Company investment of $400M over two years will increase advertising
firepower; drive higher quality restaurant enhancements and
remodels; and support ongoing technology and digital
investments
Plan developed in collaboration with Burger
King Franchisees and endorsed by more than 93% of U.S.
Restaurants
MIAMI, Sept. 9,
2022 /CNW/ - Burger
King® Company ("Burger King," "BK," "Company," "Brand")
today shared the details of its "Reclaim the Flame" plan to
accelerate sales growth and drive Franchisee profitability. The
plan was built in collaboration with Franchisee leaders from across
the country and was shared with all U.S. Franchisees at its annual
convention this week by Tom Curtis,
President of Burger King North
America.
The plan includes Burger King investing $400M over the next two years, comprised of
$150M in advertising and digital
investments to "Fuel the Flame" and $250M for a "Royal Reset" involving
restaurant technology, kitchen equipment, building enhancements and
high-quality remodels and relocations. This investment will work to
enhance ongoing Franchisee investments to modernize the Burger King
restaurant portfolio, and when combined with our brand
re-positioning plan, menu enhancements and focus on operational
excellence, will help drive our overarching goal of improving the
Guest experience and attracting more traffic back to the brand over
time.
Burger King Franchisees representing more than 93% of all U.S.
restaurants have endorsed the plan and have agreed to co-invest in
increased advertising firepower over the coming years. These
corporate investments are in addition to Burger King recently
expanding its field team to provide increased support to
Franchisees as they continue improving restaurant-level
profitability and execution.
Jose Cil, CEO of Restaurant
Brands International ("RBI"), commented on the
announcement:
"Over the past year, Tom has built a talented
leadership team that has worked collaboratively with Burger King
Franchisees to develop a multi-year plan to drive the performance
of the system. We believe now is the time to make a significant
investment to accelerate the work given the quality of the team,
focus of the plan, commitment of our Franchisees and the
opportunity that clearly exists for our iconic brand to Reclaim
the Flame and be the first choice for a high-quality meal, an
exceptional experience, and a great value."
Tom Curtis, President of
Burger King North America,
added:
"We are relentlessly pursuing a better experience for
our Guests. This is the driving force behind all the initiatives
that we are executing collaboratively with our Franchisees. Our
plan is focused on a few important priorities — operational
excellence, refreshed image, and enhanced marketing — that when put
together, provide a superior experience for our Guests."
"I'm very proud and thankful that our Franchisees have stepped
up once again to invest in our performance together, reflecting the
genuine partnership and mutual respect we have built between the
Franchisor and Franchisees. Ultimately, the success of this
Reclaim the Flame plan comes down to execution at the
restaurant level and we are so fortunate to have Franchisees who
love this brand and are working closely with us to focus on the
right priorities. I believe in this team, this plan, and a bright
future as we evolve and enhance our Guest experience and drive
profitable growth for the business."
Matt Dunnigan, Chief Financial
Officer of RBI, commented:
"Our $400M investment into the Burger King U.S. system
represents a substantial deployment of capital toward important
marketing and image investments aimed at accelerating our sales
growth and modernizing our iconic brand across the U.S. In 2023 and
2024, these investments are expected to have an average annual
impact to adjusted EPS of approximately ($0.10) to ($0.12),
before considering benefits from any potential sales improvements.
In 2025 and beyond, we expect the impact to be accretive to
adjusted EPS as our advertising investments conclude and we realize
the long-term sales benefits of our Reclaim the Flame
initiatives and increased advertising contributions from our
system."
Major Components of the
"Reclaim the Flame" Plan:
The Reclaim the Flame plan is designed with targeted
initiatives that will work in concert with one another to improve
all the fundamental aspects of Guest experience: perception of the
brand; high-quality menu offerings at everyday value; engaging and
relevant advertising; high quality modernization of our
restaurants; and an all-around improved service and execution.
Brand Positioning:
Burger King is refreshing and modernizing its brand, adding
meaning and relevance to historical brand anchors like 'Flame
Grilling' and 'Have it Your Way', while also introducing new brand
elements to broaden its attraction for a younger and more diverse
base of Guests.
