All right. Good morning, everybody. My name is Danilo Gargiulo. I'm the restaurant analyst here at Bernstein, and thank you, everybody, for joining us. Before we start, I'd like to remind everybody that you can submit questions through Pigeonhole by either scanning the QR code shown on the screen, or in the company's agenda, or visiting pigeonhole.at and passcode SDC2025. I'll be monitoring the questions, so I'll be asking them throughout this session as well. Very thrilled to have you back on stage. Restaurant Brands International is one of the world's largest quick-service restaurants, with over $35 billion in annual system-wide sales, approximately 30,000 restaurants worldwide in over 100 countries. They are leading four major brands: Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Today, with me, we have Josh Kobza, the RBI CEO.
You've been at the company for, I think, 13 years now, taking various leadership roles before becoming the CEO. Josh was also the CFO up until 2018, the Chief Technology Officer and Development Officer until 2019, COO until 2023. Welcome back on stage. We are very thrilled to have Sami here, Sami Siddiqui, CFO of RBI. You've been at the firm also for quite some time, again, leading various roles, most recently leading the Popeyes brand. Welcome both on stage. Before we get started, maybe, Josh, this is the second time you're here as a CEO. What has changed in the past year, and how do you think about the overall business of Restaurant Brands International today?
Yeah, thank you so much for having us, Danilo. It's a pleasure to be here. Thank you, everybody, for coming out for the early session. We can't tell, but I hope everybody's had their coffee and is ready for a good session here.
Tim Hortons coffee.
Coffee, we hope.
Only. Exclusive. Hope you did not have any other coffees this morning. It is certainly a pleasure to be here, and thank you for all the introductions. As you mentioned, it is now my third year as CEO, and I have been working with Sami for, I think, 12 of the 13 years I have been here. We have worked together for quite some time, and it has always been a pleasure. I think we have been making a lot of progress over the last few years. A couple of the things that have probably been most impactful over the last 12-18 months, I think we took on a couple of the biggest challenges that we had in the business that before that had been unaddressed. We acquired Carrols about just over a year ago.
That was a huge step for us, a really important part of our Burger King plan, especially on the front of changing the landscape of the franchise base and moving to more local owner-operators. That was a huge unlock, but I'd say a really important strategic decision, one that I think had certainly been contemplated probably the entire time I've been with the company, and I think even before people have been asking kind of what do we do about this topic of the franchise composition and Carrols. I think that was a really important, very decisive decision, a big capital allocation decision as well. The other big thing that's new is that we've taken over our Burger King business in China.
We had been struggling there for quite some time, and it's the second-largest QSR market in the world, an incredibly important one, and historically had been an important source of growth for us. It is a place where we had had some challenges over the last few years, and I think we took a very important decision to take back that franchise and are now in the process of working on improving the operations, putting in place an incredible local team, starting to ramp up advertising again, and I think setting the foundations to go back to developing that business again. I think those are probably two of the biggest things that have changed. Any other ones you would add, Sami, over the last year or so?
No, I think that was.
Sami said he was going to struggle with the handheld microphone, so it is playing out. Thank you.
I think that covers it. Just keep me on the mic.
All right. All right. Maybe following back on this question, Josh, looking beyond what happened last year, what are maybe the top three takeaways that you'd like investors to remember at the end of this conference for Restaurant Brands International?
Yeah, if I had to pick three, I would probably say kind of short-term practical takeaway is that we're on track to deliver our 8%+ adjusted operating income growth this year. That's something we've talked a lot about. That's kind of the most fundamental part of our long-term algorithm, and we've said that we're on track to deliver that this year. That's a really important one. I would say the second thing, over the longer term, and it goes back to what I just mentioned, I think we are taking on or have already taken on, I think, what are the hardest challenges in our business. Things like turning around Burger King brand with all the capital that we've invested there and the wonderful work that Tom and the rest of the Burger King team are doing. We've taken on that challenge.
We took on what do we do about Carrols. We've taken on the challenges in our China businesses, both Burger King and we're now running Popeyes. I think we're going after every fundamental thing that we know we've got to make progress on. All the hard problems, they're out there. They're on the table. We're doing things actively to address them and make sure that we've got control of those topics. I think that gives us more optimism about where we're going in the future and our ability to control those outcomes. I'd say the third thing is that behind all of this is building compelling business models at the restaurant level for our franchise partners around the world. We talk about this a lot. It's something we report on publicly. It's something in our bonus formulas for all of our teams around the world.
Franchisee unit economics are really fundamental to this business. We are very focused on building sustainable and compelling business models for our franchisees all around the world.
Sami, what do you think today is most misunderstood about the business? What do you think is the catalyst for a reacceleration of the stock? What do you think investors might be looking for in RBI?
