Burger King’s strategy to revive its U.S. business is already yielding positive results, as franchisee profitability improves alongside stronger sales. CEO Josh Kobza of parent company Restaurant Brands International shared with CNBC, “We’ve not only redirected our sales in the right direction, but we have also witnessed a significant increase in franchise profitability.” Restaurant Brands International also owns Popeyes Louisiana Kitchen, Firehouse Subs, and Canadian coffee chain Tim Hortons.
After facing disappointing sales for several years, Burger King unveiled a $400 million turnaround plan in September 2020, which was developed in collaboration with franchisees. In terms of sales, the burger chain fell to the No. 3 spot in the U.S., trailing behind Wendy’s after Wendy’s launched nationwide breakfast offerings. The gap between Burger King and its top rival, McDonald’s, has also widened.
However, Burger King is determined to make a comeback. The parent company is investing in restaurant renovations, advertising, and operational improvements. They are also focusing on enhancing their menu offerings while emphasizing their iconic Whopper burger.
In the first quarter, Burger King’s U.S. same-store sales experienced a growth of 8.7%, signaling the potential success of their strategy. In contrast, the previous year’s quarterly same-store sales remained relatively stagnant. Nonetheless, Burger King aims for sustainable long-term success and not just a temporary boost in sales.
One of the main goals of Burger King’s turnaround plan is to enhance franchise profitability, which acts as an essential indicator of overall success. Increased profits for franchise operators enable them to reinvest in their existing restaurants and open new locations, consequently driving more sales for the franchisor. This is mutually beneficial for both the franchisees and the restaurant chain, as struggling franchisees can drag down the business and lead to closures, resulting in lower systemwide sales.
Unfortunately, two Burger King franchisees have already filed for bankruptcy this year. The first franchisee, Toms King Holdings, auctioned off most of its locations for $33 million in April. Meanwhile, Burger King is urging the other operator, Meridian Restaurants, to sell its restaurants after they filed for Chapter 11 bankruptcy. Meridian has already closed over two dozen restaurants.
Restaurant Brands executives have announced their intention to close 300 to 400 underperforming locations this year, depending on the speed of the business’s recovery. Burger King typically closes several hundred U.S. locations annually. Burger King U.S. President Tom Curtis emphasized the need to determine the long-term viability of each restaurant, eliminating those that are unsustainable. This strategy allows franchise owners to alleviate losses and reinvest in their profitable restaurants, helping them grow their asset base.
Burger King has also implemented changes in its franchise expansion policy, now limiting most operators to owning under 50 restaurants and requiring local ownership.
Investors show optimism for the company’s future, as shares of Restaurant Brands have seen a 16% increase this year, resulting in a market value of $23.5 billion. In comparison, the S&P 500 has risen by 13% within the same time frame. Curtis believes that investors recognize Restaurant Brands International’s commitment to investing in the brand’s resurgence.
Overall, Burger King’s revival plan is showing promising results, with an improvement in franchisee profitability and sales growth. The company remains focused on sustainable success, ensuring the long-term viability of its restaurants while attracting investor confidence.
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