Restaurant Brands International is a leading quick-service restaurant company in the world. Burger King, Tim Hortons, and Popeyes are its largest and most popular brands globally.
Restaurant Brands operates over 27,000 restaurants, including more than 17,800 Burger King restaurants, 4,800 Tim Hortons restaurants, and 3,100 Popeyes restaurants worldwide. In all, the company has more than 2500 franchises in over 100 countries. It has high market penetration in North America and Europe.
The company focuses on localized menus and quality food ingredients in order to attract consumers. It operates through three reportable segments: Tim Hortons (TH), Burger King (BK), and Popeyes Louisiana Kitchen (PLK). Tim Hortons is the largest accounting for ~60% of revenues and ~45% of earnings, followed by Burger King (30% of revenue) and Popeyes (10%).
Burger King and Popeyes accounted for ~44% and 11% respectively of 2020 adjusted EBITDA. Popeyes is Restaurant Brands’ fastest-growing chain, both in terms of revenue and restaurant count while Tim Hortons is one of the most loved restaurant brands in Canada.
Key Investment Data
- Opportunity Score: 52
- Ticker: TSE:QSR
- Sector: Consumer Cyclical
- Industry: Restaurants
- Market Cap: 37.19B
- P/E: 0.00
- Dividend Yield: 3.38%
- Payout Ratio (TTM): 95.50%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 4/10
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Revenue Growth & Market Exposure
Most of Restaurant Brands’ brands are leading food stores in the world. Over the last 45 years, Restaurant Brands has established itself as a leader in great food taste and quality. It ensures strict quality controls and procurement norms to maintain its quality standards.
Burger King is the second-largest fast-food hamburger chain, while Tim Hortons is one of the largest restaurant chains operating in the quick-service segment in North America and Popeyes ranks amongst the world’s largest chicken quick-service restaurants globally. Restaurant Brands is in a good position to benefit from an expanding market of its iconic brands. The company continues developing new products, focusing on customer feedback, in order to strengthen its leadership position in the quick-service food industry.
All of Restaurant Brands’ restaurants are franchised. The company earns most of its revenues from royalties which are based on a percentage of sales reported by its franchise restaurants and franchise fees. Restaurant Brands’ franchise agreements are typically a 10-year or 20-year plus renewal period contracts. It also has long-term beverage supply arrangements with major beverage vendors like The Coca-Cola Company and Dr. Pepper/ Snapple, Inc. for its TH and PLK brands in the U.S. and Canada.
The company is targeting an overall international development of all of its brands through the establishment of master franchises with exclusive development rights and joint ventures with new and existing franchisees. Its revenues have grown at more than 10% CAGR in the last three years.
Restaurant Brands witnessed a sharp decline in its comparable sales across brands and regions as a result of COVID-19 starting mid-March. Sales and traffic declined as most of the businesses remained closed.
However, Restaurant Brands is in a good position to understand the shifts and consumption patterns of consumers and is rapidly responding to the changes. There has been a fast rollout of home delivery options across restaurants since the outbreak of COVID-19. Restaurant Brands’ drive-thrus will continue to support its business and act as a secure and highly convenient means for guests to get food.
The company has accelerated the transformation of the drive-thru experience, with 3,600 digital menu boards installed in home markets in 2020. Though the restaurant count remained the same throughout the year, the global digital sales reached $6 billion, more than doubling in home markets, driven by rapid digital innovation, and new service opportunities like curbside pickup and expanded delivery services in new restaurants. As of the end of December, over 96% of its restaurants were open worldwide.
Restaurant Brands is a Canadian Dividend Aristocrat and its last annual dividend raise was 6%. It sports a decent dividend yield of more than 3% but has a very high payout ratio. The company has registered a 62% growth in annualized dividends in the last three years. It also has a share buyback program. Strong free cash flow generation from Restaurant Brands’ three iconic brands offer a long runway for expansion. Moreover, the franchise business model entails very little capital expenditure on the company. RBI declared its 9th consecutive dividend increase and ended 2020 with $2.6 billion of available liquidity.
Restaurant Brands has a target to build 40,000 restaurants in the 2020s. The company has been expanding its geographical footprint worldwide and has successfully established 60% of the new restaurants in leading international developing economies like India, China, etc. These countries are witnessing huge growth in consumerism and Restaurant Brands is in a good position to benefit from this rising trend.
Popeyes, the iconic fried chicken brand has plans to open hundreds of restaurants across India, Bangladesh, Nepal, Bhutan, and Mexico over the coming years. It is favorably placed in the growing chicken, coffee, and bakery market which is expected to reach a $590 billion market size by 2023. Strong focus on guest experience including technology like delivery, kiosks, and outdoor digital menu boards should also support future revenue growth.
Restaurant Brands quickly leveraged the infrastructure to adapt its platforms in response to the rapidly evolving needs that the COVID crisis accelerated and has seen some remarkable progress especially in delivery, mobile app guest experience, and CRM in just a short period of time. The company should benefit from reduced COVID-related costs on the back of vaccine rollouts and expected future recovery.
With very few barriers to entry, the restaurant industry is highly competitive. Restaurant Brands competes with many foodservice companies as well as local operators in the U.S., Canada, and internationally. McDonald’s’ is one of its biggest rivals.
The company also faces competition from casual restaurant chains, convenience and grocery stores, and other food delivery service providers. Technology has emerged as a critical differentiator in enabling delivery and Restaurant Brands has made good progress on the digital front.
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|NASDAQ:SBUX||SBUX||Starbucks Corporation||Consumer Cyclical||Restaurants||74.35||117.54||137.67||42.74||42.74||2.75||1.5300||74.9000||4||1.80||17.5600||9||6||Consumable - Discretionary||YES||NO||NO||NO||USA||1|
|NYSE:YUM||YUM||Yum! Brands, Inc.||Consumer Cyclical||Restaurants||36.58||135.12||39.90||30.78||30.78||4.39||1.4800||43.9000||4||2.00||3.6300||3||4||Consumable - Discretionary||NO||YES||NO||NO||USA||1|
|TSE:QSR||QSR||Restaurant Brands International Inc.||Consumer Cyclical||Restaurants||51.46||81.97||37.84||0.00||0.00||3.21||3.2600||95.5000||4||2.12||41.9300||7||4||Consumable - Discretionary||NO||NO||YES||NO||Canada||1|
|TSE:MTY||MTY||MTY Food Group Inc||Consumer Cyclical||Restaurants||38.46||69.24||1.73||21.54||21.54||3.60||1.0700||0.0000||4||0.74||1.0700||3||4||Consumable - Discretionary||NO||NO||NO||NO||Canada||1|
Restaurant Brands is one of the most efficient franchised quick-service restaurant operators in the world with three leading independent brands having huge potential for future growth.
The company has, however, been facing challenges, as a result of the ongoing limitations to in-restaurant dining in most markets. Its business will continue to be impacted by the COVID-19 global pandemic, as a result of temporary restaurant closures and limited seating norms.
However, Restaurant Brands is trying to enhance its digital offerings, strengthen its delivery and drive-through services to combat competition, and expand market share.