Good morning, everyone, and thank you for joining us, both in the room and on the webcast. My name is Jeff Bernstein, and I'm the restaurant and food service distribution analyst here at Barclays. I want to welcome all to day two of our 11th annual Eat, Sleep, Play, Shop conference. Just for background, we're excited to have 12 restaurant and food service distribution companies here with us in New York. Yesterday, we had Bloomin', First Watch, and Kura Sushi. Today, we have Restaurant Brands actually sitting up here next to me, along with Cheesecake Factory, Dine Brands, and Texas Roadhouse. And tomorrow, we have Shake Shack, Brinker, Wendy's, McDonald's, and Performance Food Group. So we hope you find the conference a good use of time, and hopefully, we get a chance to chat in the halls between meetings.
But at this point, I'd like to introduce our first presenting company, which is Restaurant Brands International. With me on stage from Miami, Florida, we have Josh Kobza, CEO, and Sami Siddiqui, CFO. By way of background, for those not familiar, Restaurant Brands is a multinational quick service portfolio comprised of four well-known brands: Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Their longer-term algorithm calls for annual 8%+ system sales growth. That's supported by both + 3% or so comp growth and, over time, 5% or so net unit growth. The latter will likely benefit from recent news of a JV partnership with CPE, which is a new Burger King master franchisee in China, which we look forward to talking about this morning. But we want to thank Restaurant Brands very much for joining us this morning, Josh and Sami for joining me on stage.
I've got a number of questions that I will pose, but then I will definitely stop and pause and see if there's any questions from the audience. But with that said, look forward to our discussion.
Thank you.
So I thought I'd just start bigger picture on the QSR segment, which you guys are quite familiar with, and that is your ticker. So you're very well versed. I'm just wondering if you could talk just high level for an audience that is more consumer broadly focused. How do you describe the health of the consumer across different groups? You guys tend to focus, or quick service often focuses more on younger guests, more on lower-income households. Those are areas that investors have heard recently have been a little bit more challenged in terms of lower income and younger. I'm wondering what you see in terms of spending patterns, whether there's anything you can make us aware of as you think about those cohorts within your industry.
Yeah, Jeff, I'll take this one to start, and good morning, everybody. Thanks for taking the time. Maybe I'll talk about a couple of different geographies and mention a couple of the points that you raised. I think first off, our biggest business is in Canada, so I'll mention a little bit what's been going on up there, and you've obviously seen our performance in Canada has been quite good this year. I think the consumer environment has been a bit softer but kind of stable. I think you would see consumer confidence that's kind of taken a couple of dips, especially when you have moments of kind of Canadian-U.S. relations that get more tense, but it's come back a little bit from there, and unemployment's been a little bit elevated, though in the most recent reading that I saw, it actually started to get a little bit better.
I'd say a little bit of a mixed environment. In that context, we've been outperforming and happy to get into later kind of what some of the reasons are for that. Within the U.S. consumer, so that affects about 30% of our business, primarily the Burger King, Popeyes, and Firehouse U.S. businesses. I think we've seen pretty consistent dynamics throughout the year, and you hinted at a couple of points. We have seen the lower-end consumer be a little bit softer. That's been pretty persistent throughout this year. We've seen a little bit more strength in the middle and upper tiers. We haven't seen as much of the dynamics you mentioned of kind of the younger generation being weaker. At least that hasn't been the case in our business.
That may be due to some of the stuff that we're focused on and what that's doing to or how that's appealing to those cohorts, and then in our international business, that's always harder to characterize because it's so many geographies and so many dynamics, but I think, as everyone's noted, that business is actually doing really well, and it improved throughout the year, so we've seen some really good pockets of strength across our international business, so hopefully, that gives some sense of what's going on in a few of the different geographies around the world.
Right. And that's kind of a tie-in to that. There's lots of talk of the battle that food away from home or restaurants has to deal with versus food at home. And obviously, that's your biggest competitor, presumably. And many have talked about restaurants have taken a lot of price, and therefore, some consumers are feeling pinched and are doing more food at home. I'm just wondering how you think about restaurant positioning in an environment where there is perhaps that trade-off and how you best position yourselves to battle food at home.
