The Burger King sign is seen outside a restaurant in Redwood City, Calif., in this file photo.Jeff Chiu/The Associated Press
The parent company of Tim Hortons is buying its largest Burger King franchisee in the United States in a US$1-billion deal intended to accelerate its turnaround plan for the chain.
Toronto-based Restaurant Brands International Inc. QSR-T announced on Tuesday that it had agreed to acquire Carrols Restaurant Group Inc., a publicly traded company that operates 1,022 Burger King locations in the U.S., mostly in the northeastern states. Carrols is also a franchisee for 60 locations in RBI’s Popeyes chain.
Some large Burger King franchisees have been struggling. Over the past year, three major operators filed for bankruptcy protection in the U.S. Others closed restaurants as operators faced weak sales and profits, further dampened by inflation and rising labour costs.
RBI is spending a similar amount on the Carrols TAST-Q locations as it did to acquire the Firehouse Subs chain in 2021. Carrols is one of the largest RBI franchisees in the world.
The deal represents a strategic shift for RBI’s business, going from operating roughly 175 corporate-owned restaurants in the U.S. to roughly 1,200. The Carrols business represents roughly 15 per cent of Burger King restaurants in the U.S. The company plans to more than double the current pace of remodelling over the next five years for those restaurants, and then plans to refranchise most of the locations to new or existing owners.
Once that process is complete, the number of Burger King franchisees could increase to between 400 and 500 in the U.S. over the next five years, compared with roughly 300 currently. The plan is to sign deals with franchisees who will have a smaller footprint than Carrols currently has, likely selling portfolios of 50 restaurants or fewer, Tom Curtis, president of Burger King in the U.S. and Canada, said on a conference call with analysts on Tuesday. RBI will also keep “a couple of hundred” locations under corporate ownership.
The remodels will represent a roughly US$500-million investment, and will be funded by Carrols’ operating cash flow. Roughly 600 of the group’s restaurants are in need of renovations, according to the company.
In 2022, RBI announced a US$400-million plan it called Reclaim the Flame, to turn around the lagging U.S. Burger King business. The plan included spending on marketing as well as restaurant remodels and relocations. The chain has also been upgrading technology and equipment.
“Because we’re willing to invest in this important business and accelerate the pace of change, you should all take away that we are willing to do what it takes to set this brand, system, and its franchisees up for the long term,” Restaurant Brands executive chairman Patrick Doyle told analysts on the call on Tuesday.
Mr. Doyle added that this process included some franchisees leaving the Burger King system last year, acknowledging the company dealt with some “ugly headlines” as a result. “We’re fully invested in the success of the majority of our franchisees, who are dedicated and working hard to give customers great food and great service, and to do that in modern restaurants,” he said.
The all-cash transaction will see RBI acquire all the Carrols shares it does not already own for US$9.55 a share. The parent company and its affiliates currently hold roughly 15 per cent of Carrols outstanding equity. The price represents a 13.4-per-cent premium on the closing price of Carrols shares at the end of last week.
The agreement allows for a 30-day period during which Carrols may seek alternative proposals for the business. RBI will finance the deal with cash on hand and term loan debt.
Pending shareholder approval, RBI expects the transaction to close in its second quarter of 2024, which ends on June 30.
Susan Krashinsky Robertson