Yeah, I think it actually dovetails nicely with what Josh was just talking about. I think if you look at our business today, we've had a lot of change over the last couple of years, and I think that change and those investments, they were needed, right? As you think about it, we've actually changed our disclosure a little bit. We've added a new segment called Restaurant Holdings, which holds our Carrols restaurants as well as our Popeyes China restaurants and our Firehouse Brazil restaurants. I think investors, sometimes I get a lot of questions around the complexity of the business. I think in certain instances, maybe there's an underappreciation for we are at peak complexity right now in our business. We're adding this disclosure. We're making these investments primarily because we want to build a stronger foundation for the business.
I think if for investors who have patience, which I realize is not always the easiest thing to do, who can look through to 2028, 2029, when a lot of these things are off our balance sheet, when you're starting to see the returns of some of these investments, when our foundations are even stronger than they are today, I think that can be really compelling. I think we've tried to lay out a path for what a simpler business looks like. We really enjoy being a franchisor. We love being in the fully franchised or primarily franchised business, and we want to get back to that point over time. I think we see a pretty clear path to getting there.
Yeah, so what is the path to get your ROIC back in line with peers? What is the kind of the glide path and initiatives that you're planning so that kind of the return on capital gets elevated once again?
Yeah, I think ROIC is sort of an interesting metric to look at. I would say when you compare ROIC versus peers, it's a little bit difficult. I think the unique circumstance for our business is that if you look at our balance sheet and you kind of look at the left side of our balance sheet, you'll see we have, I'll call it, $25 billion or so of assets, and 70% or $17 billion of that is intangibles. It's brand value and goodwill. That's primarily a function of we've been an acquirer. We've acquired a lot of businesses in a short period of time, large acquisitions. When you actually look at the way I look at ROIC is sort of the tangible asset value. If you actually look at the ROIC on a tangible basis, the tangible ROIC is actually very good.
I would argue it's best in class compared to our peers. I think for us, the path to sort of simplifying or uncomplicating the business model a little bit will be very simple. It's with the Carrols restaurants, refranchising those restaurants, getting them off the balance sheet over time to small local owner-operators, folks who are going to run the restaurants really, really well, as Josh said. Two, it's refranchising or selling Burger King China. We've talked about our intention to do that over the next 12 months. Popeyes China, a bit smaller, but over time kind of get that down. As you think about the CapEx cadence for the business, we've talked about 2025 and 2026 being peak CapEx years for us. We think CapEx will be kind of in the $400-$450 million range, which is significantly higher than we've been in the past.
Over time, as we get to kind of 2029 and beyond, we think that steadies out at around $300 million, as well as with kind of a pretty stable G&A base that we've already seen start to come down a little bit. I think that's the path to simplification and maybe uncomplication. Ultimately, we think all these investments have high ROIs, not only because in Excel they have high ROIs, but they're fundamentally good for our brand.
To clarify, the $300 million of CapEx, that would be inclusive of essentially any support for remodeling for Tim Hortons and potentially Popeyes. Is that right?
Yeah, and that's a good point. I think when we talk about CapEx, I should clarify, it's CapEx, it's cash investments, it's anything that's viewed as kind of investment in our system. As you talk about that $300 million, the bulk of it actually would be going into the Tim Hortons system, where we have property control in almost 80% of the situations. Ultimately, we put in capital into those situations because the returns are phenomenal. Investing in real estate and remodels at Tim's is one of the best places anyone can put their money.
Great. Maybe, Josh, you have visibility over potentially 100 countries where you're operating, and the macro environment has been quite volatile in the past few years. I wonder if you can give a little bit of a highlight on where you see some incremental pockets of strength worldwide, where do you see some pockets of potential weakness on a relative and sequential basis, and what do you expect the future to be looking like in terms of the resilience of Restaurant Brands International in light of the dynamics from a macro standpoint?
Yeah, as you point out, there's a lot of different countries, and each has its own dynamic. It's really hard to generalize on these. I'll try to break it into a few different pieces. If we look at the U.S. and Canada, I would tell you that one of the things I most look at is employment. The reason for that is a lot of what our business is, is people being out and about working and looking for a convenient and affordable meal. When people are employed, when they have income and they're out and about and working, that tends to be one of the biggest drivers of people using QSRs and coming to our restaurants. It's something we pay a lot of attention to.
I think despite some of the fluctuations in consumer sentiment in the U.S. and Canada, the U.S. unemployment has actually been pretty stable. We're actually in a pretty good place. I think for me, that's something that gives me a bit of confidence. We haven't seen a big fluctuation in trends, and I think that's probably due to employment being relatively stable. In Canada, a little bit different story. Unemployment there ticked up, actually a fair bit, over the last couple of years. Most of that happened through last year. I wouldn't say it's happening incrementally as you've gone into 2025, but it is a bit of a tougher environment from an employment standpoint when you look at the absolute unemployment levels in Canada.
