All right, I guess we can get started. Good morning, everybody. I'm Danilo Gargiulo, Restaurant Analyst here at Bernstein, and thank you, everybody, for being here, early morning start. Before we start, I'd like to remind everybody that you can send me questions through Pigeonhole by either scanning the QR code on the screen, maybe not, and, or in the agenda book, or by using pigeonhole.at with passcode SBC2024. We are thrilled to have Restaurant Brands International today, and with me is a man who needs no introduction.
Well, apparently I do.
Well, but apparently not. Apparently, yes. So Patrick Doyle, the Chairman of Restaurant Brands International. That's your first fireside chat here as a chairman of RBI. Welcome aboard.
Thank you, Danilo.
Let me start with a quick question.
Yeah.
What are you doing here? I thought you were on a flight to the West Coast.
No, no. No, I'm thrilled to be here, and no, I love what I'm doing. I love this business. We're creating lots of value. Josh is amazing, and the team is terrific, and I am firmly in Miami. That is not changing.
Okay. Hopefully, rumor dissolving.
No.
So, this is your first fireside chat with us. But you joined RBI almost three years ago. What's your key takeaway in your journey so far? So what is the number one learning that you've had in two years of learning from RBI?
Yeah, it's interesting. I mean, when you come in from the outside, I mean, I did all my research before I invested and before I got involved. What the four businesses have in common is they all have best-in-class food. They've got terrific food. The opportunities in the businesses are different. You know, so at Tim Hortons, it's about expanding day part. You know, we're north of 70% in the morning day part on coffee and over 60% on breakfast. You know, so it's about expanding day part, moving more and more to cold beverage. You know, at Popeyes, it's about execution, you know, Easy to Love , making it easier for the customers, more convenient, you know, improving speed of service.
At Burger King, obviously, lots of work there, a lot of that operational and also getting the restaurants reimaged. The international side—I guess international and Firehouse have in common that, you know, we just need more restaurants. And, you know, overall, business is doing great, and it's just a question of how quickly can we expand our, you know, our footprint around the world. You know, the surprise for me, you know, one coming in, was that, was just how strong Tims was. I lived in Canada for a few years, but that brand is amazing, and, the opportunity for it and our ability to expand, is tremendous. And it's interesting, for us, you know, we already basically do 50% of our businesses before 11:30 A.M., and half is after.
And, but because of our share in the morning, clearly, a lot of the growth is gonna come from, you know, from afternoon and evening, where we're not double-digit share yet. And so, you know, lots of opportunity, but based on the size of the business we already have, from lunch forward, we've got to... You know, there's no reason we're not gonna be able to continue to do it. I guess the other thing and kind of big opportunity that's been a bit of a surprise for me is, we did less across the businesses from kind of a procurement standpoint than I would have expected, and there is still a real opportunity to bring our total scale to bear. You know, we buy a lot of, you know, paper across the brands. We buy a lot of proteins.
We, you know, we buy a lot of beverages, and, you know, we actually already did do that one and kind of harmonize, you know, our, our deals with, with Coke across the brands. But the opportunity is huge, and, you know, the opportunity for growth, I just am very, very excited about it, and, and what we're getting done and the team that we've got in place to do it.
Okay, so, so maybe speaking of growth, make our job easier, what is the top three takeaways that you would like everybody to remember by the end of this fireside chat?
Yeah. So, you know, first, the focus on franchisee profitability is key. And, you know, you and I have talked about that, and, you know, it's certainly been an enhanced focus that's maybe the one thing that I can kind of look at and say, "Okay, that was, that was me bringing, you know, really that particular focus there." At the end of the day, if the franchisees are doing well, if they're excited, not only about the opportunity that they have to create a great return for themselves, but confidence that it's gonna continue to get better, then they're gonna bring capital to, you know, to our business, and their time and attention to the business. And that's ultimately gonna generate restaurant growth and same-store sales growth. That's what drives P&L.
But it is the core thing that you need to be working on as a, you know, predominantly franchised business, is that. And so, you know, it is, it is first that focus there and what I think we can get done there and how that's going to energize growth throughout the system. I think that's key. You know, we've come out with an algorithm now about, you know, our business. We're gonna be bringing more transparency to the business. Hopefully, we've made it easier for investors and for you to model the business. And, you know, we think that's incredibly important.
