The current management team at Restaurant Brands International (RBI) vowed to make franchisee profitability central to their management strategy shortly after taking over early last year amid a rash of bankruptcy filings and closures, particularly at flagship brand Burger King.
The early results appear to be there. Profitability at each of its four concepts in their home markets soared last year, led by Burger King in the U.S., RBI said on Tuesday.
A typical Burger King location last year generated $205,000 in profits, RBI said. That’s 46% more than 2022, when a typical location generated just $140,000.
Per-store profits increased 17% at Popeyes Louisiana Kitchen to $245,000. They increased 27% at Tim Hortons Canada to C$280,000 ($208,000 U.S.). They increased 38% at Firehouse Subs to $110,000 per store.
On average, the concepts’ profitability increased 30% last year. And Patrick Doyle, RBI’s executive chairman, noted that the company’s total profitability is up 9%. “I think that’s awesome,” he said Tuesday. “We need to deliver compelling profitability growth for our shareholders, and we’re doing that. Our franchisees need compelling profitability for their businesses, and they are seeing that.”
The profitability results were reported as part of an RBI fourth-quarter earnings report in which sales and earnings improved at each of the chain’s segments.
Same-store sales at Tim Hortons Canada increased 8.7% in the quarter. Tims represents 45% of RBI’s adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization. At Popeyes U.S., same-store sales increased 5.8% in the quarter. They increased 3.8% at Firehouse Subs.
At Burger King U.S., in the midst of a massive, multi-year turnaround effort, same-store sales increased 6.4% in the fourth quarter. But unit count at the chain decreased by 3.7%. The chain’s franchisees closed close to 300 locations in the period.
Company executives said Tuesday that the higher rate of closures is “behind” the brand now and that they expect a more normalized rate of closures this year.
A trio of major Burger King operators filed for bankruptcy last year, and others closed large swaths of underperforming locations, as a combination of weak sales coming out of the pandemic and soaring costs caused deep financial problems for many operators.
Burger King has invested $400 million in marketing and remodels, called “Reclaim the Flame,” and is in the process of buying out Carrols Restaurant Group, which operates about one out of seven of the chain’s 6,800 U.S. locations.
The closures likely influenced the rise in profitability, as the shuttered units tend to lose money. But the profitability improvements at the fast-food burger chain have come through price increases and a series of operational initiatives designed to improve efficiency. Better sales have helped, too.
RBI vowed last year to report its profitability so investors would “hold us accountable” for driving profitability growth. And the company tied profitability metrics to elements of Reclaim the Flame. Franchisee profitability at Burger King U.S. has already bested the targets for 2024 set under that investment, which triggers additional marketing investments by franchisees.
But Doyle noted that the work on that isn’t finished. “$205,000-plus is great progress,” he said. “But we’re not there yet. It’s got to be higher than that.”
UPDATE: This story has been updated to add comments from the company’s fourth-quarter earnings call.
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