Yeah, I think we always have to be mindful of pricing, I think, in any environment. And you do see a little bit of that dynamic where the lower-income consumers, if they're a little bit pressured, they're going to be definitely paying attention to where they're spending their money. And I think across our businesses, we've been pretty prudent about pricing. Our Tim's business provides incredible value for money. Just to give a couple of data points on that, I think for those folks who don't spend as much time in Canada, for a medium cold brew, we're about $ 2 for that product. And for a breakfast sandwich, we're about $ 3. So the value for money that we provide in Tim's is really incredible. And across our U.S. businesses, we try to be prudent on pricing and also provide consistent value.
So if you look at our Burger King business in the U.S., we've been providing the $5 Duos and $7 Trios throughout the year. It also ties in with, I think, Burger King's positioning. We let our guests have it their way. So they know they've got that dependable price point, but they can kind of mix and match and pick and choose. And I think that's appealing to folks. And I think the value positions of those two businesses are one part of what's allowed us to perform pretty well despite a reasonably tough environment this year.
I should just mention for the audience, I mean, Restaurant Brands is a primarily franchise business. So while we talk a lot about menu pricing, franchisees make their own pricing decisions. So having franchisees who are disciplined and doing the right thing around pricing goes a long way. Just curious, in terms of you meet with a lot of investors, each management team will tell me, "You know what? There's something that just investors don't fully appreciate or misunderstand about our business." I'm wondering what question or questions you get that maybe surprises you more than most, or maybe a question you don't get that you think, "Why wouldn't people want to know about this?
Yeah, I can take that one. And actually, before I answer the question, we want to answer all your questions, actually, at an upcoming Investor Day. So I want to announce an Investor Day that we're going to be doing in late February, February 26th, Q1, kind of post-Q1 earnings. It'll be in Miami at our headquarters. And we're hoping everyone can join us. We thought it's been a couple of years since we did an Investor Day, and it's a good excuse for people in New York to come down to sunny Miami in the winter. So we hope everyone can join us. We'll be sending invites out in the next couple of weeks. But to that point, and to your question, I think I speak with a lot of investors, Josh and I both do.
I think often I'm surprised that the conversation sometimes is a little bit myopically focused on our U.S. business and doesn't spend as much time talking about our non-U.S. businesses. Of course, we love Burger King U.S. We are incredibly excited about the progress that Tom and team are making there. But at the end of the day, it's also 17% of our AOI. Our non-U.S. business, our Canada business, and our international business are about 70% of our AOI. They are both incredible businesses, have been performing consistently well. Both of them, actually, coincidentally, 18 consecutive quarters of positive same-store sales in both of those businesses. I think if you look at kind of the international business, it's really a function of amazing partners. We have amazing partners in 200- brand market combinations all around the world. It is the biggest driver of our growth.
As you think about aggregate, whether it's system sales or AOI, that business has consistently been producing results, and I would add still a lot of white space, right? A lot of untapped potential with Burger King, which is the most developed of the international brands, but one that I'm particularly excited about is Popeyes. Popeyes, as we enter new markets around the world, really just doing incredibly well, which we can talk about more later on, and then the other big kind of non-U.S. business, and actually the biggest business, is the Canadian business, the Tim's Canada business, and that has just been sort of strength on top of strength, right? Also, 18 consecutive quarters of positive same-store sales. Josh was talking about the value for money, consistently positioned at the top on value for money, and we are just getting stronger.
We're continuing to grow share in all the categories that we already lead in. So whether that's breakfast food, hot brewed coffee, baked goods, and we're entering new spaces like P.M. foods, cold beverage. We're not quite the leader yet, but we continue to grow in that space too. So those businesses are, I guess, we like to love all of our children equally, but I would say we love getting asked questions about our international and Canadian businesses.
I think I'm probably at fault for that as well because it's so easy to talk about the U.S. We got one contiguous 50 states, whereas asking you about 100 countries, I'm sure, is difficult for everybody. But one last just broader consumer question, just because we get it a lot, and I'm not sure how relevant it is for your segment, but GLP-1s have gotten a lot of attention a couple of years ago. Things kind of faded a little bit, but it does feel like it's getting a lot more attention. It seems like maybe medications are becoming more affordable, covered by insurance, easier to swallow, pun intended, versus shots. And it just seems like there's a lot of positives there. And maybe this is a formidable challenge for the restaurant industry, but whether or not it's quick service versus casual dining, or maybe it's just too small.
