Burger King’s parent company is making a big bet on itself, reaching a deal to acquire its largest U.S. franchisee, Carrols Restaurant Group.
Restaurant Brands International (RBI), whose other brands include Tim Hortons and Popeyes, is acquiring Carrols, an operator of more than 1,000 Burger King restaurants in the U.S., for roughly US$1 billion in cash.
The move helps to fuel RBI’s “Reclaim the Flame” campaign, which was first unveiled in 2022.
As part of that plan, RBI committed $400 million to remodel stores and improve profits.
With Tuesday’s $1 billion acquisition, RBI will also spend $500 million towards remodelling 600 of Carrols’ Burger King locations, hoping to have them fully modernized by 2028.
For RBI’s executive chairman Patrick Doyle, who previously led an impressive turnaround at Domino’s Pizza, the deal sends a message to Wall Street about the company’s commitment to boosting performance at Burger King.
“You can question how much money it might ultimately cost and you can question how fast we’re going to do it, but with this acquisition, I hope that you will no longer question if we will be successful. I am completely confident that we will,” Doyle said Tuesday on a conference call with analysts.
Doyle noted Burger King will use cash flow from the Carrols stores to upgrade the look of the restaurants.
FRANCHISEE RESULTS
Over time, RBI plans to sell most of the restaurants back to a wider group of franchisees who have “smaller portfolios and live close to the communities they are serving,” Doyle explained.
“Restaurant Brands’ view is that franchisees who live in the communities they serve typically do well,” Bloomberg Intelligence analyst Michael Halen told BNN Bloomberg in an email.
The company expects to grow the number of Burger King franchisees in the U.S. to between 400 and 500 over the next five years, up from its current count of about 300.
POSITIVE REACTION
Analysts at firms including Citi and Bernstein reacted positively to the Carrols deal.
Bloomberg Intelligence’s Halen said he expects the move to boost Burger King’s comparable store sales, given the company has been “seeing a 12 per cent sales bump from remodels.”
WHAT DOES MODERNIZATION LOOK LIKE?
As for what goes into modernizing Burger King locations, the plan is very much geared towards the digital age.
In November, RBI CEO Josh Kobza told BNN Bloomberg that all Burger King locations worldwide will eventually be "100 per cent digital."
“It's better for the guests, because they have a better guest experience, it's better for our team members, because it reduces the stress that they feel in some of the interactions and allows them to focus on delivering a great product and great experience,” Kobza said in a television interview.
One of the main aspects of digitization has been the introduction of kiosks, which allow customers to order and pay without interacting with an employee.
“We're in the process of rolling out kiosks to all of our Burger King company restaurants, and in the restaurants we're in so far, the reception has been great,” Kobza added.