Burger King $400 million plans to revive sales in the US with remodeling and advertising

CASCAIS, PORTUGAL – Burger King signs have been spotted at the local fast food restaurant.

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Burger King said on Friday it plans to spend $400 million over the next two years advertising and renovating its restaurants as part of a broader strategy to revive lagging sales in the United States.

The Restaurant Brands International chain unveiled a turnaround plan for its US operations in Las Vegas at its annual franchisee convention. The investments are expected to weigh on adjusted earnings per share for 2022 and 2023 by 1[ads1]0 to 12 cents annually. The company expects the investments to start yielding results by 2025.

Wall Street analysts surveyed by Refinitiv expect earnings per share of $3.24 in 2023.

In the second quarter, Burger King reported flat same-store sales growth in the US, trailing competitors McDonald’s and Wendy’s. The burger chain has reported low sales in the US over the past year, which has raised concerns for Restaurant Brands CEO Jose Cil. During his tenure as CEO, Cil has also led efforts to revive Canadian demand for Tim Hortons, Burger King’s sister chain.

A year ago, Cil also selected former Domino’s Pizza boss Tom Curtis as the new president of Burger King’s American and Canadian restaurants. Early changes at Burger King included slimming down the menu to get faster drive times and cutting back on paper coupons to push customers to use the mobile app.

Freshen up

Now Burger King is preparing to make even bolder changes. It plans to spend $200 million to finance redevelopments of approximately 800 locations. Another $50 million will go toward upgrading about 3,000 restaurants with technology, kitchen equipment and building improvements. The company has more than 7,000 Burger King locations in the United States

Historically, remodeled restaurants see an average sales increase of 12% in the 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 result in even stronger sales growth, although it may take longer to see results.

“We can see conversions starting to come to market in mid-2023 and beyond. There should really be a gradual ramp-up of business over a couple of years,” Cil told CNBC.

Burger King will also increase its US advertising fund budget by 30% by investing $120 million over the next two years. These investments will start in the fourth quarter.

“We expect that to start having an impact on sales in the next quarter,” Cil said.

An additional $30 million will be spent through 2024 to improve the mobile app, exceeding the digital fees franchisees pay the company for the technology.

Burger King’s menu will also get a facelift. The company said it has built a multi-year plan for menu improvements, which includes developing new Whopper flavors, focusing on the Royal Chicken Crispy sandwich and investing in more employee training.

Franchisee Impact

The strategy has gained support from franchisees who operate 93% of its US restaurants, according to Burger King. Operators will chip in their own money along with the company for conversions and advertising.

Curtis and hthe team has assembled a group of franchisees, representing a range of regions and experience, to come up with 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 get from Burger King, franchisees who upgrade their restaurants are expected to make comparableehinvestments to finance the projects.

The company is also changing its incentive structure to encourage operators to do more extensive remodeling, which can be costly and usually requires a location to be temporarily closed. Previously, Burger King operators who remodeled their restaurants received rebates on advertising and royalty fees for up to seven years.

The new program will give franchisees cash when the project is completed and let them choose how much of a discount they get on the royalties they pay to the company.

However, if profitability targets are met, Burger King franchisees will have to pay higher fees to the advertising fund.

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