But, you know, that algorithm that we're gonna be doing over the course of the next four or five years, you know, kind of 8%+ system-wide sales growth, ought to generate some leverage on our expense base. So, you know, better than that on adjusted, Adjusted Operating Income. You know, focus on that. You know, lots of puts and takes and differences between these businesses, but at the end of the day, got real confidence that we're gonna be able to do that on average, you know, over time. So I think those are really the key things.
The other thing that I, you know, reflecting on the recent disclosure, the other part is giving more visibility to your international business.
Absolutely.
I wonder now that this is more clearly visible across an external observer-
Yep.
What do you think investors might be still missing about the stock potential as of today?
Yeah, from the international side, in particular?
From the international, but also more in general about the stock, yeah.
Yeah. So, you know, on the international side, it is one of the reasons to really believe in this, in this multi-brand model. And, you know, I think at the end of the day, when you're investing in Restaurant Brands, you're investing in each of these businesses. But at some point, you're investing in the idea that by being a part of Restaurant Brands, these, these brands are going to thrive more, right? And, and grow faster than they would if they were standalone. And, you know, I've run a, you know, a single brand business before, and so even for me, I had to kinda get my head around that. And one of the biggest reasons to believe that this is a better model is because of our ability to grow these brands around the world, right?
We're already in well over 100 markets around the world with Burger King. That's our largest international business. Probably only one of them is a little bit mature in Puerto Rico. All the rest of it have lots of room to continue to grow. But because of our know-how, because of our connections, our existing master franchisee base around the world, our ability to accelerate the growth of the other three brands, around the world is, I think, a really important, you know, thing that we bring to the table as a multi-brand business. And, you know, my old life, we're trying to break into, you know, a new market. It's a new market for us, right? And so we had to go in and do a lot of work to kind of meet people, get to know people.
You know, in, in this business, you know, the fastest growing of them right now of the new three is Popeyes, which is growing incredibly fast outside of the U.S. Turns out amazing food, amazing chicken, gonna work. And that business is growing really fast, and part of the reason it's growing really fast is we already have a supplier network around the world that we can tap into, who are already approved, that, you know, that we know our great suppliers are gonna deliver great food. We've got a network of people of our own team around the world. We've got a network of master franchisees, whether we're gonna go directly to one of our existing or use them to introduce us to, you know, somebody else who might take it on.
There is a real reason to believe that we're gonna grow. If you look at our growth projections, from a restaurant count standpoint, you know, we're saying 9,000 +, you know, more by the end of 2028. 7,000 of those 9,000 are gonna come from international, you know, and probably 3,000 in Europe, Middle East, Africa, 3,000 out in APAC, and about 1,000 out of Latin America. You know, 2,000 out of North America, 7,000 out of international. Certainly, a big part of the growth story is gonna be international. It's already 25% of our earnings, and a very fast-growing part of the business. It's gonna get bigger.
How does yesterday's announcement of Patrick joining as a senior advisor to the APAC team, they're going to change the trajectory of kind of unit building in APAC?
You know, we just figured Patrick did good work. We're doubling down on that theory. No, I've known Patrick for a while, and I've worked with Carlyle, kind of affiliated. We're looking at deals together. Patrick's terrific. He's been in Asia for 30 years. You know, he ran Coke out there, then he was at Carlyle for 17 years. He knows everybody in Asia Pacific. And it is an area where we still have a lot of growth opportunities, new markets to go into. You know, and he's just gonna help us a lot with helping us find talent, find partners. You know, his biggest deal, I think, there, that was very successful, was McDonald's China. So he does know our category as well.
You know, he's based in Hong Kong for 30 years, so he's gonna help us a lot with, you know, new connections and hopefully some accelerated growth.
Excellent. That sounds like I'm gonna change-
The name is great.
I was gonna say, like, I'm gonna change my name after this conversation. I'm gonna go straight to the council. But going back on your on your statement on the algorithm that you just announced in here, you know, 8% system-wide sales, ideally resulting into 8%+.
Very focused on the plus side of that.
Okay, good. But obviously we are, you know, the environment is evolving this year. So, you were talking about roughly 3%, coming from comparable sales.
Yeah.
Which part of the algorithm do you have most confidence into 2024 and 2025, and which other parts of the algorithm you think, you know, are going to be under closer monitoring?