I'm just wondering data you've seen or any thoughts around GLP-1's impact on the restaurant business.
Yeah. So I think at this point, it's only sort of, I think, mid-single digits usage right now. It's hard to say that that's a big factor in what's going on today. I think we are certainly mindful of what could happen over time. And I think it's something to keep an eye on, as to your point, if you get broader access or different delivery methods, lessening of side effects and such. I think it's something we should keep an eye on. But I would say, as you look at our business, it's probably only most relevant to a relatively small piece of that business. And I think the Tim's business being focused on coffee in Canada is probably a little bit less relevant, and same thing for our international markets. So probably more of something to be mindful of in the U.S.
I think there are some things that we have in the back of our minds that we could focus on. If people, for example, get more focused on proteins, we have some pretty protein-forward brands. You might see us focus on things like our double cheeseburger. We actually just started putting more weight on it. Just coincidentally, it happens to be my favorite product on the menu. It has been since I was a kid. It's two flame-grilled patties, pretty great beef-to-bun ratio, no middle bun stuck in there or anything. That's a wonderful product. I think some of those things can really appeal to folks who are looking for more protein-forward options. I think that's maybe a direction that we could go to the extent we see consumers wanting to go in that direction.
Yep. Being that we're only 28 days away from 2026, I'm just wondering, as you look ahead to the next 12 months, 2025 has been an interesting year. What are you most excited about for your portfolio as we think about the next 12 months?
Yeah, I can take that one. I think it's going to sound a little bit boring as we're excited about being, I think, boring and continuing to execute on the plan that you've heard us talk about now for a couple of years. I think we're seeing tremendous progress. And I think the theme of 2026 is going to be around simplifying the business. I think over the last couple of years, we've talked about really addressing some of the biggest opportunities in our system, whether that's the $700 million commitment to reclaim the flame in the Burger King U.S. business, the billion-dollar acquisition of Carrols, the acquisition of Burger King China earlier this year. I think we've made a lot of important and needed investments in the business.
2026, and actually even in 2025, has now been about simplifying and getting a little bit of that complexity out of the business. And I think the best and most significant example of that is Burger King China. We acquired the business in February of this year. I'm losing track of time. But it was February of this business. And we just announced the sale and the injection of $350 million of fresh primary capital into the Burger King China business just a few weeks ago. And so we actually got that transaction done far ahead of schedule. And I think that was one of the biggest steps we could take to simplifying our story. At the end of the day, our goal is to be a predominantly asset-light, predominantly franchised, almost fully franchised business. And I think owning restaurants in China wasn't part of the long-term plan.
I think bringing in a partner who could run those restaurants, be in the market, and invest a lot of capital was part of the plan. That's exactly what we did. You're going to continue in 2026 to see us simplify. I think probably one of the biggest steps in that simplification is the refranchising of the Carrols restaurants. Initially, when we acquired Carrols, we had said that we would start refranchising basically in years three to seven. We're just a little over a year into the deal. We're already refranchising restaurants. We will refranchise 50-100 restaurants this year in 2025. We expect that number to grow in 2026. I think you will see a lot of conversation from us in 2026 around simplification of the business model and a return to kind of this asset-light, fully franchised, predominantly franchised business.
I think that'll be very well received by investors who have always thought of you as a very asset-light model. But no, thank you for that. Investors tend to spend most of their time focused on day-to-day comp trends. Not that that's the primary driver of your top line. We'll get to the international side of things. But just to address the same-store sales growth, your biggest brands, Tim Hortons, Burger King, relatively strong trends of late in the environment that investors have been more cautious. I'm wondering if you can maybe weave what you think has been or maybe prioritize the drivers of success in this difficult environment and your confidence in being able to sustain that as we look to 2026, whether it's value or premium or obviously it's a barbell of all these things.
But just how you think about what's been the greatest driver of your success there.