I don't see big things changing as we've gone through 2025, aside from a bit of the noise we had in the short term in the first quarter. No big changes there. In places like China, for example, where it had been a tough couple of years, we actually see some things stabilizing there. Again, some challenges, but not incremental challenges in terms of the direction of overall consumer spending. I think that's a nice thing to see where it feels like you're seeing some stability. In Western Europe, it varies a bit by country. I think some of our performance is more the aggregate performance is pretty good. If you look at our sales in our international business in the first quarter, we've been pretty happy with those, and a big piece of that's Western Europe.
There are just pockets within there of countries that are doing better and worse. That probably has more to do with competitive dynamics and what's working for us and competitors than anything else.
Yeah, and can you comment maybe on the resilience of the brands in light of the macro volatility? How is, for instance, Tim Hortons positioned in Canada given the relatively challenging environment?
Yeah, I think to your point, I think if you look at despite maybe some challenges in the Canadian macro, Tim's has done really well over the last couple of years. I think that has everything to do with what the brand delivers. It's an incredible brand. It has amazing everyday value. It's not a ton of discounting. We just have really compelling everyday prices. If you look at the brand tracker for Tim's, we have one and do win on best value for money. I think we're in exactly the right place in Canada with Tim's for any kind of difficult macro scenario. I think you've seen that in the performance of the business.
Great. You also mentioned China as being a place where the macro dynamics are stabilizing, at least. How much of your development pipeline might be depending on China, and what are some of the puts and takes and opportunity to maybe offset the volatility in China with strength in other countries?
Yes, I think as Sami's kind of laid out what the path is back to 5%+ in terms of net restaurant growth, within that math, I think we're counting on 300 restaurants in China. I would say that's a relatively small contribution from China. If you go back in time, we've done that with just one of our brands has developed 300 in a year. I think it's a very conservative view of what's possible if we deliver with all three or four of our brands eventually in China. I think the numbers have been a little bit tougher in the near term. We've talked about we'll take some closures at BK China, but I think we're setting the foundations to do much, much more in the future. The Burger King brand in China is actually very strong.
If you look at any of our brand trackers, it's been very resilient, and we're doing all the right things to make it a success in the future. There aren't that many kind of marquee Western brands in the QSR space in China, and Burger King is absolutely one of them. Now that we're controlling the business, we're putting in place an incredible local management team. We're spending money on advertising. We're improving operations and quality. We're fixing up the base of stores. We can get back to growth, and we're working on finding a new partner to do that. I think we're doing all the right things there. Our team has made tremendous progress in just a couple of months.
We took over the business just a few months ago, and I would tell you they're pushing ahead very quickly on every single front that we wanted them to in the business. I have been really pleasantly surprised by all of the work of our Asia teams and the local China teams. I think that puts us on as good of a track as we could have expected there. The one other one I would flag for you within China is just Popeyes. It does not get a lot of attention yet, but fried chicken in China has always been to us one of the biggest opportunities in our entire world. I think our teams there are also doing a great job.
We have a very strong local Chinese management team, and they're both starting to improve the existing business, but they're starting to build a bunch of restaurants this year. Those restaurants are performing well. We are seeing attractive things like rents are attractive again, and the sales are delivering what we expected to. I have been pleased by the progress there. Still very early. Going back to the beginning, we are counting on 300 restaurants per year in 2028. I think we set that reasonably conservatively, and it gives us plenty of time to really work on the fundamentals and get to the pace of growth we want to. If we do everything right, hopefully overshoot that by a lot.
Strategically, what is new about these new Popeyes openings versus the past attempts to be penetrating more in China? Why are you excited about this new wave of Popeyes opening up in China? Maybe Sami, you can comment as well, given your past history at Popeyes.
Yeah, I would actually argue, we entered China officially, I think it was actually right around the time of the pandemic. It was 2020. I would argue the business never kind of got the support that it needed in those couple of years, particularly as you all remember, in China, the pandemic and the lockdowns, they were started and stopped and then started again. It really did get delayed because of COVID. I think the really important thing is us taking control of the business last year. When we took control of the business, I think we learned a couple of things. I think number one is building a really, really strong and capable management team.
I don't want to say it's easy, but there's a lot of talent in China, and there's a lot of folks who have decades of QSR experience. They've built these brands with some of our other competitors, and they're willing to bring their know-how and their experience over to Popeyes. There's a ton of sort of fanfare around the brand. We see this everywhere we go. Popeyes, sort of our reputation sort of precedes us. People kind of heard about the sandwich, and they heard about all the buzz there, and people in China have heard about it. That's number one I think we're learning. I think number two is it's been an opportune moment to invest in the market, right? As you think about taking control and buying it back last year, it's only about 20 restaurants.
At the same time, as we think about one of the most critical things to building a new brand in a new market, it is finding good rents, right? Finding good sites with attractive rents where you can get the unit economics to work. We have been able to do that at this sort of opportune moment. I think there are a bunch of other factors that we are seeing that are kind of contributing to getting Popeyes off the ground. It is still early, but we think it could be a big contributor over the long term. We think now is the time to sort of make some of those bold moves, sort of given the macro.