Yeah. Look, we wouldn't have put the algorithm out there as it was if we didn't have a lot of confidence in each of those components, right? So overall, I know I'm ducking the question a little bit, but truly, if we didn't believe in, you know, in each of the components of the algorithm, then we wouldn't have put it out there. So I do have great confidence. You know, look, you're gonna have more volatility, you know, probably year to year on same-store sales, right? Just because of the nature of the business. You know, but overall, I mean, I think ultimately, you know, our ability to drive restaurant growth over time, if you're doing the right things, that probably becomes a bit more regular, a little bit more predictable.
Our ability to kind of control the flow through is very predictable. You know, sometimes on the same-store sales side, based on the environment, you may have more volatility, which is why when we put it all together, you know, the answer is on average, over the course of the next five years, you know, we think we're gonna get to that 8 and 8+ , you know, on the total, and our degree of confidence on that is very high.
It sounds like you're, you're essentially saying, look, the, the unit growth part of the algorithm, we have more control because also you're focused on franchisee profitability, which you established earlier. I wonder, what incremental levers to expand cash-on-cash returns you think there are for franchisees-
Yeah
... in a situation where, as you've mentioned before, maybe the same-store sales may be volatile this year, right?
Yeah.
What kind of incremental throughput is there for your franchisee base?
Yeah. So, you know, I mentioned the procurement one before, and, you know, we've still got some real opportunities. We had our Popeyes convention last week. You know, we were talking to them about, you know, opportunities on the food cost side that, you know, should at least keep the quality of the food equal, if not even improve. And, you know, and that's always gonna be the base, that you're never doing it by, you know, reducing the quality of what you're doing. But, you know, pretty easily, we think there's $5,000-$10,000 that we can find in savings for them. And, you know, they're pretty quickly getting towards their $300,000 goal.
We've said, you know, that we'd have them at 300,000+ by 2025, next year. So, you know, they're well on the way. So procurement opportunities are out there. Obviously, sales growth is important, but then the other is gonna be digital broadly, right? And that is gonna help enormously. I mean, I... You know, both moving people to digital ordering, which is happening fast. It's the majority of our business outside of the U.S., it's growing very fast inside the U.S. You know, that drives higher ticket, higher customer satisfaction. You're using a little bit less labor, you know, all everything you do, you know, every brand knows this now, right? I mean, as you move to digital, it's good for the business overall.
When you look at AI and how that starts to come in, you know, most of the things that you look at that you can do in the business with AI are actually about efficiency, right? It's about using natural voice for ordering through a drive-thru, and we're testing that along with everybody else. And it's compelling, right? It is definitely getting there. It's gonna help with labor scheduling. It will help with food ordering. I mean, there are just all sorts of things that as you think about what it can do, that are gonna drive efficiencies in the restaurants. So I'm optimistic over time that we're gonna get to all those targets.
Are these AI capabilities that you're testing going to be deployed at scale across core brands, or do you see a different journey between the different brands?
I mean, look, there are gonna be differences. There are gonna be differences. And, you know, I, I've gone out to, to make, my friend Mike Hancock at, at Firehouse, nervous. I, I, you know, I've talked about the fact I think Firehouse should be 100% digital and fast. It is not a drive-thru business. Basically, an inline business today. You can move to kiosks. You can be done, right? It should be a 100% digital business. You get the data, you can remarket effectively to them, et cetera. But, so there'll be differences in, in how we deploy, but, you know, the core competencies...
You know, what I would say is, at the end of the day, that's gonna be, I think, an advantage for big restaurant companies maybe versus smaller, because they'll be able to do it faster. But probably more importantly, it's gonna be an advantage for the restaurant industry versus food at home, right? And just because of the efficiencies, the expense and cost structure of restaurants, particularly the higher, you know, use of labor in the restaurants versus grocery stores, as you get more efficient, you know, because of kind of digitizing the business, you know, I think relatively that's a good thing for the restaurant industry. And that's probably even more important than relative, you know, competitive advantage that we can drive as the business.
Some, because we'll get there faster than maybe smaller players, but I think it's also just particularly good for the restaurant industry overall.
