Burger King Owner Restaurant Brands Buys Carrols, Largest US Franchisee

In a groundbreaking move, Restaurant Brands International (RBI) has announced the acquisition of Carrols Restaurant Group, the largest franchisee of Burger King in the United States. In a deal valued at approximately $1 billion in cash, RBI is set to pay a share price of $9.55 to acquire Carrols. This comes as a significant shift in strategy for Burger King, whose restaurants have predominantly been franchised over the past decade, with only 175 corporate-owned locations currently in operation.

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Carrols Restaurant Group operates over 1,000 Burger King restaurants along with 60 Popeyes locations, making it a key player in the fast-food industry. The company’s stock, which closed at $8.42 on Friday, witnessed a 12% surge following the announcement of the acquisition. In contrast, the stock of Restaurant Brands International experienced a modest 3% decline. The completion of this deal is expected to take place during the second quarter of 2024.

The decision to acquire Carrols reflects Burger King’s intention to revitalize its U.S. business. Battling against fierce competition, Burger King has lagged behind its rivals in terms of sales, slipping to the third spot in the competitive American burger chain market. Wendy’s emerged as the second-largest burger chain by U.S. sales, overshadowing Burger King’s strong legacy. In response, RBI unveiled a $400 million plan last year aimed at rejuvenating Burger King’s operations within the United States.

The revival strategy focuses on two essential factors: investing in restaurant remodels and proactive advertising campaigns. These initiatives aim to stimulate consumer demand and bolster franchisee profitability. Under the new ownership, Restaurant Brands plans to expedite the remodeling process by renovating 600 of Carrols’ Burger King locations over the next five years. The strategy is to subsequently sell these refurbished outlets back to franchisees.

 

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Tom Curtis, the President of Burger King U.S. and Canada, elaborated on the implementation of the remodeling initiative. Curtis stated, “This will allow us to really focus our attention on accelerating remodels and being thoughtful about how to refranchise this restaurant network into smaller packages, with new and existing franchisees who live close to the communities where they own the restaurants.” Notably, Restaurant Brands CEO Josh Kobza explained that $500 million will be invested in the remodeling project, funded by Carrols’ operating cash flow.

The expected outcome of this concerted effort is to showcase a consistent and impressive image across the market. Curtis emphasized the impact of this remodeling approach on various aspects of the business, such as attracting new customers, recruiting competent staff, and reshaping the overall perception of the brand. The planned expansion envisions meeting Carrols shortly after the acquisition to discuss how to surpass their target of remodeling 120 restaurants per year, an ambitious move set to double the original goals for Carrols in 2024.

While the majority of Carrols’ locations are projected to be sold off within the next five to seven years, Burger King intends to retain a small number of restaurants for strategic purposes such as innovation, training, and operator development. This approach will ensure that Burger King continues to evolve and adapt to the ever-changing demands of the fast-food industry.

Carrols Restaurant Group has consistently outperformed the broader Burger King system, as demonstrated by their recent preannouncement of fourth-quarter results. They reported a remarkable 7.2% increase in same-store sales at their Burger King locations, along with a notable uptick of 2.9% in customer footfall. This exceptional performance showcases Carrols’ expertise and competence in managing the franchisee-operated outlets.

 

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As the completion of the deal draws near, the intricate details of the future collaboration between Restaurant Brands International and Carrols will be unveiled. It is a pivotal moment for the fast-food industry, as the acquisition signifies a new chapter for Burger King and its journey towards regaining its position as a leading player in the competitive U.S. market.

 

Source:cnbc.com

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