Great. Clearly, one spotlight in terms of international expansion has been the success story of Burger King, specifically in some countries where the market has increased in line with kind of your entry in the market more prominently as sometimes you're also taking market share from your largest peers. I mean, we have clear examples in France and Spain. What do you think sets Burger King apart in the journey of international expansion, and how much are you expecting the growth to be coming at the expense of other peers versus you offering a differentiating position that enables the category per se to be more attractive versus maybe at-home cooking or versus other kind of outside of burger peers?
Yeah, I think one of the ones you mentioned, Dunnigan, in Burger King France is a great example, and I think you can use it to learn a lot of things that are true in a lot of our other markets as well and are reflective of why Burger King's been really successful in a lot of these international markets around the world. We came in a little bit later to the market, and that's true in some other places too. It meant we were able to be a new brand, a fresh brand, a young brand. If you look at the case of France, we built really beautiful restaurants. I think those restaurants shape a lot the impression that people have of a brand. Is it something that's more elevated, more aspirational, higher quality?
I think the France team did a really nice job of that. You can be a newer brand with a little bit more of a challenger attitude with fresh new assets. Those assets are highly digital. If you go into any of our restaurants in France, you'll see almost all of the in-restaurant transactions are happening through kiosks. That gives you a perception of being a younger, cooler new brand. The product quality is really good. I think the team in France has been very focused on making sure that they deliver the highest quality products, really high-quality ingredients, in many cases heavily locally sourced ingredients, which is something they're very proud of and people really care about in the market.
I think that allows you to position the brand really well, make it very attractive to customers of all age groups. That's allowed us to deliver really high sales per store and good unit economics and, to your point, take a lot of market share. I would say I think the good news in a lot of these international markets is that QSR is a growing category. Most of these international markets are much earlier in the formalization of the restaurant sector than the U.S. is. Mostly what happens over time is you have more movement towards the restaurant sector, more formalization of that sector, and more movement towards larger brands over time. I think in so many of these markets, there's space for a lot more. Many of them have just a couple of meaningful players.
I think that if you look forward 10 years, you'll have more players with more sides, and those QSR markets are going to grow. We certainly want to grow. We want to take market share. I do think there's space for a number of players in many of these markets.
How does your answer change, or is that the same for Tim Hortons' potential expansion? I understand that Tim Hortons is going to be like a smaller contributor to the international opportunity for RBI, but how much do you think is about building the culture of coffee and creating kind of the same level of convenience you have in Canada in other countries versus how much do you think it's going to be like a market share gain?
Yeah, I think there are a lot of markets around the world where coffee consumption is still very, I think we're still in the early phases of growth of coffee consumption. I think in many of those, especially the Asian countries in particular, I think there are many, many years of growth in just the custom of drinking coffee. I think a lot of people see that. It is quite competitive in many of those markets. I think there's a place for Tim's. What we're trying to be in the market is very straightforward. We want to be a very high-quality product. We have probably the best coffee beans of anybody in the world, and we want to offer that at a reasonable price paired with food. It is a pretty simple kind of functional positioning that we're going for.
I think that's the place that we've been most successful in Canada. Everywhere else that we've been doing well, we're doing a good version of that too.
Great. Maybe Sami, given the volatility of the tariff environment, are you seeing any challenges on supply chain, especially in international markets?
Make sure this is on. Look, I think the really good thing, and I guess it happened, it's been for a number of years, but we really reinforced our supply chains during COVID. I think the great sort of factor about our supply chain is that most of everything that we sell locally, we source locally. Just in food, it's generally a little bit harder to sort of be shipping things from halfway across the world to get them to restaurants on time. The vast majority in all of our markets around the world is just sourced locally. There's always going to be something that kind of has to cross borders. Fortunately, we've seen that impact as relatively small on most of our restaurants.
For example, at Tim's in Canada, as you think about things that come from outside of Canada, the vast, vast majority of the supply chain comes locally from Canada. You may have things like coffee beans, for example. Coffee beans cannot be sourced in Canada. They come from abroad. Those types of things ultimately are, we do not have a ton of flexibility, but they are also relatively small in the context of our P&L. We have been able to manage through. I would say the headwind of tariffs has been pretty muted on our business.
In light of tariffs, are you expecting to see franchisees maybe less inclined to be remodeling Burger King maybe because some of the equipment costs might be going up if there are some parts that are coming from China or some other places where the tariffs are going up? Do you see them maybe waiting for the tariff environment to stabilize before making the decisions, or do you see a continuation of the progress that you have seen last year in remodeling, I think, 400 stores going forward as well?
Yeah, look, I don't think we've seen a slowdown in franchisee interest and ambition to remodel. I think you rightfully pointed out that the tariff impact on remodels or even development, it's sort of a derivative impact. Most of the items for remodels, new builds, construction are sourced locally. There are component parts that may come from China. I would say we've been pretty sort of steady in terms of kind of mid-teen sales uplifts in our remodels. The more and more data that we get to support that, and all the data continues to support that, the more and more franchisees are excited to do the remodels. They see kind of their neighbor down the street doing it, or they may do it in one of their restaurants in a portfolio. They see the impact and then kind of are signing up.
