CASCAIS, PORTUGAL – Burger King signs are seen in the local fast food restaurant.
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Burger King said Friday it plans to spend $400 million over the next two years on advertising and restaurant renovations as part of a broader strategy to revive lagging U.S. sales.
Restaurant Brands International unveiled a turnaround plan for its U.S. business in Las Vegas at its annual franchise convention. The investments are expected to weigh on its adjusted earnings per share for 2022 and 2023 by 10 to 12 cents a year. The company expects the investments to start paying off by 2025.
Wall Street analysts polled by Refinitiv forecast earnings per share of $3.24 in 2023.
In the second quarter, Burger King reported flat U.S. same-store sales growth, trailing rivals McDonald’s and Wendy’s. The burger chain reported lackluster sales in the United States over the past year, which worried Restaurant Brands CEO Jose Cil. During his tenure as general manager, Cil also led efforts to revive Canadian demand for Tim Hortons, Burger King’s sister chain.
A year ago, Cil also tapped former Domino’s Pizza executive Tom Curtis as the new president of Burger King’s US and Canadian restaurants. Early changes to Burger King included shrinking its menu to speed up drive-thru times and reducing its paper coupons to entice customers to use its mobile app.
Now Burger King is gearing up to make even bolder changes. It plans to spend $200 million to fund the renovation of around 800 locations. Another $50 million will go towards upgrading about 3,000 restaurants with technology, kitchen equipment and building upgrades. The company has more than 7,000 Burger King locations in the United States.
Historically, renovated restaurants see sales increase by an average of 12% in their first year and outperform older locations over time, according to Burger King. The company hopes that being more selective and strategic with its projects will produce even stronger sales growth, although it may take longer to see results.
“We could see renovations starting to hit the market in mid-2023 and going forward. It really should be a gradual ramp-up of the business over the next two years,” Cil told CNBC.
Burger King will also increase the budget of its American advertising fund by 30% by investing $120 million over the next two years. These investments will begin in the fourth quarter.
“We expect this to start impacting sales in the next quarter,” Cil said.
Another $30 million will be spent through 2024 to improve its mobile app, exceeding the digital fees franchisees pay the company for the technology.
Burger King’s menu will also get a makeover. The company said it has developed a multi-year plan for menu improvements, which includes developing new Whopper flavors, betting on its Royal Chicken Crispy sandwich and investing in employee training.
The strategy has received support from franchisees operating 93% of its U.S. restaurants, according to Burger King. Operators will contribute their own money alongside the company for renovations and advertising.
Curtis and hThis team has brought together a group of franchisees, representing a range of regions and experiences, to develop the strategy over the past three to six months.
“There were a lot of long nights and plane rides,” Curtis said.
In addition to the money they receive from Burger King, franchisees who improve their restaurants should make comparisonsehinvestments to finance the projects.
The company is also changing its incentive structure to encourage operators to perform larger renovations, which can be costly and usually require a location to temporarily close. In the past, Burger King operators who renovated their restaurants received discounts on their advertising and royalty fees for up to seven years.
The new program will offer franchisees money after the project is completed and let them choose what discount they will get on the royalties they pay to the company.
However, if profitability targets are met, Burger King franchisees will have to pay higher fees for the advertising fund.
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