Menu Priorities:
Burger King has built a multi-year menu roadmap that is
Guest-led and brand focused. Burger King will invest in premium
branding to reaffirm the elevated position of its flame-grilled
Whopper® and is developing new flavor extensions, while also
focusing on Team Member training and rolling out kitchen
enhancements to ensure exceptional execution at the restaurant.
The brand is also building a destination worthy Chicken Sandwich
portfolio and has launched the Royal Crispy Chicken — a premium
chicken sandwich with unique flavor variations built around a
simplified menu and improved operations — resulting in a better
Guest experience. This menu addition complements the long-standing
and loved Original Chicken Sandwich — allowing the brand to
strongly compete in the growing chicken sandwich market while still
maintaining its focus on growing its core burger category.
Burger King is currently developing innovative products to
accelerate industry leadership in burgers, breakfast, beverages,
snacking, and plant-based products. In addition, the brand
will continue to provide a strong everyday value offering in its
menu, especially as the cost of food at home continues to face
inflationary pressures.
"Fuel the Flame"
Advertising Investment:
Given our recent momentum and confidence in our multi-year plan,
we believe now is the right time to significantly enhance our
advertising firepower. In a historic agreement with its
Franchisees, Burger King will invest $120M in its U.S. advertising fund over the next
two years to grow traffic, accelerate sales growth and amplify
the fundamental advancements we are making to the Guest experience.
The Burger King advertising investment represents an annual
increase of approximately 30% to the brand's media purchasing
firepower, inclusive of advertising efficiencies we expect to
achieve through our ongoing partnership with our new media
agency. Following the investment period in 2023 and 2024,
participating Franchisees have agreed to increase their advertising
fund contributions by 50 basis points through 2028 if certain
profitability thresholds are met, which we plan to share an update
on annually. This plan has received the endorsement of Franchisees
representing more than 93% of the system, all of whom have agreed
to the new Fuel the Flame co-investment program over the
past two months.
In addition, Burger King will invest $30M through 2024, in excess of the digital fees
collected from Franchisees, to support our Guests ease of ordering
on the Burger King app which includes integrated payment
processing, enhancing the Royal Perks loyalty program, the addition
of digital personalized offers, and improving the overall
convenience of delivery and pick up options. This investment will
continue to strengthen the brand's digital channels that now
generate ~$900M of annual system-wide
sales in the U.S.
"Royal Reset" Modernization
Investment:
The Burger King $250M investment
plan will include two important components. The first involves
investing $50M of capital over the
next two years alongside a comparable co-investment from
Franchisees in a restaurant refresh program touching ~3,000
restaurants across restaurant technology, kitchen equipment, and
building enhancements. These investments are designed to ensure our
restaurants are ready to deliver an exceptional Guest experience as
we work to drive traffic back to the system aided by our menu
enhancements and Fuel the Flame advertising investment.
In addition, Burger King is launching a Royal Reset
remodel program that provides access to $200M of funding for ~800 restaurant remodel
projects over the next two years. As part of this program, the
company is changing its incentive structure, which has historically
focused on advertising and royalty rate discounts for up to seven
years. The Royal Reset remodel program is designed to
improve returns on capital for our Franchisees by providing more
substantial baseline incentives, access to additional contributions
in exchange for a higher royalty rate election, and funding of
these incentives in upfront cash at the time of remodel completion.
The program will also offer greater financial support to better
operators, adding further incentive for Franchisees to improve
operations across the system.
The Royal Reset remodel program represents a shift toward
higher quality remodels and creates a viable path toward
modernizing the system. Through a more thoughtful approach and
increased funding, we are establishing support for our Franchisees
to address their most important investments and lay the foundation
for sales and profitability growth in the years to come. This will
be the first step toward a more consistent, long-term cadence of
portfolio reimaging that is focused on smarter investments and
executing with quality to drive sales growth and attractive returns
on capital for both Burger King and its Franchisees.
We have historically maintained a reimaging program which has
generated average year one sales uplifts of approximately +12% with
sustained outperformance in comparable sales relative to
non-remodeled restaurants of approximately
2%(1). While the historical sales uplift
performance from prior reimaging programs is encouraging, we are
focused on enhancing these results through improved project
selection and more targeted scope management. We believe this new
approach over the next two years will generate the momentum needed
to transition into a sustainable reimaging program that reverts to
more normalized capital contributions from Burger King in 2025 and
beyond.
