Morningstar | Master Franchise Structure Positions RBI for Longer-Term Unit Growth Potential and Comp Acceleration
The combination of Burger King, Tim Hortons, and Popeyes Louisiana Kitchen makes Restaurant Brands International the third-largest global quick-service restaurant chain, with meaningful global unit growth and cost-reduction possibilities as well as the potential to add to its brand portfolio over time. As the Popeyes integration continues and management works to refine the Tim Hortons' experience, we believe RBI's longer-term priorities remain relatively straightforward: Combine unit growth and same-store sales levers (including digital/delivery, daypart expansion, and plant-based proteins) to drive systemwide sales, optimize operating costs, and bolster franchise-level returns. We also believe this combination will better position each of the brands to adapt to an evolving restaurant landscape, highlighted by McDonald's and Yum's menu optimization and refranchising efforts, fast-casual concepts starting to reach maturity, and the rapid retail and wholesale growth of specialty coffee players like Starbucks and Dunkin' Brands.Despite plans to manage the Burger King, Tim Hortons, and Popeyes brands independently, we see similarities among the operational strategies behind each, including a focus on brand awareness and guest experience investments; increased use of technology as a customer acquisition, throughput, and marketing tool; international expansion; and channel diversification. Under 3G Capital's stewardship, Burger King enjoyed meaningful improvement in franchisee relations and fundamentals through a streamlined menu and aggressive operating cost cuts. We believe the entire RBI portfolio can accelerate its strategic plans while leveraging operational best practices. We share management's view that 3G's master franchise joint venture structure offers an asset by which to accelerate Tim Hortons' and Popeyes' unit growth, which we expect to become more pronounced in the years to come. We would not be surprised to see RBI explore new acquisitions of other quick-service or fast-casual restaurants to develop a more comprehensive brand portfolio for global expansion, though we don't believe this will change its commitment to returning capital to shareholders.Restaurant Brands International is a holding company. Through its subsidiaries, Co. is engaged as a quick service restaurant (QSR) company with over 20,000 restaurants in approximately 100 countries and U.S. territories as of Dec 31 2016. Co.'s Tim Hortons® and Burger King® brands have similar franchise business models with complementary daypart mixes. Tim Hortons restaurants are QSRs with a menu that includes coffee, tea, espresso-based hot and cold drinks, baked goods, including donuts, Timbits®, bagels, sandwiches, soups and more. Burger King restaurants are QSRs that feature flame-grilled hamburgers, chicken and other sandwiches, french fries, soft drinks and other food items.
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