Yeah. So for Tim's and Canada, first of all, the comps have been pretty remarkable, I think, over the last couple of quarters. A few drivers in my mind. One, I do think that value for money positioning, less kind of discounting or any specific promotion, but just the everyday value positioning, I think, has been really important to their performance, and that comes through, as I think Sami mentioned earlier, we're number one in value for money with customers in Canada, best rated and have been for a while. I think that's really important in this environment, but on top of that, we've been successful in the innovation that we're doing. I can't remember how many years ago that we were going to move into cold bev and PM food. We've been saying the same thing for years, and we've been building out really successful platforms there.
We talked about over the summer how some of our iced drinks and iced espresso-based drinks were really successful. So I think the innovation process has been really good there. And we've got a lot more to come over the next few years. So I think that's been helpful. And also just getting the rest of the basics right. We're improving operations. We're remodeling restaurants. Those are the kind of things that quietly give you sustained momentum. So I think that's it in Tim's. Burger King, I also think in the U.S. did a nice job sticking to the plan throughout what was, I would say, a challenging year for the broader sector. I think I sat up at one of these conferences almost a year ago and kind of laid out the three parts of their plan. They're going to have consistent everyday value promotions.
We had our $5 Duos and $7 Trios. We were going to focus on the Whopper. You heard a lot about the Whopper. You've heard about the Whopper By You that we've done. We've done a lot of different iterations of focusing on the Whopper. We've done some pretty impactful family activations. We've made it a big focus to bring families back into the restaurants. You saw a number of ways that we activated that. Those tend to be some of the best moments for our business. We actually launched our most recent one yesterday with SpongeBob, which we're super excited about. We think we have a winner. It's a wonderful property. It's a great property that fits well with Burger King.
But I think also our culinary team did a really nice job with some very unique, distinctive, and compelling products that I hope everybody gets a chance to go out and try.
I would just say, having seen that SpongeBob promotion yesterday, just knowing what it does for adults with children and the children, when you can touch multiple generations, I think it drives. And we've seen other brands who have touched on SpongeBob. It is a very powerful platform.
I think you hit the nail on the head. I mean, there are a lot of wonderful things about that property. But one of them is that it appeals across so many different age profiles. And it can bring in the whole family or individuals in all kinds of different generations. And I think that's one of the great things about it.
I'm looking forward to that one.
Me too.
The Tim's Canada, you touched on it earlier. I think because many of your investors are U.S.-based, it doesn't garner as much attention. Meanwhile, if you go up into Canada, it should garner a lot of attention. Just wondering, the positioning that Tim Hortons has versus your peers, the health of the franchisees, I mean, we often see numbers that just show very, very healthy franchisees in Canada from a financial perspective. So just maybe what's the most exciting thing going on with Tim's front and back of the house that keeps you excited going into next year?
Yeah. As you said, Jeff, it gets a lot of attention up in Canada for good reason. It is the number one most loved brand in Canada. And as I said, it's number one in value for money too. So it's incredible. But there are so many other things that are great about it. We're number one in convenience. We have the most stores. We have about 4,000 restaurants up in Canada. So we're the most convenient concept up there. We have an incredible franchisee base. They live in their communities. On average, run about four stores. So they're in their stores every day. And it's a very profitable business model with good unit economics, really good paybacks. We're very responsible with the leverage that's put on that business. So you have franchisees that are in a place to invest and reinvest in the business.
We keep the assets really fresh. So I think across all the things that make a restaurant business great, this one is really at the top of the heap. And that's why we love that business so much. And we think it's such a great business. I would say on top of that, Axel and the team have done a really nice job over the last, I think, now six years. So we've had a lot of consistency up there, both of leadership and of the plan. And one of many great things about Axel is he's all about executing against the plan. He's way into the details and focused on making sure we do everything really well. So they've been focused on the same stuff. They've been focused on growing in cold bev and PM food, as I mentioned earlier.
They've been focused on improving operations, which we've consistently moved in the right direction, and they've been focused on keeping the assets fresh. We remodel the assets every 10 years and keep them in nice shape, and now, even more recently, we've started growing the number of restaurants again, so I think as we've talked about, we'll get back to growing the restaurant count this year, making Tim's even more convenient than it already is, which we're excited for, so those are some of the things that I think are going well, but it is a tremendously good business.
