Behind the bones of its $400 million comeback, Burger King’s turnaround is an optimization effort as much as a rethinking. Many of the frameworks at hand are designed to over-incentivize “A franchisees.” This calendar year, Burger King’s U.S. arm has closed a net of nearly 200 stores, with 300–400 gross expected to shut down across 2023. That’s well above the norm of roughly 200, but not an unexpected glitch in the journey. Pizza Hut, in August 2019, as it began to move away from Red Roof stores in favor of more carryout, delivery-friendly Delco units, started to shed underperforming restaurants and strengthen relationships with operators who were well-capitalized and committed to the close-and-replace approach.

The company would zip 1,745 globally restaurants in 2020, including 573 in Q1 and Q2 combined, and 1,172 total in Q3 and Q4 (it also opened 682). A net unit decline of 6 percent gave Pizza Hut its lowest global restaurant count since Q3 2018. But the result was in line with expectations and a necessary dip to transition Pizza Hut to healthier, more modern real estate.

There are multiple threads pulling in Burger King’s “Reclaim the Flame,” with RBI chairman Patrick Doyle recently telling investors they’ve begun to report positive outcomes.

READ MORE: For Burger King, a Reset, then a Revival

A good place to peek into the real-time effort, however, is with Burger King’s largest franchisee, publicly traded Carrols Restaurant Group. The company closed October with 1,019 Burger Kings and 61 Popeyes. Total restaurant sales lifted 7.2 percent to $475.8 million in Q3, year-over-year, as same-store sales lifted 8.1 and 11.7 percent at Burger King and Popeyes, respectively. Adjusted EBITDA totaled $41.9 million compared to $17.7 million last year and net income was $12.6 million versus a net loss of $8.7 million.

Carrols reported a 74 percent increase in restaurant-level profitability.

Company CEO Deborah Derby said the franchisee was able to achieve positive traffic growth at Burger King, which admittedly happened earlier than anticipated. Burger King’s comp broke apart as 7.7 percent average check and 0.3 percent traffic. Popeyes was 8.6 percent check and 2.8 percent traffic.

Dialing it back, there’s been a symbiotic committment between Carrols and Burger King ever since Reclaim the Flame arrived in fall 2022.

Burger King built a tool with Carrols to figure out how to prioritize the highest-return projects.

Carrols in August reported “one of the best quarters in the company’s 63-year history,” Derby said. The stock rose double-digits as comps climbed 10.4 percent.

Carrols’ momentum sustained into Q3 and Derby told investors to expect “a strong finish to the year” in Q4 with same-store sales at Burger King restaurants in the mid-single digits, aided by rising traffic.

One visible example at work is “Sizzle,” the prototype Burger King unveiled in October (step inside the new model here) at its franchise convention. The first ground-up version in the company’s system was opened by Carrols, just a few weeks ago in Marion, North Carolina, a small city about 20 minutes outside Asheville. Bennington, Vermont, was another. The design, which enhances guest experience through digital improvement, Derby said, includes updated drive-thru and pickup, as well as signature design elements. For 2024, roughly half of Carrols’ remodels will come under the Sizzle banner. The company, overall, plans to remodel about 45 Burger Kings. Derby said Carrols only foots the bill on remodels it believes “cumulative will meet our mid-teen return hurdle rate threshold.”

“We believe that such economic assistance, along with our robust earnings profile, makes it an opportune time to accelerate the modernization of our portfolio and reap the benefits of our investment,” Derby said. In Burger King’s $250 million Royal Reset, remodel royalty credit is recognized as contra-revenue in “franchise and property revenues” over a period of up to 20 years. Franchisee elected royalty rate increases apply to all restaurant level sales and benefit “franchise and property revenues.”

The Sizzle format allows new modes like kiosk and in-store mobile order and pickup, as well as mobile order and pickup at the drive-thru. President Tom Curtis previously told QSR all channels are defined clearly “so the guest gets the same consistent experience every time they come to one of our restaurants.” The back of the house also cut down on steps for employees and flowed layout toward more efficient service.

The Marion restaurant touts 40 seats. More generally, operators can select 40, 60, or 80-seat Sizzle boxes depending on market need. But it’s going to cut about 200 square feet from traditional builds.

Unsurprisingly, Carrols is also in the trenches with Burger King’s kiosk rollout. Derby said the company is working to bring them to 250 or so locations over the next four months, with the vast majority of the investment being funded by Burger King’s Royal Reset. To refresh, Royal Reset is a short- and long-term outline that starts with updates via equipment and technology. Ultimately, it will cover remodeling restaurants, especially high-scope projects where, as often as possible, the site gets scrapped down and rebuilt as Sizzle.

