Burger King is doing a poor job of convincing the world that its restaurants would be better off in the hands of franchisees.
For instance, the fast-food chain reported 1.5% same-store sales growth in the second quarter. But the 1,000 locations it operates after acquiring mega-operator Carrols Restaurant Group last year generated 2.9% same-store sales growth.
The company also bought its restaurants in China, and they’re performing above expectations.
In addition, the 47 locations the company owns in the Miami market, where Burger King is based, generated double-digit same-store sales, with a mid-single-digit growth in traffic. And, Restaurant Brands International Executive Chairman Patrick Doyle said in an interview, they’ve never been as profitable.
“These are restaurants where we’re leading by example and everything is lining up, operations, marketing and image,” Doyle told analysts. “It’s a real example of what the Burger King brand can do when all the pieces come together.”
Yet the company has no plans to change its mind and keep operating all the locations, though it plans to maintain a sizable amount of store ownership in the future. In fact, it has started the process of refranchising those Carrols restaurants, two years earlier than originally planned, largely because there’s enough demand.
“We’ve got great operators to go,” Doyle said. “These stores are operating really well. They already were. The plan was to get these things remodeled and start finding people. And that probably takes a couple of years.
“The answer was, demand was there from great operators, both inside Carrols and outside.”
Burger King is on one of the more complex and costly turnaround plans in industry history. The company is spending more than $2 billion to fix the chain, including the Carrols acquisition—a $1 billion deal—along with remodel incentives and marketing spending, plus what the company planned to spend on Carrols store fixes.
Steering stores into the hands of better operators is crucial to that plan, because the company argues that it generates better sales and profitability when that happens. Stores rated “A” on the company’s scale generate 70% higher store EBITDA, or earnings before interest, taxes, depreciation and amortization, than the system average.
“We continue to see a clear link between strong operations and profitability,” RBI CEO Josh Kobza told analysts. He called the Carrols restaurants “a great example of the importance of having strong operations led by great restaurant general managers.”
The company plans to direct stores into the hands of those good operators. To buy the Carrols restaurants, franchisees must commit to remodel them in the timeframe that the company planned.
A number of those people could come from within Carrols or other corporate locations. Burger King has kicked off a new program, called Crown Your Career, that takes high-potential talent at its stores and helps them move into store ownership over a one- to three-year period.
The company already has five candidates for this program, which helps train them on issues such as accounting and helps get them financed. “They’re already great operators,” Doyle said. “We’ll teach them how to do the owner part of that.”
Such programs are regaining some momentum among legacy brands that for years focused much of their attention on large-scale operators. But many higher-performing brands steer high-performing workers into ownership, which can encourage strong performance and gives better employees something to work for. Brands believe they get better results ultimately.
“We had more owners and fewer operators,” Doyle said. “We needed to reverse that and infuse some energy. We’ve got amazing franchisees in the system who are incredible operators, but we didn’t have enough of them.”
But Burger King first had to take over the restaurants and show what can be done when they’re operated successfully. It did that with Carrols, and it has also done that at Burger King China. RBI is also starting to take a similar approach with its chicken chain Popeyes.
“It’s become clear to me over the last few years that there is some importance as a franchise to have the capability to step into situations and fix things or push them back on the right track,” Kobza said. “I think we’ve had to do that recently at a much greater scale than we hope to ever have to do again in the future.”
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