How about the international expansion in 2024 and 2025? Clearly, we are seeing disruption in businesses, especially with U.S. companies-
Yeah
operating in some regions outside of the U.S. Are you expecting that, you know, the labor costs are heading or will be having an impact on the willingness of the franchisees to be opening the extra store? Or are you expecting that not to have an impact in the next couple of years?
Yeah, you know what? I don't know. You know, the answer is I don't know, and, you know, that one, in particular, the answer is, you know, there are tough things happening in the Middle East and Israel right now, and probably the least important is how it affects the restaurant industry. You know, but, you know, look, obviously, there's been some disruption. We talked about how it affected our sales in the first quarter. You know, it's down, you know, probably 1.5 as a result of that. But for more important reasons than our business in the restaurant business, hopefully that will calm down soon.
Great. And then maybe moving on to China as another vehicle for international growth. You know, can you talk more about the confidence on restoring the 5% + kind of growth?
Yeah
in international, I mean, not just internationally, growth in unit or RBI, and why you think kind of the issues in China are purely temporary and-
Yeah
- kind of the plan moving forward?
Yeah. Yeah, well, I mean, you know, look, some of them, some of them are temporary and in our control, and, you know, and the some of them may be a little bit less in our control. I mean, you know, clearly, you know, the, the growth there has slowed. You know, the consumer has been under some pressure there. You've seen an emergence of, of local brands that, you know, 10 years ago, you didn't have the... You know, in the coffee, you didn't have, you know, Luckin and Manner, right? They would have grown, you know, very, very fast, right? And, so, you know, it is a more competitive environment than it was a decade ago. The consumer's been under a little bit of pressure. You've seen that in people's results.
But, you know, we've, we've got to do our job as well. We're working with our partners there and and trying to get those businesses on track. And, you know, nothing, nothing to kind of announce at this point, but we're clearly very focused on it. Patrick, you know, Siewert's gonna help us as, you know, as, as we're thinking through those things. He's obviously very, very deep, you know, in that market, so we're working through those things. And, you know, look, over the course of the next five years, you know, if we pencil out, you know, kind of 3,000 of the restaurants that we're gonna build come out of Asia, you know, probably half-ish, you would hope for out of China. Got a lot of other options also to accelerate growth in Asia, but it's important.
It's a market we've got to win in.
How do you think the positioning of things in, in China, meaning, from a competitive advantage standpoint, what's the big differentiating factor for them vis-à-vis the landscape which is evolving?
Yeah. So Tims has amazing coffee. We do a really good job on coffee. I think sometimes, you know, consumers in Canada clearly give us credit for that. As we expand outside of Canada with the... and including the U.S., we've got to do a little bit more education about the incredible quality of our coffee. But I think broadly, the big differentiator for Tims versus all of our coffee competitors is we are really good at freshly prepared food there as well.
So, you know, it is the coffee plus that is the magic at Tims, and is really our point of differentiation. You know, you're gonna go there, and you're gonna get an amazing cup of coffee or a cold brew or whatever it may be, but you also can get great food while you're there, and that is clearly our not only what we want to be our point of differentiation, but in the minds of the consumer, that's the point of differentiation.
What's the unlock for, for that to happen also in Canada? Because you mentioned at the beginning, look, we have amazing market share in the morning day parts-
Yeah
but the real, opportunity is in the PM food. So is it about awareness-
Yeah
- of the consumer? Is it about many innovations, or what is the one-
It's just time. If you look at our results over the last, you know, 8, 10, 12 quarters, we're getting it. We're taking market share. You know, we're growing incredibly well. Axel and the team are doing an amazing part. And it's interesting because the analogy that I bring when I've had some people say: I just don't know about this Tims in the PM thing. Well, first of all, half of our business is already, you know, PM. There is no barrier there. But, you know, the analogy that I always bring is, you know, McDonald's as a burger and French fry business, deciding to go into the breakfast day part, you know, however many decades ago they did that, I am sure there were people who looked at that and said: They're burgers and French fries. How does that make any sense, right?
And the answer is, if your brand and penetration is as high as Tims is, which, by the way, is triple in Canada what McDonald's is in the U.S. Importantly, our core day part is breakfast. We get them first thing in the day. All we're trying to do is get them to come back later. So our ability to market PM to them in the morning when they're getting their coffee, trigger the idea as they're thinking, you know, nobody knows coming into the day what they're where they're going to eat. I'm gonna eat lunch here today. That's rare that I know, you know, where I don't know what I'm doing tonight. I have absolutely no idea, right? And you certainly don't plan for the following day, right? So the answer is, we get them in the morning.