The Burger King contributions from the Royal Reset remodel
program will be accounted for as royalty credits and recognized
through our income statement over the life of the new Franchise
Agreements, which will be up to 20-years. Given the long duration
of the royalty credit amortization in our income statement versus
the near-term benefits of royalty rate increases and sales uplifts
from modernization, we do not expect any materially negative impact
to the income statement from this program. If we are successful in
generating sales uplifts consistent with historical experience or
better, we expect the program will generate a positive return on
our capital and be accretive over time.
Operational Excellence:
The Burger King U.S. brand has substantially expanded its
operations team and is intensely focused on creating a culture of
"Repeatable Precision" at each restaurant, and improving the
brand's employee value proposition to assist Franchisees to attract
and retain valuable Team Members. Over the past year, the brand has
worked closely with Franchisees to simplify menu items and
restaurant operations, resulting in four consecutive quarters of
improvements in key operating metrics and Guest satisfaction
surveys. In early 2023, Burger King will host dozens of "Royal
Roundtables" with restaurant managers and Franchisees across
the U.S. to educate and energize restaurant teams as they implement
meaningful operational changes within their restaurants.
About BURGER KING®:
Founded in 1954, the Burger King® brand is a global fast-food
hamburger chain known for food quality and value as the only place
guests can get the iconic flame-grilled Whopper® sandwich. The
Burger King system operates more than 18,700 locations in more than
100 countries and U.S. territories. Almost 100 percent of Burger
King restaurants are owned and operated by independent franchisees,
many of them family-owned operations that have been in business for
decades. To become a member of our Royal Perks loyalty program,
please visit www.bk.com/signup. To learn more about the Burger King
brand, visit the Burger King brand website at www.bk.com or follow
us on Facebook, Twitter, Instagram and TikTok.
About Restaurant Brands
International:
Restaurant Brands International Inc. is one of the world's
largest quick service restaurant companies with over $35 billion in annual system-wide sales and over
29,000 restaurants in more than 100 countries. RBI owns four of the
world's most prominent and iconic quick service restaurant brands –
TIM HORTONS®, BURGER KING®, POPEYES®, and FIREHOUSE SUBS®. These
independently operated brands have been serving their respective
guests, franchisees and communities for decades. Through its
Restaurant Brands for Good framework, RBI is improving sustainable
outcomes related to its food, the planet, and people and
communities.
Forward-Looking Statements
This press release
includes forward-looking statements, which are often identified by
the words "may," "might," "believes," "thinks," "anticipates,"
"plans," "expects," "intends" or similar expressions and reflect
management's expectations regarding future events and operating
performance and speak only as of the date hereof. These
forward-looking statements include statements regarding: (i) the
amount, timing and use of the additional investments related to
digital, advertising and restaurant enhancements into the Burger
King U.S. system and ability to achieve advertising efficiencies;
(ii) the expected financial impacts of the Reclaim the Flame
investments on RBI's results of operations, including our
expectations that the costs of the plan will primarily impact 2023
and 2024 adjusted EPS and that the plan will be accretive in 2025
and beyond; (iii) our expectations regarding the amount and timing
of Franchisee co-investments in the Reclaim the Flame program; (iv)
the ability of the Reclaim the Flame plan to drive profitable
growth for our Franchisees and the Burger King system, as well as
our belief that the Royal Reset modernization investments will
result in Franchisees substantially enhancing sales growth and
their return on capital; (v) our intent to provide annual updates
on future Franchisee contributions to the advertising fund; (vi)
our belief that the Royal Crispy Chicken sandwich positions the
Burger King brand to strongly compete in the chicken sandwich
market; (vii) our belief that the implementation of the Reclaim the
Flame plans will improve the experiences of our Guests and Team
Members; and (viii) the anticipated accounting treatment of the
investments associated with the Reclaim the Flame program.
