March 4, 2024

Burger King’s plans to revive its U.S. business have already shown improvements in franchisee profitability, in addition to strong sales.

“We’ve gotten sales back in the right direction, but we’ve started to dramatically improve franchise profitability,” said parent company CEO Josh Kobza. international restaurant brandtold CNBC.

Restaurant Brands also owns Popeyes Louisiana Kitchen, Firehouse Subs and Canadian coffee chain Tim Hortons.

After several years of disappointing sales, the burger chain unveiled a $400 million turnaround plan with franchisees in September. In 2020, Burger King’s sales slipped to No. 3 U.S. burger chain, losing out to Wendy’s After launching breakfast nationwide.The gulf between Burger King and its biggest competitor McDonald’s Just expanded.

But Burger King is trying to mount a comeback, with its parent company spending heavily on restaurant renovations and advertising. The chain is also taking steps to improve restaurant operations and menu offerings, and is doubling down on its menu’s longtime staple, the Whopper.

Burger King’s U.S. same-store sales rose 8.7% in the first quarter, an early sign that the strategy may be working. A year ago, its quarterly same-store sales were roughly flat.

But the chain is also trying to make sure the turnaround is sustainable, rather than just boosting sales for a few quarters and then struggling again.

One of the long-term goals of this transformation is to increase franchise profitability, an important indicator of a chain’s overall success. For operators, higher margins mean they have money to reinvest in existing restaurants or new locations, resulting in more sales for franchisors.

It’s good for restaurant chains, too: Franchisees struggling to make ends meet drag on business, often resulting in closures, plus systemic sales declines for laggard restaurants.

So far this year, two Burger King franchisees have filed for bankruptcy. Toms King Holdings, the first franchisee to file for bankruptcy, sold most of its stores at auction in April for $33 million. Burger King is trying to push another operator, Meridian Restaurants, to sell its restaurants, according to a report from Burger King. Online Restaurant Business. Meridian has closed more than 20 restaurants after filing for Chapter 11 bankruptcy.

Restaurant Brands executives said in early May that they expect to close 300 to 400 underperforming locations this year, but that depends on how quickly business rebounds. Burger King typically closes hundreds of U.S. locations each year.

“It’s a big moment for us to figure out which restaurants have long-term viability,” Tom Curtis, president of Burger King U.S., told CNBC. Freeing owners of those burdens so they don’t have to take a loss and can put that money back into expanding their property base and the restaurants they own.”.

“It’s all part of the normal process,” he added. “If we do that, we will be bigger, stronger and able to grow faster in the future.”

The chain also recently changed its franchisee expansion policy, limiting most operators to fewer than 50 restaurants and requiring local ownership.

Investors appear to be relatively optimistic about the company’s future. Shares of Restaurant Brands are up 16% this year, giving the company a market value of $23.5 billion. The S&P 500 is up 13% over the same period.

“I think investors appreciate the fact that the RBI is willing to invest in the brand to see its revival,” Curtis said.