80% of Canadians have come to us in the last 30 days. So our ability, since they're already coming to us, to be able to efficiently and effectively market to them to come later in the day, is amazing. It is a huge advantage and happening.
What kind of tactics are you already deploying, and what kind of tactics are you planning-
Yeah
to deploy to get this reminder going?
We already have the database.
Mm-hmm.
We already have them there physically, so we can, you know, put it on menu boards. We can put it on, you know, I mean, we can, you know, all over the restaurant and in the experience, we can do it. We've probably got their phone number. We've probably got their email address. I mean, it just, you know, our ability to do that, and then we've got a, you know, in terms of our scale, we've got an enormous advertising budget. I mean, our ability to communicate with our customers is absolutely unparalleled, and it's why it's working.
Can you maybe talk about the other side of the equation? So the franchisee willingness to contribute towards the growth in the PM day part.
Yeah.
You know, historically, there was a little bit of a controversy related to potential cannibalization of the day part.
Yeah.
Saying, "Oh, well, I don't want to lose my, most profitable part of my transaction-
Yep
-with consumers, because maybe if they're coming in the PM day part, you know, the average ticket is gonna be higher, but potentially from a margin standpoint, it's going to be less profitable for me.
Yeah. At the end of the-
How is that changing now with your folks?
Right. At the end of the day, it's about dollars in their pocket, right? They spent money to build the restaurant, and they want cash out of that restaurant as their return on the investment. And, you know, we're committed to continuing to improve, you know, their profitability. You know, we were at, what, $280 last year, I think, average. Our goal is to get, you know, through $300. We're making really good progress on that this year. You know, I feel very, very confident about, you know, about where we're going with their profitability, and they're seeing it. They're seeing it in their cash flow. You know, there is no resistance to that.
What I would tell you is, one of the things that I think is really important, you know, if you look at that morning beverage day part as being, you know, kind of the core, the original core of Tims, we can't do anything that would hurt that. So there can't be anything that we do that's gonna slow down the speed of that or would hurt the, you know, the perceived value of that morning day part. And the reality is, we continue to get faster in the morning. You know, our accuracy rates are better, our customer satisfaction improves, speed of service improves. So, you know, we can be a two-ball juggler. It's not hard, and I shouldn't say it is hard. It's hard work, but they're executing against it beautifully.
Morning continues to be strong, even as we're adding, you know, more and varied beverages. In the morning, we have figured out how to do that, and you know, we're building a great, you know, day part in the afternoon, and both businesses are growing.
You know, part of the kind of P&L for the franchisee obviously is the labor component, which for reasons outside of our control, clearly, you know, there has been a rise in the recent months with the minimum wages increasing.
Yep.
But also, you know, the interest rates rising. So maybe one question that we got was: What are some of the key learnings from managing the business through a period of quickly rising inflation?
Yeah. So the good news is we do business in a whole lot of countries around the world, and inflation is not new to us. And you know, the answer is, you figure it out. When you know, when your food costs and labor costs go up, you find, you know, ways to be more efficient. It is remarkable how those things will drive efficiency improvements because you always look at it and you say, "If you can do that now, why didn't you do it before?" And the answer is: I don't know, but you do. You know, when you feel those pressures, you find ways to do things a little bit more efficiently.
You know, you take price in a smart way, which I think across the brands, we have done very well, maintaining or improving value perceptions around us, relative to our peers. So you work through it. You know, when there is a big move, like the, you know, the move in labor cost in California, you know, up 25%+ in, you know, kind of one move. The answer is, you know, there's some dislocation for six months to a year. Everybody kind of resets, you know, both from an efficiency standpoint, from a pricing standpoint, and then you kind of return to a, you know, to a normal again and build from there.
Staying on the macro for a second, how do you see the evolving landscape from a macroeconomic standpoint, specifically, you know, what's your view on the health of the low-income consumer in the United States? I'm talking about this time. How do you think the different brands are going to be positioned against a kind of increased value competition?
