Doyle's Domain
We recently added QSR to the 2H23 shopping list - putting it on the LONG BIAS list.
For years, 3G has followed a certain playbook by trying to add value by restructuring companies after buying them and imposing a model that’s based on extreme efficiency. Implementing zero-based budgeting at BUD, QSR, and KHC has led to significant underperformance. That story of restructuring, efficiency, cutting costs, and not investing in brands led QSR (BUD & KHC) to underperform all its QSR peers except PZZA and the S&P 500 over the past 10 years. Was making Patrick Doyle a signal to the end of that era?
Patrick Doyle stepped down as CEO of Domino's in 2018 and is credited with one of the best turnarounds in restaurant history. He guided Domino's as it recovered from near bankruptcy to become one of the industry's most desirable brands. Patrick Doyle came out of retirement to join Restaurant Brands International as executive chairman. He invested $30 million of his own money into the company, purchasing 500,000 RBI shares, and received a package of stock and options that tied him to the company for five years. Patrick Doyle thinks the Whopper is the best burger in the business. Not only is it Burger King's biggest strength as the brand tackles sales and profit challenges in the U.S., but he believes it's the chain's critical competitive advantage as it goes up against McDonald's. "That is ultimately how we compete effectively with them: we've got great food. We need to do all the rest of those things as well as they do, and then I like our odds."
To be clear, Restaurant Brands is not in the same condition as DPZ was in 2010, and fixing Burger King will take time. RBI can clearly benefit from Mr. Doyle's leadership style and industry experience. Next Monday, March 10th, @ 12:30, we will run through the challenges and opportunities for RBI.
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EVENT DETAILS:
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Fixing Burger King will take time.
Meridian Restaurants Unlimited, one of Burger King’s largest franchisees with 118 locations, declared federal bankruptcy protection this month, citing a combination of low sales and skyrocketing costs for food and labor.
Meridian issues are rooted in M&A, low AUV's and inflated costs. They rolled up some stores with lower-than-average sales, believing it could improve their results. Meridian’s unit volumes are below the Burger King system (2022 AUVs of $1.4 million) significantly lower than WEN and MCD. TAST 2022 Burger King AUV was $1.6 million. The biggest challenge for the QSR LONG is fixing Burger King. Low AUV and significant inflation are a concern for the Burger King system. According to court documents, wage rates have increased 33% over the past two years, while food costs are up 22%. Because the company’s restaurants had lower-than-average volumes, they had “greater sensitivity to the recent, dramatic rise in labor, commodity and maintenance costs.” The company hoped that "recent improvements in customer service scores and work by Burger King to identify potential cost savings and margin improvements could pave the way for a recovery." This is the second major bankruptcy filing by a Burger King franchisee this year, following the filing in January by the 90-unit Toms King. Some of the company’s biggest franchises had their bonds downgraded last year. And average per-store EBITDA, or earnings before interest, taxes, depreciation, and amortization, declined to $140,000 per location in 2022, down 22% since 2018. Burger King announced a $400 million revitalization initiative called “Reclaim the Flame,” which features assistance for remodels and a major investment in marketing. That effort has shown some early results, but the jury is still out on the timing.
Getting more stores in better operator hands will ultimately help fix the system.
Knapp Track - Casual Dining February
FEBRUARY 2023 Comps were 7.8% or (-8.8%) sequential decline from January 16.6%. Traffic declined (-1.4%) in February 2023 from +5.9% in January.
COMPARABLE SALES COMPARABLE GUEST COUNTS
USA 7.8% -1.4%
CALIFORNIA 9.8% 0.3%
TEXAS 8.5% -1.9%
FLORIDA 4.4% -4.0%
