Restaurant Brands International is a global leader in fast food service. Burger King, Tim Hortons and Popeyes are the largest and most popular brands in the world.

Restaurant Brands operates over 27,000 restaurants, including more than 17,800 Burger King restaurants, 4,800 Tim Hortons restaurants and 3,100 Popeyes restaurants worldwide. In total, the company has more than 2500 franchise companies in over 100 countries. It has high market penetration in North America and Europe.

The company focuses on localized menus and high quality food ingredients to attract consumers. The company operates in three reportable segments: Tim Hortons (TH), Burger King (BK) and Popeyes Louisiana Kitchen (PLK). Tim Hortons is the largest supplier with a share of ~ 60% of sales and ~ 45% of profits, followed by Burger King (30% of sales) and Popeyes (10%).

Burger King and Popeyes accounted for ~ 44% and 11% of Adjusted EBITDA 2020, respectively. Popeyes is the fastest growing chain of restaurant brands in terms of both sales and number of restaurants, while Tim Hortons is one of the most popular restaurant brands in Canada.

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Investment data

Sales growth and market exposure

Most of the Restaurant Brands brands are the world’s leading grocery stores. Over the past 45 years, Restaurant Brands has established itself as a leader in great taste and quality in food. It ensures strict quality controls and procurement norms to maintain its quality standards.

Burger King is the second largest fast food hamburger chain, while Tim Hortons is one of the largest fast food restaurant chains in North America and Popeyes is one of the world’s largest chicken fast food restaurants. Restaurant Brands is in a good position to benefit from a growing market of its well-known brands. The company continues to develop new products with an emphasis on customer feedback to strengthen its leadership position in the fast food industry.

All of Restaurant Brands’ restaurants are franchise businesses. The company earns most of its revenue from royalties based on a percentage of sales reported by its franchise restaurants and franchise fees. Restaurant Brands’ franchise agreements are usually agreements with a term of 10 or 20 years plus an extension period. For the brands TH and PLK in the USA and Canada, there are long-term beverage supply agreements with large beverage manufacturers such as The Coca-Cola Company and Dr. Pepper / Snapple, Inc. for the TH and PLK brands.

The company strives for the overall international development of all of its brands through the establishment of master franchise companies with exclusive development rights and joint ventures with new and existing franchisees. Sales have increased more than 10% CAGR over the past three years.

Restaurant Brands saw a sharp drop in its comparable sales across brands and regions from mid-March due to COVID-19. Sales and traffic decreased as most stores remained closed.

However, Restaurant Brands is in a good position to understand changes and consumer consumption patterns and is quick to respond to those changes. Home delivery options have been rapidly rolled out in various restaurants since the COVID-19 outbreak. Restaurant Brands’ drive-thru will continue to support its business and serve as a safe and extremely convenient means of dining for guests.

The company has accelerated the transformation of the drive-thru experience. In 2020, 3,600 digital menu boards were installed in the home markets. Although the number of restaurants stayed the same year-round, global digital sales reached $ 6 billion and more than doubled in home markets, fueled by rapid digital innovation and new service options such as roadside collection and expanded delivery services in new restaurants . At the end of December, over 96% of restaurants worldwide were open.

Dividends

Restaurant Brands is a dividend aristocrat and its most recent annual dividend increase was 6%. It has a decent dividend yield of over 3% but has a very high payout ratio. The company has seen annualized dividends grow 62% over the past three years. There is also a share buyback program. The strong generation of free cash flow from Restaurant Brands’ three well-known brands offers a long way to go for expansion. In addition, the franchise business model involves very little investment in the company. RBI announced their 9th consecutive dividend increase, ending 2020 with $ 2.6 billion of available liquidity.

Restaurant Brands aims to build 40,000 restaurants by the 2020s. The company has expanded its geographic presence worldwide and successfully established 60% of the new restaurants in leading international developing countries such as India, China, etc. These countries are experiencing tremendous growth in consumption and restaurant brands are in a good position to capitalize on this rising trend.

Popeyes, the legendary fried chicken brand, plans to open hundreds of restaurants in India, Bangladesh, Nepal, Bhutan and Mexico in the coming years. It is conveniently positioned in the growing chicken, coffee, and baked goods market, which is expected to reach a market size of $ 590 billion by 2023. A strong focus on the guest experience, including technologies like delivery, kiosks, and outdoor digital menu boards, should also support future revenue growth.

Quickly leveraging the infrastructure to adapt its platforms to the rapidly evolving needs that accelerated the COVID crisis, Restaurant Brands made some notable advances in a short space of time, particularly in delivery, guest experience, and CRM. The company should benefit from reduced COVID-related costs due to the introduction of vaccines and the expected recovery in the future.

competition

With very few barriers to market entry, the hospitality industry is very competitive. Restaurant Brands competes with many food service companies as well as local operators in the US, Canada and internationally. McDonald’s is one of its biggest rivals.

The company also faces competition from casual restaurant chains, convenience and grocery stores, and other grocery delivery service providers. Technology has proven to be a critical differentiator for delivery, and Restaurant Brands has made good strides in the digital space.

Bottom line

Restaurant Brands is one of the most efficient franchise quick service restaurant operators in the world with three leading independent brands that have great potential for future growth.

However, the company has faced challenges in most markets due to the ongoing restrictions on restaurant eating. Business will continue to be affected by the global COVID-19 pandemic, which is due to temporary restaurant closings and limited seating norms.

However, Restaurant Brands is trying to improve its digital offering, strengthen its delivery and transit services in order to fight competition and expand its market share.

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