Yep. So, you know, look, we see it in the lower-income consumer like everybody else does. You know, it's in our data. You know, it has clearly affected the category overall. You've heard that from, you know, all of our peers, and, you know, you'll hear it from me here, right? I mean, there is no question that, you know, there has been some pressure on the lower-income consumer. But I think we've been outperforming, and I feel good about how we're performing. I, you know, I think we did a really good job together with our franchisees, and that's critical. Because if the franchisees are not aligned with you, if you haven't talked to them and kind of gotten your heads together on, okay, how do we address this in totality?
Then bad things can happen from a pricing standpoint. And I think overall, we've done a great job of kind of aligning with our franchisees, understanding how we need to do it. We've got our, you know, plans out there. There's been some media reports around, you know, things at Burger King that have been part of our plans and, you know, all along we've been delivering good value. You know, I feel really good about where we are, and, you know, I will tell you, the fact that we talk about constantly, that the most important metric is the health and profitability of our franchisee base, sure helps a lot in, you know, aligning our interests.
Because they understand that when we come with recommendations, we are listening to their input, but we are also basing those recommendations on, you know, on solely on how we think it's going to improve the health of their business and the profitability of their business long term. So, you know, I feel very good about where we are. The macro in the category, clearly, you know, you've seen the impact on the lower-income consumer, but I feel very good about how we're responding to it.
So, I mean, you managed through, even in your previous life, you managed through significant promotional activities-
Yep.
even price war. What's your view on how... on the willingness of franchisees to embark on a more, you know, promotional heavy environment and potentially even a price war? And what kind of levers do you expect Burger King to pull to be able to retain market share and potentially even accelerate at the expense-
Yeah.
- some smaller players?
Yeah, look, everything we're doing, we had discussed and planned and agreed upon with our franchisees. We may or may not have moved some timing around just a little bit. But, you know, when you talk about price wars, to me, the best thing that can happen is you get a whole bunch of media around the fact that Burger King is very focused on driving value to consumers. That's going to raise the consideration of consumers to come to our restaurants. So we are doing what we are intending to do. We think it can lead, it will lead to profitable growth for our franchisees. And the fact that the...
You know that our friends in the media are loving the story and are driving lots of awareness around the fact that we are very focused on bringing value to our customers. Wonderful. I mean, I love that. So, you know, look, it starts from an alignment with our franchisees around what matters the most, and we are committed that what matters the most is their profitable growth over the medium and long term. So the trust levels are high.
And so you're focusing or you are highlighting the importance of awareness and bringing attention toward the value that you're providing. So essentially, in a way, you are facilitating traffic back into the stores. My question is, how do you strike the balance between, you know, the traffic versus mix? You know, what is the risk of, at some point, consumer deciding to go down into a value meal? So can you talk about the high-low strategy in your pricing?
Yeah. So look, ultimately, what drives it is analytics and math, and lots of research and lots of testing and, you know, we've got a lot of ways to kind of test with consumers, what's going to be most compelling for them, and the trade-offs between, you know, the number of orders and the profit of each of these orders. And I think our team, together with the franchisees, has done a really compelling job of doing that. And, you know, what is important to understand is, if you are not aligned and you are looking at that national price point, and the franchisees don't believe that that makes sense, they control all the rest of the pricing and can do whatever they want. So if they don't believe in it, they can offset it elsewhere.
So you've got to go with a holistic approach that they're going to buy in, that this is what makes sense overall on the business, because while you may be able to go a little more top-down on what that national price point is gonna be, most of the transactions with the consumer, the pricing is controlled by the franchisee. And so you, you've got to be aligned around the whole thing because ultimately, they control most of the pricing.
Got it. And the other clear focus that you mentioned at the beginning for Burger King is reimaging and having-
Yep
a more modern stores outside. You know, there is a view that reimaging incentives are not often sufficient upside for franchisees, and maybe some have stated the fact that you acquired Carrols to accelerate the modernization is a sign of potential lack of interest of franchisees into reinvesting in modernization of their stores. So what's your view on this controversy?
Yeah, 100% wrong. There is no controversy. I mean, it just absolutely is not correct. So we have talked about, you know, the returns early on, right? And when every time we talk about what, you know, has happened with the early reimages, remodels of Burger King. I mean, you know, the what we have said most recently on a relatively small sample size is, you know, we were at kind of 20% growth, now more kind of high teens. We had predicted it was probably gonna come down some. But on average, and, you know, that's taking in both kind of a light remodel, a full remodel, and kind of a scrape and rebuild, you know, we're kinda high teens return on those lift on those. And, you know, it that's gonna vary.
