Patrick Doyle, a former Domino’s CEO that was named RBI’s executive chairman in November, told investors Tuesday that his mandate is to “rapidly accelerate the growth of the company.”
The industry veteran believes in the opportunity for Burger King, Popeyes, Tim Hortons, and Firehouse Subs, or else he wouldn’t have invested $30 million and locked himself in for five years. He has more conviction in the company than he did 90 days ago when he started.
Doyle’s primary message to the investment community is that all efforts start with promoting franchisee success, which means growing profitability.
“When restaurant-level profitability is strong and growing, it means our franchisees increasingly have more money to invest in their restaurants, in modern digital menu boards, refreshing kitchen equipment, opening new locations, and feeling the pride of creating exceptional guest experiences and providing meaningful employment to hundreds of thousands of their team members,” Doyle said during RBI’s Q4 and full-year earnings call.
Joshua Kobza, who was announced as RBI’s new CEO starting March 1, said better profitability starts with higher sales and traffic numbers. The good news, he said, is the company is seeing momentum on that front in core markets. For example, Burger King U.S.’s same-store sales increased 5 percent in the fourth quarter, lapping 1.8 percent growth in 2021. At Tim Hortons Canada, the chain delivered 11 percent growth despite lapping its Timbiebs promotion with Justin Bieber.
“I think on the stuff below sales, we did see a tremendous amount of inflation, especially across the COGS lines over the last couple of years,” Kobza explained. “And I think there’s a little bit of better news coming on that front. We are seeing some moderation in COGS inflation, and I think that really helps. If we can put together the combination of driving some sales and traffic back into the restaurant, plus have some moderation in some of those cost lines, I think that’s the formula that we’ll be focused on going forward.”
As a publicly traded company, Doyle wants to elevate accountability when it comes to reporting franchisee profitability. RBI hasn’t revealed figures since its 2019 Investor Day. Going forward, the group will publicly report progress on an annual basis. The transparency began Tuesday. Compared to three years ago, profitability was down in the home markets of Burger King U.S., Popeyes U.S., and Tim Hortons Canada.
Burger King’s average four-wall EBITDA was roughly $140,000 in 2022. This is particularly importance since the chain’s profitability is tied directly to its $400 million “Reclaim the Flame” turnaround plan. As a reminder, the strategy involves $150 million for advertising and digital investments and $250 million for technology, kitchen equipment, building enhancements, and remodels/relocations.
The brand announced a few months ago that 96 percent of U.S. franchisees signed an agreement that if Burger King reaches at least $175,000 in EBITDA by the end of 2024, they will invest an incremental 50 basis points into the advertising fund for 2025 and 2026.
Historically speaking, it’s a lofty goal. The record for the highest profitability is $184,000. But progress is happening. Thanks to a greater focus on operations beginning in mid-2021, franchisee profitability increased 40 percent in Q4 year-over-year. At the same time, Burger King recognizes some operators are struggling, and the company is working with them to sell their portfolios to better-suited franchisees.
“We’ve got to work through some situations with some of the franchisees,” Doyle said. “But ultimately, if we’ve got the averages moving in the right direction, the health of the system is continuing to get better. … From a level of investment, the Reclaim the Flame, I think what it did for us is give us an opportunity to prove that investing in this business is going to generate good returns for the franchisees and for the company in growing the overall health of the business and the guest experience, and you can see that it is working.”
Tim Hortons’ average four-wall EBITDA was CAD 220,000 or roughly $150,000. Doyle said there’s an opportunity to improve the chain’s profitability across all formats and regions, and rising sales prove as much. Comps for Tim Hortons Canada lifted 11.6 percent in 2022, the segment’s highest level of annual same-store sales since RBI acquired it in 2014.
For Popeyes U.S., profitability in 2022 was about $210,000, impacted by pressures from commodities and labor. This year, the chicken concept will focus on working with franchisees to streamline kitchens and elevate operations. For Firehouse, RBI is working to integrate the fast casual into different systems, and Doyle assured its profitability will be part of annual disclosures in the future.
“Our long-term growth as a company is tied to the growth of franchisee profitability,” Doyle said. “You’ll see us do our part in menu innovation, marketing, restaurant design, technology, and digital, and we’ll work closely with franchisees who need to do their own part to improve their profitability, particularly delivering excellent and consistent execution and a positive team member and guest environment in their restaurants.”