I would also say for a lot of these remodels, there's a lot of planning that goes into it. The remodels that are happening this year, the franchisees committed to doing those remodels, let's say, a year ago or sometimes even before that. We're building a pipeline. The pipeline's not slowing down. I think really, as long as we continue to deliver the right returns, I think franchisees are going to continue to be excited to do the remodels. We're excited because I think that's great for the brand and ultimately kind of what Burger King means in North America.
You also mentioned coffee prices. Have you seen any pressures on Tim Hortons' restaurant-level margins? Maybe I will expand this question also to kind of the cash flow for your franchisees. Have you seen any pressure given the elevated coffee prices, and how do you manage for coffee costs within your supply chain segment?
Yeah, it's a great question. I think just to level set, as you think about the Tim's business, first off, it is a phenomenal business. I think franchise profitability, which we disclose, was over $300,000 annually per box last year, which just kind of getting above that $300,000 threshold, I think, is an awesome place to be. It increased $25,000 in terms of profitability per unit last year. Coffee, in terms of the P&L, is actually a relatively small piece of the COGS. It's only about 10% of the COGS. Even though we are seeing historically elevated coffee prices, the impact, again, on sort of the aggregate P&L is not sort of massive. I think the way we also buy coffee is helpful for our franchisees. What we do is we typically buy anywhere from 9-18 months forward on coffee.
We're able to effectively smooth out some of the volatility in the cost of coffee. We ultimately pass that through to the franchisees, but we're able to give them ample visibility into when those cost increases are coming. I would add sort of a helpful offset to coffee is we buy coffee in US dollars, and the CAD has strengthened versus the dollar recently. I mean, it does not offset the increase in the green, but it helps a little bit mitigate it. Anything to add?
Speaking of your hedging practices on the coffee, recently, a larger peer of yours has changed a bit the way that they're thinking about the hedging, right? They used to be doing a lot of forward buying of coffee at least nine months in advance, nine to eighteen months in advance. They shifted the strategy to be more spot market oriented in expectations of potentially prices coming down. What's your philosophy? Has your philosophy changed in terms of hedging practices, and what are the markers that you're looking for for you to smooth out the demands even further?
Yeah, I think maybe we talk sort of macro about kind of our hedging philosophy, which is we typically we don't pretend to be smarter than the markets. We have coffee experts, but Kevin West, who leads our coffee innovation, he is a bean expert. And yes, he has views on the market, but we try not to take views on the market. The whole idea of forward buying is actually just to give visibility, number one, into the price. Also equally important is continuity of supply, right? The worst thing that could ever happen is that we're not fully bought on coffee, which knock on wood, never happened. That's really how we think about hedging. We're not going to change our hedging practices because we think green will come down.
We do have a little bit of latitude in terms of when I talk about hedging anywhere from 9-18 months out. Maybe if there's a particular period of volatility, we could relax that to 8 months out. We'll never kind of sort of put risk in terms of our ability to secure the green coffee for our franchisees.
Excellent. Josh, in 2022, Tim Hortons was disclosing a long-term algorithm of 2% same-store sales. Clearly, it has outperformed almost every single quarter over the past three years. Do you expect Tim Hortons to mean revert back to the long-term algorithm of 2%, or are you expecting to see continued outperformance of the same-store sales growth?
Yeah, I'm very happy that we outperformed what we put out there. I think it's really all due to the work that Axel and the Tim Hortons team did. I think it's one of the greatest stories that we have in our business about very consistently working on the fundamentals over time. They did all of the basics right and did all of the hard work in the weeds to make that business better for our customers every day. They worked on improving product quality. They worked with suppliers. They worked on specs. They made sure that what we were delivering at the point of sale was something we were really proud of. They've worked very hard on the level of service that we provide to our franchisees and have made consistent progress on ops scores quarter in and quarter out for a long time.
They've been working on the restaurants, making sure that we're building beautiful new restaurants. We're remodeling our restaurants on time. Those restaurants both look better, and they operate more efficiently and faster than they did previously. I give a ton of credit to Axel and the team for doing the hard work, doing it consistently over time. I think when you work on those fundamentals like that and you make so much progress, that's how you can outperform an industry and produce the kind of same-store sales that they have. I think looking forward, what we need to do is keep doing that. We got to keep the consistency on the team, keep doing the hard work. They have a wonderful plan.
We've been talking about this plan, I think, since the 2022 timeframe of focusing on cold beverages and focusing on our PM food business. That, I think you keep hearing the same things. Maybe that's boring. I think that's a good thing. All the stuff that you see coming out of that team is consistent with the stated strategy. I think if we keep doing that kind of work, that's how we could keep outperforming as you look forward. That's my hope for the Tim's business. I know that's what Axel's working on.