There are gonna be people that, you know, that don't see as much, and people who are, you know, that's an average. But we feel very good about it. The Carrols acquisition was absolutely not because, you know, we didn't think there was gonna be a good return. We committed, you know, we were gonna spend $500 million remodeling those restaurants. We believe that there is gonna be a very strong return, on that $500 million. The reason that we did Carrols is, number one, we're buying, we have now bought an organization that has really good operators. And a lot of those really good operators are gonna wind up being franchisees for us as we start the process, of refranchising those restaurants back out to them.
From a remodel standpoint, the one advantage that we get out of doing it ourselves is, you know, as we had been talking to the Carrols team about this, as a public company, to get their restaurants all remodeled over a five-year time period, which is really in our minds, we've got to be almost done at the end of five years. And, you know, what we've committed to now is, you know, with that acquisition, with the incentives we put out there, by the end of 2028, we'll be kind of 85%-90% reimaged. That's great. Then, then we're in a, in a terrific place. Carrols, to get that done themselves as a publicly traded company, we're gonna have to spend 100% of their free cash flow, to do those remodels. A public company is not gonna do that.
Mm-hmm.
And, and I understand that. Inside us, we can do that. We're gonna fundamentally use their cash flow, to fund those remodels, and then we're gonna spend them all back out again, to, to franchisees, have a bunch of local owner-operators, which we believe is gonna even... You know, with a lot of the same people running them as today, but now they're the owner, as opposed to, you know, being an employee. We think that's gonna make them even better operators, which is gonna improve the results there even faster.
From a RBI shareholder standpoint, you're spending total about $2 billion into accelerating the modernization of the stores. So how should an investor think through the ROI of this initiative compared to the other optionalities out there for similar return?
Yeah. So, well, first of all, you know, of that $2 billion, you know, we're hopefully gonna get a lot of that back as we refranchise, you know, the Carrols. So there, there's gonna be a direct flow of, you know, of a good part of that cash back into the organization, as, as we start that refranchising process. But, you know, at the end of the day, we have to have a strong, healthy Burger King in the U.S. And there is a direct return for our shareholders in having, a portfolio of businesses, in our business that are all strong, that are all generating growth. And importantly, I really strongly believe that a, a better, stronger Burger King brand in the U.S. will only help us accelerate growth of Burger King outside the U.S. as well.
At the end of the day, as you approach master franchisees, you know, outside of the U.S., part of what they're paying for, really what they're paying for is the know-how and the brand strength of this American brand. You know, American fast food QSR brands have done, you know, very well, expanding outside of the U.S. It is predominantly, a business that is, you know, is Western brands, but it's grown around the world, and we have to have a compelling brand in the U.S. to sell that outside of the U.S. And so we think that will only accelerate our growth on the international path.
And you know, it's only gonna help to you know bring more capital in because when they're doing their research on, do I want to either join the system or bring incremental capital in to growing that? Part of the due diligence process for every single master franchisee is they fly to the U.S., and they tour restaurants in the U.S. And if they see something that's pretty marginal in the U.S., why are they gonna spend good money to bring that to, you know, to their market? So I think it's important for that reason as well, all of which is gonna generate returns for our shareholders.
Actually, let me rephrase the question. To what extent the international expansion is actually coming from menu localization versus, you know, just bringing the American experience out in other regions?
Yeah. So, look, there will be some menu localization, but, you know, at the core of the brand needs to be the same.
Mm-hmm.
And so, you know, Burger King, Burger King around the world, right, is around flame-grilled, it's about the Whopper, it's about Have It Your Way . I mean, these are things that are fundamental to the brands. You're gonna be able to get a Whopper everywhere in the world. But there are gonna be some things that are gonna be more localized. And, you know, at Popeyes, it's gonna be about amazing Louisiana fried chicken. You know, how we bring that into each market may vary around the world, but the core essence of that brand has to be the same.
Great. Thank you about it. There are two questions on, kind of the state of consumer. So maybe going deeper a little bit-
Sure.
versus what we before. So can you elaborate more on the consumer trends, and do you see any softness in demand today?
