Financing

With new leadership, Restaurant Brands International charts an aggressive path

Patrick Doyle, and now new CEO Josh Kobza, take the helm at the owner of Burger King, Tim Hortons, Popeyes and Firehouse Subs with a mandate: Speed the company's growth.
Burger King comeback
The U.S. comeback of Burger King, which should feature remodels and marketing improvements, will be critical to RBI's success. / Photo courtesy of Burger King.

When Patrick Doyle was named executive chairman of Restaurant Brands International in November, much of the focus was on the technology track record he established during his eight-year run as CEO of Domino’s. There was much less attention paid to the real reason behind that chain’s success.

“When I came in, there was a lot of focus on the track record at Domino’s,” Doyle said in an interview. “Yet our franchisee profitability tripled while I was the CEO. That gets a secondary mention.”

RBI is making a massive bet that Doyle can do that again. In the course of three months, the owner of Burger King, Popeyes Louisiana Kitchen, Tim Hortons and Firehouse Subs upended leadership, luring Doyle out of retirement with a lucrative five-year deal and giving him a new CEO in Josh Kobza, who will replace José Cil on March 1.

Their mandate is simple: Speed the company’s growth. Nine years after it was created with the landmark merger of Burger King and Tim Hortons, RBI’s board clearly felt there was some untapped potential. And they’re banking on Doyle’s track record to accomplish that.

“This is about setting ourselves up for an accelerated pace of growth for the next five to 10 years,” Doyle told investors this week. “My own mandate here at RBI is to rapidly accelerate the growth of the company by identifying areas that can deliver outsized results as we lean into them even more.”

Yet accomplishing that task will be no easy feat. RBI features four disparate brands and a rapidly growing international presence, making it a much more complicated company than the one Doyle used to run.

All in

RBI is one of the industry’s most aggressive companies. It was effectively created in 2010 when the Brazilian investment firm 3G Capital bought Burger King and then turned it around largely by focusing on international growth. Burger King bought Tim Hortons in 2014 for more than $11 billion, one of the biggest deals in industry history. RBI later bought Popeyes and then Firehouse.

Yet for all that growth, the company has had some challenges. Tim Hortons has never worked in the U.S., and then struggled in Canada before the company put money into marketing there, starting in 2019. More recently, Burger King struggled in the U.S. RBI's board clearly felt there was more potential to be had, and their announcement of Doyle's hiring made that clear.

“This is part of our long-term strategy to accelerate growth in our restaurant brands and profitability for our franchisees and drive shareholder returns that we believe this company is very capable of delivering,” RBI’s two chairmen at the time, Daniel Schwartz and Alex Behring, said in a statement announcing the move.

More notably, Doyle is not taking a salary. He is instead investing $30 million of his own money in the company and instead took some 3.25 million in stock, much of which vests or is tied to company performance. “I’m all in,” Doyle told investors.

“This is not just something we’re talking about here. We are going to do this.” -Patrick Doyle.

Tying franchisee profits to bonuses

Doyle’s comments on franchisee profitability came after a difficult 2022 for many chains and their franchisees. Each of RBI’s concepts’ profitability has declined over the past four years due to high labor and food costs.

Fixing it will be paramount. RBI is almost entirely franchised. And franchisees do not remodel units, build new units or acquire existing locations unless that profitability is there.

Doyle himself revealed per-store EBITDA, or earnings before interest, taxes, depreciation and amortization, including $140,000 per year in 2022 for Burger King and $210,000 per year, per store for Popeyes. Both were down since 2018, the last time the company revealed figures.

Doyle said the profitability data would guide the company going forward. For instance, Burger King operators have agreed to pay another half a percent of their revenues to the company’s ad fund if their per-store EBITDA gets to $175,000 by 2024.

What’s more, Kobza noted, company executive bonuses will be tied in part to operator profitability. Thus, while company executives have mentioned profitability often, company executives now insist it will become foundational to their approach. “We’re going to talk about this on an ongoing basis,” Kobza said.

“This is not just something we’re talking about here,” Doyle said, “we are going to do this.”

Fixing Burger King

Each of the brands will focus on operator profits. The company is working with Popeyes operators to streamline kitchens and improve profitability, for instance. Firehouse, meanwhile, is being integrated into the RBI systems and will also feature that focus, Doyle said.

But franchisee profits are of critical important to Burger King U.S. There, stagnant unit volumes coupled with rising costs for labor and food—and a franchisee base that has aggressively used debt to buy and remodel locations—has left many of its operators struggling.

Carrols Restaurant Group, which operates one out of every seven Burger King locations in the U.S., at one point last year had an EBITDA margin of just 1%. Toms King, a 90-unit Burger King operator, declared bankruptcy. The brand in the U.S. closed a net 300 restaurants over the past four years and lost its status as the country’s second-biggest burger chain to Wendy’s.

“Burger King has definitely struggled,” Kobza said in an interview.

The challenges prompted an overhaul of Burger King’s executive team and a $400 million investment in remodels and marketing called “Reclaim the Flame.” The company has spent the past 18 months working to fix operations, believing that has a long-term impact on sales and profitability. It also introduced a new ad campaign, featuring a catchy new “Whopper Whopper” jingle.

Early returns are promising. U.S. same-store sales rose 5% in the fourth quarter. Customer satisfaction is up 40% over the past 18 months, executives said. And store-level profits were up 40% year over year, which is both a strong improvement and an indication of just how difficult things were for the brand.

“We’re starting to see a lot of progress,” Kobza said. “We’ve put more advertising dollars behind the brand and have a new brand campaign that’s stuck in everybody’s head. That’s a lot of firepower.”

Driving sales, he added, is a key component to improving profitability. “The topline solves a lot of things,” Kobza said. But he added that costs are beginning to ease, and the company is working to help franchisees improve operations.

“We’re going to go after it,” he added. “We’ve got clear plans to grow franchise profitability.”

International growth and acquisitions

For all the talk of franchisee profitability at home, the biggest growth opportunity for RBI remains outside the U.S., which is where Burger King has thrived since its 2010 acquisition by 3G Capital. It is also where Domino’s has thrived, before and after Doyle became the CEO there.

Burger King now operates nearly 13,000 restaurants outside the U.S., which is more locations than the other three brands have worldwide, combined. Doyle said that RBI’s international growth is going to drive the business for years as the brands find their global footing.

“Most of the store growth is going to come ultimately from outside the U.S.,” Doyle told investors. “Popeyes is doing a great job in the U.S. with store growth. But the international business is going to be the engine on store growth for decades to come. I feel really good about the state of that business.”

There is certainly plenty of growth there already. Popeyes, for instance, added more than 200 international locations over the past year, which represents 23% unit growth. Tim Hortons added 362 units outside of Canada over the past year.

Tim Hortons has more than 600 locations in China just a few years after opening its first locations there and now the operators behind Tims China has agreed to develop Popeyes units.

Some global openings have generated substantial enthusiasm. Customers waited in line for hours recently to try Tims’ first location in Pakistan. Popeyes in Indonesia and South Korea also generated a strong reception. “There are lots of stories,” Kobza said. “The foundation for Tims and Popeyes is there.”

As for further acquisitions, the two executives did not precisely dismiss the idea. But Kobza said there is plenty of work to do with the existing brands.

“There’s so much to do with our existing businesses,” he said. “That’ll be 110% of our focus. We want to make a lot of progress with our existing brands. That’s where we’ll dedicate our time for the foreseeable future.”

 

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