What is the driver specifically? You mentioned the cold platform, the cold beverage, cold coffee, and cold beverages in general platform, as well as the PM food. What are the key unlocks and the key drivers for continued expansion of that one? Is it coming more from awareness or making consumers much more aware of the compelling offering that you have? Is it about expansion of the menu, so potentially finding areas where you're probably underindexing today? Can you help us elaborate a little bit more why there is potential outperformance, again, on these two subsegments?
It's a great question. Let me try to address it in a couple of ways. Sami, feel free to add if I miss anything here. When I look at the cold beverage part of the market, it's clear that the customer has moved in that direction. You saw it here in the U.S. probably first. If you look at the consumption, especially of the younger generation of U.S. consumers, we've moved a lot towards cold beverages, both in coffee and non-coffee beverages in food service. I think we historically were a heavier hot-brewed coffee business. We knew we needed to move the portfolio to where our guests were going. I think we've done that to some degree. You've seen a lot of innovation. We started with Cold Brew, and we did Tim Beebs and some work with Justin Bieber.
We have kept innovating on cold beverage. If you were to look at sort of where our beverage innovation has been, it's largely been on cold bev. We are adding and enhancing that platform. I think you'll see us keep doing that. You probably just saw recently we did some cold espresso-based beverages that have been a big hit. I think working on expanding that portfolio and enhancing the quality of every offering that we have on the cold bev side is fundamental. Even within that, you've seen us talk about enhancing the quality of our espresso-based beverages. We have some new machines out there that really upgrade the quality of the beverages that we're offering, and those are rolling out through the system. I think you'll see on the cold bev side more innovation, more product enhancement.
We'll talk about it, obviously, as we do it. PM, maybe a little bit different because I don't think we had it as compelling of offerings in the PM food space before. You've seen us consistently go at what we think are the biggest opportunities there. We did it with our loaded wraps and bowls, with our flatbread pizzas. I think you're going to see some more innovation in the next couple of weeks and some of the other gaps that we see that are really important to guests at lunch and dinner. I think there it's kind of bringing a portfolio of PM foods that's really compelling and then bringing it to life through our communications.
Usually, investors tend to be wary of the potential implications from an operational standpoint, saying, "Well, you're adding complexity to the business, potentially even adding more labor hours throughout the day, which might be an impairment to the franchisee profitability going forward." Can you elaborate on how this innovation has been actually operationally efficient in a way that the franchisees are seeing incremental profit, incremental dollar flow through into their profit? How do you plan the operational excellence to be a driver going forward?
Yeah. It's a great question. It's one we think about a lot. It's especially important when you're doing the amount of business we do, particularly in the morning and kind of that 6:00 A.M.-10:00 A.M. breakfast window. If we lose a second, we lose a bunch of sales. This is incredibly front of mind for our teams. I'll give you a couple of different examples. Feel free to add on any. A lot of it's the way that we do these innovations. If you think about innovations like our Sparkling Quenchers, we don't have a lot of customization that's done around those. The build of it is very simple, very fast, and quick to execute for our teams. We don't have things that'll take you three minutes to make. They're really quick, really easy.
We made sure when we launched that product that it was going to be something that was not going to slow us down. For example, we did the flatbread pizzas. When we launched those, we actually took something else off the menu. We took our melts off. The flatbread pizza is actually faster to make. We sell more, but it is faster to make than the thing that it replaced. You have to have the discipline when you put something in, take something else off, and be conscious of the net change in build times for the product. We will do some more of that in other parts of our lunch platform. If we add a new sandwich, we are going to take something out.
It is that discipline to say, "If I'm going to add something, I need to take something else away." If I'm going to add something, I need to be really sure that the build procedures of that product are going to be as easy or easier than what it is replacing. I think Tim's team has done a really nice job of bringing that operational discipline to the product innovation process.
I'd also add, when you think about where the innovation is coming, it's coming in sort of historically underutilized or less utilized day parts in our business. It's interesting. When you look at our morning day part, actually, we've continued to get faster because just operational efficiency, and our restaurant owners are doing a fantastic job. A lot of the "complexity" is actually coming in the lunch, the afternoon, and the dinner day parts where historically our restaurants do the minority of their business. I think the more we can effectively utilize the box, if you're thinking about it sort of from a capacity perspective, that innovation is actually really accretive. It drives sales. It drives profit. Actually, the franchisees want to staff up because the ROI is there to build a dinner menu.
Yeah. Let's build on this utilization of the box concept. Are you seeing any cannibalization between the morning day part with the kind of PM day part, meaning one concern that sometimes we hear from investors is, "Well, a consumer may be coming in the morning, but if they come to Tim's in the morning, they may not be coming in the afternoon." The counterargument will be like, "Well, maybe you can see you can be reminded of Tim Hortons in the morning and potentially can pass on some coupons and trigger some incremental visits in the afternoon." Are you seeing any trade-offs? Are you seeing any cannibalization between morning day part and afternoon day part?
