelerates

Schwartz blamed sales weakness at Popeyes on a “shift” in media spending toward limited-time offers and “away from value.” He said the company plans on “rebalancing” that spending while adding “more impactful products” to its menu.

But he also said that the company’s unit count growth accelerated during the quarter. Restaurant growth grew by nearly 8% in the quarter, and the chain now operates 3,022 restaurants worldwide.

He said the company is currently working to decrease the number of point-of-sale systems operators use, from more than 40 to just two by next year.

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