We are adding RBI (QSR) to the Best Idea Longs List. We are hosting a Black book call on May 23rd at 12:30. QSR joins MCD as our two BEST IDEA LONGS. We will also detail some of the changes taking place at TAST (LONG BIAS) and how that influences changes in the system and investor perception.
EVENT DETAILS:
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Restaurant Brands (QSR) Long Thesis:
- Stability & Direction From The Top: Burger King has lacked leadership for decades, and 3G has worsened things. Bernardo Hees, Daniel S. Schwartz, and José E. Cil were the last three CEO, but the revolving door has been a running joke about Burger King for decades. Since 2014 the last three collectively underperformed the S&P 500 by 16%; MCD by 131%; YUM by 60%; WEN by 62%; SBUX by 49%. It was time for a change.
- Getting Serious About BURGER KING: As we learned this quarter, the new management is getting serious about fixing profitability. The Burger King brand’s struggles with franchisee profitability have prompted RBI management to change and cleanse the system. Every major QSR chain has done this over time, why did it take BK this long? The new executive chairman is having a big impact! 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.
- Getting Past 3G & New Intangibles: There have been several significant changes at RBI in the last six months. Reclaim the Flame, Patrick Doyle; changes in the C-Suite; 3G sells a significant part of RBI. 3G still controls the board, but they are pulling back. Changes can bring on new challenges, but as we have seen with changes at PZZA and CMG, significant changes can also reward shareholders. What are the intangibles of the Patrick Doyle leadership style that made him so successful at DPZ? Will RBI’s new direction help motivate the system to improve operations? Can Burger Kink be fixed?
Burger King is the 3rd largest burger chain (by U.S. system sales) built upon an iconic “home of the Whopper” brand equity, which emphasizes flame grilling (over an open flame) that represents a clear difference from griddling - consistent with its tagline "Your way, way better." TAST is the largest Burger King franchisee in the system. Ironically, the ultimate success of Burger King will come as MCD trends slow, but there are no signs of that currently happening, and it’s not needed right now.
The call will cover a broad range of topics on the Burger Kings system, among others:
- Franchisee Economics, including Burger Kings Unit Economics.
- Operating strategy, including corporate oversight.
- Menu trends strategy and innovation
- Marketing Strategy
- Current trends for Carrols Corp (TAST) and what that means for the BK system
As we learned this quarter, the new management is getting serious about fixing profitability. The Burger King brand’s struggles with franchisee profitability have prompted RBI management to change and cleanse the system. Every major QSR chain has done this over time, why did it take BK this long? The new executive chairman is have a big impact! 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.
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, May 23rd, @ 12:30, we will run through the challenges and opportunities for RBI.
