Restaurant Brands Int’l: Value-Driven Brands Well Positioned for Sluggish Consumer Environment

Restaurant Brands International QSR appears to be taking adequate steps to meet the changing demands of its customers, investing in footprint reimaging, loyalty programs, and proprietary e-commerce pages in an effort to shore up its brands’ competitive positions, leaning into its scale-driven cost advantage.

With former Domino’s CEO Patrick Doyle stepping in as chairman of the board, the firm appears to be laser focused on improving franchisee profitability, which has declined precipitously over the past half decade. While Doyle’s pedigree is undeniably impressive, we remain skeptical that RBI can turn around its burger business in the U.S., with the brand posting the softest unit economics of any banner in our coverage. We’ll closely monitor the firm’s turnaround in its home market, but note that its international aspirations and development narrative remain alluring even if Burger King U.S. remains in a managed, structural decline.

On a positive note, RBI’s investments in its Tim Hortons brand have underpinned a strong turnaround, offering investors a glimmer of hope as management turns its attention to the beleaguered U.S. burger chain. It is perhaps attributable to Tim Hortons’ success that management’s found the conviction to launch a $400 million “Reclaim the Flame” initiative to right ship with Burger King, characterized by investments in marketing, remodeling, and store technology—though we continue to view the burger banner’s domestic decline as largely irreversible. The playbook looks similar to what management successfully deployed at Tim Hortons, but the restaurant industry is notoriously unforgiving when it comes to brand turnarounds, as we’ve seen with both KFC and Pizza Hut (two wide-moat Yum Brands subsidiaries) in the U.S.

Despite the frosty prelude, RBI’s prospects remain broadly attractive, with the firm boasting a compelling international growth narrative through its network of strong master franchise partners. Burger King and Popeyes units have generated particularly impressive traction abroad, and a recent agreement to expand the Tim Hortons banner to the China market unlocks one of the key purported synergies of the original acquisition in 2014.