Well, you know, look, I mean, you know, everybody sees, you know, credit card data now, and, you know, and you see the, you know, you see the results out there. And so, you know, clearly there has been some softening. Everybody has talked about the same thing, and it's there, right? It is the lower income consumer that has been hit, you know, most recently, and, you know, we see that in our own data. We feel really good about how we're performing in this environment for all the reasons that you know that I already spoke to. So I don't know if there's really more that I can add to that, except, you know, ultimately what really matters is whether or not that consumer is employed or not.
And that's really what drives ultimately the consumption of this category. If somebody has lost their job, it is going to be cheaper for them, and they've got the time to prepare their own meal. And so, you know, food at home, out of the grocery store, if you don't have a job, looks like a much more compelling proposition than paying what is gonna be ultimately, on average, more for that meal to get a meal prepared for you. So employment continues to be the thing that I look at the most, and that continues to be pretty healthy.
Mm-hmm.
You know, what you're seeing is some behavior shifts just because of some pressure on income and savings. You know, you're seeing people, you know, kind of changing behavior on what they buy when they come. And, you know, and that's out there. You know, and so they can manage their own ticket. You know, they get a Junior Whopper instead of a Whopper, and they get a medium drink instead of a large, whatever it may be. There are ways they can manage, you know, their ticket in this environment. But you know, ultimately, what I focus on the most is, do we see any weakening in, you know, in the labor market, in the employment market? And that still looks pretty good.
Mm-hmm. And, you were earlier mentioning the national advertising. Clearly there are some cost differences for franchisees across the United States. Particularly, you, you were highlighting California, rising wages.
Yep.
What percentage of your franchisee base actually ended up adopting the national price versus, you know, having just a slightly different price point?
Vast, vast, vast majority.
Yeah. And one final question from the audience. Can you elaborate on the rise of healthy eating trends in many geographic areas that may affect your franchise businesses, not only in the United States, but also in the international market?
Yeah. So it's, you know, it's interesting. The one that to me is most fascinating is Burger King in Europe. Now, you've got 20 or 25% of our sales there, of burgers are veg burgers, and that is a low single-digit percentage, very low single-digit percentage in the U.S. So you are seeing a move of consumers in Europe, faster than you are seeing a move of consumers in the U.S., on veg. But there's a... You know, there isn't an easy solution, and, you know, we're thriving in that environment in Europe. I mean, our European business has been great.
Mm-hmm.
You know, we're taking market share. I mean, overall, I feel very good about where we are. There is a good way to deliver on that consumer demand, and we're doing it there, and the adoption there has been multiples faster than the adoption has been in the U.S.
... How do you think you'll be positioned if the rise of GLP-1 drugs were to continue?
Yeah, look, Ed, you know, I, I, I go back to the math on this. You know, if, if 10% or 20% of people wind up on, on GLPs and, you know, for those who really need it, it may be a great answer for them, and they reduce their overall caloric intake on average, maybe after they've gone through the initial, you know, weight loss, but kind of a maintain, level. If they drop their calorie intake by 10% or 20%, you do the math, you know, 10-20 times 10-20, you're at 1%-4% reduction in calories over a long period of time. That's the total reduction. I don't think we're gonna really notice it. We certainly don't notice it in our business today. So I...
You know, overall, my concern on it is not high because, you know, you kinda work through the math. I mean, people still need to eat. They may be shifting somewhat what they eat. We have not seen that particularly in our business. You know, I think we've maybe seen some effects on that in some snack foods and some other categories, but, you know, overall for us, you know, I think it's fine, and for those who really need to do it, it's probably a good thing.
What kind of innovation from a menu standpoint are you expecting for us to enjoy till the end of this year?
It's gonna be amazing.
Nothing.
It's gonna be amazing. I will tell you no more than that.
Very good. Let me ask one final question, because I know we are at time. So how do you think RBI is going to be different five years from now?
You know, look, we've laid out what we think we can accomplish. You know, what you're gonna see is all four of the brands are gonna look far more global than they, you know, than they do today. You're gonna see generally, our international business is gonna have grown faster than our North American businesses. So it is gonna be a more global business broadly. It's gonna be a more global business within each of those brands, and it is clearly gonna be far more digital than it is today. I think those are gonna be the biggest shifts, and those are all, you know, a great thing for shareholders.
Okay. Thanks very much.
Thank you.
Thanks, everybody, for attending.