By Neil Saunders
A new, modern restaurant image is a step in the right direction when other chains are turning restaurants into places where people can linger as well as dine quickly and efficiently.
While overall revenue growth of 13.8% for Restaurant Brands International looks strong, most of this is driven by new restaurant openings rather than uplifts at existing stores. Some comparable numbers are fairly flat, with Burger King up by 1%, Tim Horton’s by 0.6%, and Popeyes up by a slim 0.5%. This lack of productivity growth is reflected on the bottom line, where both operating and net income were virtually flat.
The comparable figures from Burger King are particularly disappointing given the number of strong promotions and campaigns that the chain has run over the course of this year. These have been successful in stimulating traffic and sales at stores. However, it seems that outside of these occasions, traffic has been a little softer. Burger King clearly needs to get better at driving more regular traffic to its stores, especially as competition in the fast food segment increases.
The Burger King of Tomorrow program, which will roll out a new and more modern restaurant image, may help attract more diners into stores. This is a step in the right direction when other chains are also improving their images and turning restaurants into places where people can linger and enjoy their time as well as dine quickly and efficiently.
Boosting breakfast appeal
There is also an opportunity for Burger King to strengthen its appeal in the breakfast daypart. Although the chain has a reasonable breakfast menu, its offering is somewhat overshadowed by McDonald’s. Remedying this is particularly important now that McDonald’s is making improvements to its own early-morning menu by introducing new items.
Tim Hortons’ results show more work is needed to improve the brand image. Initiatives like Breakfast Anytime, which recently launched in Canada, should be driving better numbers, but we do not see these coming through. We are encouraged by the effort the company is putting into Tim Hortons, including the store refurbishment and remodeling program, which is well underway and should be complete by 2021. These steps should produce better results over the medium term.
Focusing on higher-growth markets
In the U.S., Tim Hortons has a reasonable footprint, but it is well below potential. This reflects a lack of confidence in expanding the brand, perhaps because of the fierce competition in the sector. With companies like Dunkin’ rebranding and driving sales, we do not see this position changing in the near future. However, the expansionary focus is now on higher-growth markets like China where, under a franchise agreement, Tim Hortons plans to open 1,500 restaurants over the next decade.
Popeyes same-restaurant results were disappointing, especially after menu and price-point changes provided momentum last month. There is scope for growth at Popeyes over the medium term, especially in international markets, but we are not convinced that the group has unlocked this opportunity.
Overall, Restaurant Brands is in reasonable shape. As sluggish as some of the comparable sales numbers are, the company is taking steps to boost performance and is handling physical expansion in overseas markets well. The potential for the long term is good.
Neil Saunders is managing director of research firm GlobalData Retail.