Derby said the kiosks are early stage, but Carrols expects them to bump average checks. “And we also just think from a guest satisfaction [perspective], I mean, in certain areas of the country people like to actually interact with the kiosk more than potentially a person just because it can be faster and that’s just how they like to do it,” Derby said.

Those are the two things Derby hopes to realize with the pilot. Additionally, labor efficiencies could emerge. “At this point in time, we just want to kind of prove out the initial concept. And then, if that’s good then we’ll plan on taking it further,” Derby said.

In RBI’s Q1 call (the company is on a different fiscal calendar than Carrols), the company said Burger King corporate stores with kiosks saw 28 percent digital mix.

Curtis spoke about this as well earlier in the year, saying the movement was in full stride at corporate venues. “I am hopeful we timed it right on kiosks,” he says. “I know some people started kiosks long ago. Some haven’t leaned in yet. I’m hoping that we’re hitting the sweet spot of when the consumer really wants kiosks. So I’m excited to see where those go.”

RBI CEO Josh Kobza shared a similar sentiment: “We’re seeing a much better guest reception to kiosks than we might have seen say five to seven years ago in the U.S.” he noted. “So we think that’s an interesting avenue to explore further.”

Internationally, namely in Asia and Europe, with Latin America coming along, Burger King stores are far more digital than domestic units. In-restaurant transactions, Kobza shared, are “almost run entirely through kiosks.”

Alongside the logistical updates, Derby said Carrols “had great traction” with some recent product launches, including the BK Royal Crispy Wraps, “which significantly outperformed expectations.” The wraps take Burger King’s Royal Crispy Sandwich, chop the product up, and put it in a wrap. So they repurpose a current item instead of layering in SKUs to complicate prep or costs.

Carrols’ digital and mobile business, Popeyes factored in, approached 10 percent of overall sales—a year-over-year increase of 300 basis points.

The wraps played a role here, too, Derby said. They amplified Burger King’s relevance across demographic groups, including younger consumers, who are generally more tech savvy. Hence, wraps provided ancillary benefits in mobile and delivery, she said, in terms of comp sales, traffic, and average check. Delivery also continues to improve thanks to dinner and late-night performance, with the latter being aided by increased hours of operations.

In regard to that final point, Derby said, Carrols saw improvements in all KPIs measured by corporate, with guest satisfaction hiking 33 percent. “We continue to believe that guest satisfaction is a key driver of repeat business and incremental traffic growth,” Derby said. “And so that’s one of the reasons we believe we got to see positive traffic sooner than we otherwise expected to.”

As a result, Carrols is on the cusp of achieving A-level operator status in less than 12 months, she said. Operational improvements anchored by free cash flow generation of over $30 million in Q3 enabled Carrols to lift hours of operation by more than 3 percent while reducing labor hours by about 2 percent compared to the prior-year period. It’s reporting productivity efficiencies in labor with wage inflation decelerating to roughly 4 percent. Manager and hourly turnover has stabilized as well.

Carrols’ Q3 was a sign of things to come on another front. The 8.1 percent comp was a slight down step from the previous quarter due to average check moderating with reduced benefit from pricing and lower discounting that began in 2022, CFO Tony Hull said.

Carrols outlined mid-single-digit comps in Q4 because it expects to see further traffic gains, Hull said, as well as a boost from corporate marketing. Burger King has said on recent calls it’s been saving up to roll incremental spending forward in Q4. RBI anticipates its Q4 contribution to be about $35 million “due to seasonally higher costs per ad, coupled with a pickup in other non-media expenses in the baseline ad fund to support our forward marketing calendar.”

It’s going to be RBI’s largest quarterly contribution to date.

In sum, the two-sides of it, Hull said, are average check coming down after lapping lower discounting and curbing prices, alongside the marketing bump. Carrols’ Q4 pricing is in the mid-single digits after 12 months of accumulation. The menu price increase in Q3 was 6 percent. Hull said there was a big price increase drop-off in September. Next year, Carrols plans to be cautious and move at a more normal cadence, closer to pre-COVID measures (2–3 percent range).

“I think it’s one, obviously the increased marketing spend that we’re anticipating from Burger King,” Derby said of Carrols’ guided same-store sales. “But it’s also the operational improvements that we’ve made over the past several months this year that we believe is, again, the key to that repeat traffic and incremental traffic. So I think all those together is what make us optimistic about the traffic continuing to be positive.”