We're not seeing that. Actually, I think Tim's is just one of the most unique businesses in the world. Whereas you think about the penetration that we have and sort of the convenience factor, for many years, even before we had, I would say, a more expansive kind of PM food menu, we have a good chunk of our guests that come twice a day. You go in and you do your kind of morning coffee run. I don't know if we have any, do we have any Canadians in the room? See, I saw the Canadians nodding, so they understood. You go to get your morning Tim's, and then you may stop by in the afternoon to get an afternoon coffee. It may be a cold brew. It may be with a snack.
It may be an entirely sort of different kind of purchase, but it's a second visit in the day. We aren't seeing any trade-off.
I think just the most objective measure of that is if you look at the past year, we grew traffic. We are getting people to come to the business more often. We are not just trading them around between day parts.
Excellent. You hinted to development in Canada as well. Recently, you just opened up more Tim's in Canada. Are you seeing any, so what is the potential opportunity in terms of new units that Tim's could be opening in Canada? Potentially, if you can elaborate also in which part of Canada you are seeing some pockets of strength given your probably underpresence. Are you seeing or are you expecting to see any trade-offs between sales growth and net unit growth?
That's a good take.
Yeah. Number one, I think what's really interesting is when you actually look at kind of the macro of Canada. Over the last decade, and Josh and Patrick and I were looking at this not too long ago, population growth in the last decade in Canada has been around 14%, which I think is one of the fastest of any developed nations around the world. You actually look at our growth, our unit growth, it's been about 4% over that same time period. Naturally, even though Tim's, we have really great penetration rates, we are actually falling behind that penetration rate just mathematically. We think there is an opportunity to catch up a little bit.
Eventually, kind of once that's the case, I think long term, we think that we should grow units sort of in line with population growth so we can maintain our convenience factor. I think where that growth comes from, I think as we look across Canada, the regions where we see probably the most opportunity are Western Canada and Quebec. I'd say that's where we see where we're a little underpenetrated relative to kind of our business in Ontario. I think fundamentally what drives new restaurant development with any brand anywhere in the world is, number one, compelling unit economics. Equally important is great operators, folks who are ambitious and want to develop the brand. The beauty in Canada is we have that, right? I think the paybacks on a new unit for a Tim's are between three and four years.
Average sales around kind of CAD 2.4 million, average profitability above CAD 300,000. Really good unit economics. The other thing I think is worth calling out is it's a relatively underleveraged system. There's not a ton of debt in our system. Our franchisees grow in a very sort of responsible way. I think that gives them the flexibility that when there are opportunities like this for us to start to really accelerate development a little bit.
If I can just add just a little bit, the way things I think come to life in terms of the unit growth. As you've seen so much population growth, you're having to build additional housing. That's been across a lot of different provinces. If you look in Ontario and you go outside of Toronto, there are a bunch of new housing developments. Each time a big housing development goes in, you're going to have some retail that's built around it. That retail needs a Tim's. We're seeing those.
Maybe two.
Maybe two. Better with two. As we're seeing some of that development happening, which is a response to the population growth, that creates new places where we're, of course, going to want to open a Tim's. That is some of the nature of the opening opportunities we see, as well as some of what Sami referenced. If you go out west, if you go to Alberta, if you go to BC, we're underpenetrated relative to anywhere else in the country. We've still got more spots that we can fill in there. I would tell you the cannibalization question is certainly on our minds. It's in all the analytics we do when we look at a new site. We're looking very carefully at what's the net impact of opening the site, where do we think it might take from other restaurants.
We have got clear thresholds of what is one that makes sense and one that does not make sense based on what the cannibalization versus net new sales is going to be. That is very top of mind in any new site that we approve.
Okay. Let's switch gears onto, in the remaining five minutes, onto Burger King US. Less than 17% or 18% of the operating profit. It has been quite a successful story also in the United States, relatively speaking, right? Talking about the relative outperformance versus peers. What kind of steps do you think Burger King could take to maintain the outperformance in industry and capture incremental market share?
Yeah. I agree with what you said in that I think the last few years of Burger King have been a big change in direction. I give a lot of credit to the team for a very thoughtful plan that they put together for making all the right investments that we needed to make in the business. I think for bringing the franchise system along, I think we dramatically changed the level of engagement and buy-in from the franchise system at Burger King in the last few years. Tom deserves a lot of credit for that. I think when we look at the metrics that tell us how are we doing, we see progress across the board. That can be same-store sales and traffic performance versus the competitors, but also all of the other metrics. Are we making progress on our digital sales? Yes.
Are we making progress on operations? It's been actually incredible. We went from one of the last worst performers in the pack to now we're kind of like middle of the pack. That does not happen very often in a big system like this, but there's been consistent and really remarkable progress. We're making progress on modernizing the image of our restaurants with good uplifts for the franchisees. All of the basics are working. I think that's one of the advantages that Burger King has versus some of the competitors: we still have a lot to do on all of those basics. We still have a lot of restaurants to remodel in front of us. We still have pockets and portfolios that are not operating the way that we want to, where as we fix them, we should outperform and have better sales than others have.