The factors that could cause actual results to differ
materially from our expectations are detailed in filings of RBI
with the U.S. Securities and Exchange Commission and with the
securities regulatory authorities in each province and territory of
Canada, such as its annual and
quarterly reports and current reports on Form 8-K and include the
following: (1) risks related to RBI's ability to successfully
implement the Reclaim the Flame plan and the ability of
participating Franchisees to meet the profitability thresholds; (2)
risks related to the franchised business model; (3) risks related
to technology and the ability to successfully implement digital
initiatives; (4) risks related to ownership and leasing of
properties by us and our Franchisees; (5) risks related to our
Franchisees financial stability and their ability and willingness
to access and maintain the liquidity necessary to co-invest in the
restaurant modernization initiatives; (6) risks related to the
ability of the Burger King Franchisees to compete in an intensely
competitive industry; and (7) changes in accounting, tax and other
laws and regulations or interpretations thereof. Other than as
required under U.S. federal securities laws or Canadian securities
laws, we do not assume a duty to update these forward-looking
statements, whether as a result of new information, subsequent
events or circumstances, change in expectations or
otherwise.
SUPPLEMENTAL: QUESTIONS AND ANSWERS
Initiative
|
Investment
|
Timeframe
|
Accounting
|
Fuel the Flame
(Advertising)
|
$120M
|
Q4'22 to
Q4'24
|
Income Statement: Advertising and Other
Services Expense
- Expense recognized
in period incurred
- Cumulative amount
of $120M to be recognized by the end of 2024, with quarterly
updates provided
|
Fuel the Flame
(Digital)
|
$30M
|
2022 to 2024
|
Income Statement: Advertising and Other
Services Expense
- Expense recognized
in period incurred
|
Royal Reset
(Refresh Program)
|
$50M
|
Q4'22 to
2024
|
Income Statement: Depreciation and
Amortization
Cash Flow Statement: Payments for Property and
Equipment
- Cash outflow
recognized in period incurred
|
Royal Reset
(Remodel Program)
|
$200M
|
2023 to 2025
|
Income Statement: Franchise and Property
Revenues
- Remodel royalty
credit recognized as contra-revenue in "Franchise and property
revenues" over a period of up to 20-years
- Franchisee elected
royalty rate increases apply to all restaurant level sales and
benefit "Franchise and property revenues"
Cash Flow Statement: Working Capital Outflow
(Other Long-Term Assets and Liabilities)
- Recognized in
period in which the remodel is completed
|
TOTAL Incremental
|
~$400M
|
|
|
EPS
Impact
|
Approximately ($0.10) –
($0.12) in 2023 and 2024 (excl. the benefit from potential sales
improvements)
Accretive to EPS in
2025 and beyond
|
Fuel the Flame Advertising
Investment
How much incremental investment per quarter?
- Burger King U.S. will pulse investments behind key initiatives
as it sees opportunities in the market to drive sales.
- For competitive reasons, Burger King U.S. does not intend to
signal in advance in which quarters or channels it will make
incremental investments.
How will the Burger King advertising investment impact the
income statement?
- The incremental investment will be reflected in the BK Segment
Results and Consolidated Statements of Operations under
"Advertising expenses and other services".
- The expense will be recognized in the period spent.
How will the Franchisee co-investment work for incremental
advertising funds?
- Burger King has committed to invest $120M in advertising from Q4'22 – Q4'24.
- If system average EBITDA is in-line with 2019 levels by
December 2024, then Franchisees will
invest an incremental 50 basis points of sales into the advertising
fund for 2025 and 2026.
- Following 2026, this 50-basis point investment will continue
assuming reasonable growth in system average EBITDA has
occurred.
- As of September 12, 2022, over
93% of the system have signed the new Franchise spending agreement
to participate in the Fuel the Flame co-investment.
Royal Reset Refresh Program
What is the anticipated timing and scope of the $50M near-term Royal Reset Refresh Program
initiative?
- Burger King expects to deploy $50M over the next 24 months which will be spent
on restaurant technology.
- The investment will target restaurants that would benefit most
significantly and will be done in partnership with Franchisees who
match the investment, through spending on kitchen equipment and
building enhancements, resulting in approximately a $100M total investment in the system.
How will the $50M restaurant
refresh program impact RBI's financial statements?
