Burger King outperformed its major competitors last quarter.
Not that it’s saying much. McDonald’s, Wendy’s and Jack in the Box on average reported a 3.6% decline in same-store sales last quarter, which makes Burger King’s 1.1% decline in the U.S. look downright positive.
To parent company Restaurant Brands International (RBI), that outperformance was rooted in the efforts the company has made over the past couple of years to improve the operations of its restaurants, as well as progress on remodeling old locations.
“We’ve made significant progress on operations,” RBI CEO Josh Kobza told analysts on Thursday. “We’re starting to make progress on remodels. But we still have a long way to go.”
Some of those operations changes involve the people owning and running the restaurants. Burger King acquired the 1,000-unit franchisee Carrols for $1 billion after deciding that the chain would be better off with smaller-scale franchisees.
The company said Thursday that it has started the process of selling those stores to franchisees.
Those franchisees could be Carrols employees, small-scale existing franchisees with a proven track record and new franchisees who have demonstrated an ability to operate well.
“We will only put restaurants in the hands of people we believe will run them really well,” RBI Executive Chairman Patrick Doyle said.
But that effort also includes moving away from franchisees who have struggled in the past. Kobza said the company has worked to “transition” stores to “more engaged operators.”
Doyle said the company has “moved on from partners who are not long-term answers.”
“In the case of Burger King in the U.S., it’s winning by running restaurants better,” Doyle told analysts. “And that has often been with new ownership and remodels.”
Burger King said it has made progress on its remodel effort. The company said it is on track to remodel the vast majority of its U.S. locations by 2028, which would be an important accomplishment for a brand that has tried to spruce up its store base through several management teams and multiple ownerships.
There’s a practical reason for this: Remodeled restaurants generate better sales. Executives said a typical restaurant remodeled with the company’s “Sizzle” prototype generate sales lifts in the “mid-teens.”
Burger King has focused on operations for the past couple of years, believing that the chain’s marketing efforts have fallen flat because its stores weren’t run well enough that customers would return.
The company has since poured billions of dollars into the fix, including the acquisition of Carrols and incentives to encourage franchisees to remodel restaurants—incentives that are in part directed at operators with a better track record.
The company is now working with its franchisees on raising operations standards.
That can also mean tough decisions to remove operators who consistently underperform existing operations standards. Yet Burger King believes the result will be better for the system as a whole over the long term, because better-run restaurants generate more sales and more profits.
“We have pockets of restaurants that have dramatically improved operations and are doing much better than average there,” Kobza said. But “we still have some pockets of operations that aren’t where we need them to be to turn around.”
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