In a significant shift in strategy, Restaurant Brands International is acquiring Carrols Restaurant Group, the largest Burger King franchisee in the U.S., for approximately $1 billion in cash. This deal marks a departure for Burger King, whose restaurants have been predominantly franchised for the past decade. With over 1,000 Burger King locations and 60 Popeyes restaurants, Carrols’ market value stood at $459 million with its stock closing at $8.42 on Friday. On Tuesday, after the announcement, Carrols’ shares soared by 12%, while Restaurant Brands’ stock experienced a 3% decline. The completion of this acquisition is anticipated to take place in the second quarter of 2024, aligning with Restaurant Brands’ plans to revitalize Burger King’s U.S. business.
In recent years, Burger King has faced some challenges as its sales lagged behind its competitors. Wendy’s managed to overtake Burger King as the second-largest burger chain in the U.S. in terms of sales. To counter this setback, Restaurant Brands unveiled a $400 million plan to reinvigorate Burger King’s U.S. operations. The core of this strategy involves investing in restaurant remodels and boosting marketing efforts to drive consumer demand and increase profitability for franchisees. According to Tom Curtis, the president of Burger King U.S. and Canada, Restaurant Brands plans to rapidly remodel 600 of Carrols’ Burger King locations over the next five years. Once the remodels are completed, these locations will be sold back to franchisees.
The planned remodels are a key component of Burger King’s broader objective of refranchising the restaurant network into smaller packages, ensuring that new and existing franchisees are closely tied to the communities they serve. This initiative resonates with Restaurant Brands’ CEO, Josh Kobza, who emphasized the importance of focusing on local markets. He expressed that accelerating remodels and maintaining a thoughtful approach to refranchising will be paramount to the long-term success of Burger King.
Investment and Renovation
To support the extensive remodeling plan, the company is prepared to invest approximately $500 million, utilizing Carrols’ operating cash flow. The objective is to give the entire portfolio a refreshed look and feel. Tom Curtis shared his belief in the network effects, highlighting the potential impact on recruiting, staffing, and overall brand perception once consumers consistently experience the improved restaurants. Moreover, Burger King’s development team is set to meet with Carrols this week to discuss remodeling plans, aiming to double Carrols’ target of renovating 120 restaurants annually by 2024.
While the majority of Carrols’ locations will be divested within the next five to seven years, Burger King plans to retain a select few hundred restaurants to support strategic innovation, training, and operator development. This approach reflects Burger King’s commitment to sustained growth and ensuring that Burger King remains a dynamic and innovative player in the fast-food industry.
A Proven Performer
Carrols Restaurant Group has consistently outperformed Burger King’s U.S. system. In its preannouncement of fourth-quarter results, Carrols reported a promising increase in same-store sales for its Burger King locations, up by 7.2%, with a 2.9% rise in foot traffic. These positive performance trends provide an optimistic backdrop for the upcoming expansion and remodeling plans.
Restaurant Brands International’s acquisition of Carrols Restaurant Group is a significant move aimed at revitalizing Burger King’s position in the highly competitive fast-food industry. The strategic decision to invest in extensive remodeling and engage local communities aligns with the company’s vision for growth. By leveraging the strength of Carrols’ well-performing restaurants and embarking on an ambitious remodeling plan, Burger King aims to position itself as a leader in the burger chain market once again.
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