I think we have in some way the benefits of progress still to be made on all of those fronts. I know that's very clear in the team's mind, and they're working against it. I also think that as we make progress on some of those fundamentals, the operations are more consistent, the facilities are better maintained. I think that gives us more permission to go do other things, more interesting things, to do things like How to Train Your Dragon and do a Whopper that's got a flame on the bun and invite kids and families back into our restaurants and bring people back for dinner. It's one of the things that's interesting when we look at our sizzle remodels that we've been doing. The sales progress is not even across day parts and demographics.
Actually, the biggest thing that we find is we're seeing more families coming back, and we're seeing more people coming in for dinner because the dining rooms are beautiful and clean and inviting. I think that as we've made progress on these fundamentals, it gives us permission to kind of go on the next phase a little bit more front-footed about where we want to take the brand. You're seeing us start to lean into some of those things. How to Train Your Dragon's a really fun version of it, but we have more coming in the next few years.
Excellent. Can you talk about how you're thinking about, maybe this is for you, Sami, like how you're thinking about balancing improvement in franchisees' profit versus investing in remodels or higher promotions to get back to even higher growth levels for Burger King? Specifically, what kind of feedback are you getting from franchisees regarding kind of your investment to support them?
Yeah. I do not think they are mutually exclusive. I actually think they are quite intertwined, right? I think the investments in whether it is marketing or in the remodels or what have you, they are all designed to kind of strengthen the brand. I think what we are seeing, and I kind of alluded to this earlier, is when you think about the investment in the remodels, both our investment and the franchisees' investment, it is important that we deliver consistent, compelling returns. I think we have been able to deliver mid-teen sales uplift pretty consistently on the Reclaim the Flame remodels. To Josh's point, the Sizzle remodels, which are kind of some of the more recent remodels, are doing even better. They are even outperforming that.
As you look at some of the remodeled restaurants, profitability for those remodeled restaurants is approaching $300,000, which is a really healthy level for our Burger King system. It is where we want to be long term for the system. Franchisees are excited about that. They can see that the sales uplifts are flowing through into profit and a really healthy ROI. For us, I think the ROI on our investment, there is certainly the Excel ROI, right? We kind of view that as it is probably high single digits on a simple return basis as you think about over a prolonged period of time, as you think about kind of the sales outperformance of remodeled restaurants over not remodeled restaurants. It is probably low double digits returns. I think what is not factored into that analysis often is what is the opportunity cost of not doing the remodels?
What is the opportunity cost of having a system that's not modern? You've seen it time and time again in our industry when a lot of our peers or even our system, when we haven't remodeled, that can become a drag on the system. That can become an anchor, as Tom calls it. We have to address that. I think remodeling, it's not a choice.
I know we are almost at time. I'm going to squeeze in two questions. Digital. How are you planning to leverage digital scale across your brands in personalizations and marketing? Where are you on your stage, and what's the plan for the next five years?
Yeah. I would tell you most of our marketing and kind of customer activation is done at the business unit level. We let that be run by each of the brands. They get to decide how to interact with their customers. We do have a technology team that sits across the business, and they help to share best practices. They bring new ideas. They help to kind of give people ideas or share things that are really working. We have not tried to centralize all of that because we think it gets a bit clumsy. We really want the brands to drive their customer interactions in whichever channel people are going to interact with each of our businesses. That has kind of been how we have decided to manage it.
Excellent. How are you positioned on the trend of consumers looking for healthier products going forward? I will ask just differently, how is RBI going to be different in the next five years, even outside of the health and wellness orientation?
Yeah. On the first part, I think what people are looking for, I think have been looking for and are increasingly is just the quality of the products that we are providing. I think that is what I think our brands do best within their segments. If you were to say what ties all of our brands together, I think we have the best quality products in each of our segments. I think we should keep striving to make those products, our core products, even better every day. I think that is the most compelling response that we can have to where I see our customers going and what they want from us and what they will want from all of QSR.
If I were to look forward a few years and say, "What would I like to see?" I think where we want to go, Sami sort of referenced this, is we want to get back to being closer to fully franchised, kind of a classical, more franchise model, which means we'll move the BK system and the Carrols restaurants to more local owner-operators and have our China businesses in the hands of incredible long-term partners who are going to help us realize the growth potential of those businesses. I want to see our brands consistently winning market share, being brands that are winning in the marketplace because we offer better products and better experiences to our guests every day. I think in doing that, we'll be able to deliver really compelling and consistent unit economics that make a lot of sense to our franchise partners around the world.
I think that's what we're aspiring to, and that's where we're headed.
Excellent. Josh, Sami, thank you so much for joining, and thank you, everybody, for.