- Income Statement Expenses: The Royal Reset refresh
program investment will be capitalized and recognized in
Depreciation and Amortization, which the company expects will carry
an average depreciable life of approximately 5-7 years.
- Statement of Cash Flows: The investment will be accounted for
as capital expenditure and appear under "Payments for property and
equipment" under "Cash flows from investing activities".
Royal Reset Remodel Program
What is the anticipated timing and scope of the $200M Royal Reset remodel program?
- The Royal Reset remodel program is targeting
approximately 800 high-quality projects from 2023 to 2025,
supported by a bottoms-up approach focused on maximizing returns on
investment.
- We expect to formalize commitments for all $200M by the end of 2024, with the cash largely
deployed by the end of 2025 given project lead times.
- We expect the significant majority of remodels under the
Royal Reset program to be completed in 2023 and 2024,
supported by benefits from the Fuel the Flame and Royal
Reset refresh programs.
- Following the completion of the program, we expect to revert to
more normalized capital contributions from Burger King in 2025 and
beyond.
How will the size of the Burger King remodel investments be
determined?
- The level of investment by Burger King U.S. for each remodel
will depend on the following:
- Scope of remodel: Ranges from lower capital intensity upgrades
costing ~$500K to more capital
intense and comprehensive rebuilds costing ~$1.8M.
- Quality of operations: Access to greater funding for
Franchisees with better operations as determined by their
'Franchisee Success Score', tied to our recently revamped
operational success program.
- Royalty rate increases: Franchisee in good standing will have
access to greater relative levels of funding should they opt for an
increased royalty rate between our standard 4.5% and a maximum of
6.0%.
How will the Royal Reset remodel investments impact RBI's
financial statements?
- Income Statement:
-
- A royalty credit will be recognized over the franchise
agreement period of up to 20-years, as a contra revenue item in the
"Franchise and property revenues" line of the income
statement.
- Franchisees participating in the program may elect for an
increased royalty rate in exchange for a larger capital
contribution which, all else being equal, would result in increased
Franchise & property revenue.
- Given the long duration of the royalty credit amortization in
our income statement versus the near-term benefits of royalty rate
increases and sales improvements from modernizing the restaurants,
we do not expect any materially negative impact to the income
statement from this program.
- If we are successful in generating sales uplifts consistent
with historical experience or better, we expect the program will
generate a positive return on our capital and be accretive over
time.
- Statement of Cash Flows: The remodel investment will appear on
the cash flow statement as a change in "Other long-term assets and
liabilities" under "Cash flows from operating activities" at the
time of remodel completion.
What is the difference between this incentive structure and
prior remodel programs?
- Prior remodel programs primarily identified opportunities based
on franchise agreement expiration schedules rather than identifying
the highest potential return projects.
- In addition, unlike prior programs where Franchisees were
incentivized with royalty rate and advertising fund discounts over
up to seven years, the Royal Reset remodel program will
deliver 100% of our contribution at the time of remodel completion
and provide access to greater levels of funding as compared to past
programs.
- The Royal Reset remodel program represents a shift toward
higher quality remodels and greater support for Franchisees to
amplify our system modernization. Through more refined site and
scope selection, along with increased funding, Franchisees can
substantially enhance their restaurant image with strong returns on
capital to lay the foundation for sales and profitability growth in
the years to come.
- This remodel investment program is also expected to provide
Burger King U.S. with a positive return on capital over time
through sales improvements and higher average royalty
revenue.
What level of sales uplift do you expect from Royal Reset
remodels?
- Historically, remodeling efforts have generated average year
one sales uplifts of approximately +12%2.
- After the initial sales uplifts, remodeled restaurants have
also experienced sustained outperformance in comparable sales
relative to non-remodeled restaurants of approximately 2%.
- While we believe the historical performance is encouraging,
Burger King looks to build on this progress in future years through
improved project selection and scope management.
1
|
Uplift is based on a
comparison of the sales at 499 modern-image restaurants as compared
to restaurants in the same designated marketing area that had not
been recently opened or remodeled.
|
2
|
Uplift is based
on a comparison of the sales at 499 modern-image restaurants as
compared to restaurants in the same designated marketing area that
had not been recently opened or remodeled.
|
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SOURCE Restaurant Brands International Inc.