Right. And thinking, obviously, that is international for us in the U.S. But as we think about the rest of international, like you said, that's perhaps underappreciated. So I was hoping maybe you could just share a couple of examples of maybe what's been your strongest markets. And maybe I'm sure there are some markets where you say, you know what, this has proven a little bit more challenging. So I'm just wondering if you can shine a light on a couple of the biggest, strongest markets and maybe a market where you've learned things that maybe haven't been as strong.
Yeah, absolutely. I think so for context, our international business today, it's about 30% of our operating income. As I said earlier, we're in 200 different brand country combinations. So it is hard to kind of paint it with one brush often, which is why I think sometimes it doesn't get the appreciation it deserves. But 18 consecutive quarters of positive same-store sales is the growth engine. I think as you think about it, sort of the business top to bottom, we have built actually in the last 10-15 years, really, we've built multiple billion-dollar revenue businesses. And actually, France is a $2 billion revenue business, which we entered about a decade ago. So if you kind of think about the biggest markets, I would say the top 10 international markets represent a little bit over 50% of the sales for the business. So France being the largest.
But then we have several billion-dollar revenue businesses, a couple kind of including Burger King Germany, including Burger King Australia, Burger King Spain. Burger King Brazil is, I think, almost there, just a touch light of $1 billion. But we've built these businesses really most of the growth coming in the last decade. And so I think we're really excited not only about the businesses we've built, but the really cool thing about these businesses is there's still tons of untapped potential. In most of these markets, we are not the market leader yet. And then there's a whole kind of, I almost call it a second line of businesses. Like you think about Burger King India, you think about Burger King Japan, Burger King Korea, places where we are still growing and growing very fast. And they represent massive market opportunities.
So that's kind of the Burger King side of the international business. It is the vast majority of the earnings today. But Popeyes, as we're now in about 40+ markets with Popeyes around the world, which is a significant acceleration since we bought the business in 2017, we've seen incredible results, really, when we launch Popeyes in markets like China or Mexico or the U.K. And the U.K. is a great example. Just a few years ago, we had no Popeyes in the U.K. Now we have 100 Popeyes in the U.K. and some of the best unit economics, over $3 million top -line boxes, some of the best unit economics that you'll see anywhere in the world.
So I think really critical when we talk about the international business is we talk about the paybacks of some of these markets because ultimately the paybacks on those units is what drives acceleration and growth. And we're really pleased with the paybacks we're seeing with Popeyes. And just scratching the surface, I have to mention is Firehouse. I think Firehouse, as we think about the global subcategory, it is still an underpenetrated kind of category in a lot of the markets we're entering. And typically, there's really only one major Western competitor. And so we view that as opportunity for Firehouse too as we accelerate Firehouse into new markets.
Five years from now, what market do you think will you look back to today and say it was tiny and then it'll be something huge in five years? Are there markets that are really still ramping in very early days?
Yeah. Well, look, the natural answer to that one is China. Just not because we haven't built the business to be as large as some of our competitors have. And I think we took the right steps on China. So I will be very pleased if China is a much more meaningful contributor. But hand in hand with that, I think, is India. I think India, we have a pretty big business with Burger King, about 600 restaurants now with Burger King. Popeyes is still small and Tim's is still small in India. But I think as you think about the demographic trends in India, we could see that business being much larger over time too. So I know those aren't very original answers, but kind of the truth. I think those are big market opportunities.
Yep. Right. And I'd be remiss if we didn't touch on the CPE partnership because everyone does talk a lot about China. You did a full evaluation of your China business. You said you owned it from February until just a few weeks ago. So can you maybe just talk about your confidence in your new partner, that you found the right partner, maybe any recent fundamental trends or any economics you can share on that business? Because again, most companies do talk about how China is the biggest opportunity. And hopefully, this is your partner for decades to come.
Yeah. I would frame the outcome that we got to with our BK China business and having CPE as a partner and all is probably the best possible outcome we could have imagined when we undertook taking on that business in February. I think our teams did a really nice job turning around the direction of the business. We went from negative same-store sales to, I think we mentioned we were + 10% in the last quarter. So they really changed the direction, the trajectory, built a local team, which will continue under CPE. So I think we did a really nice job during the time that we owned it. And that set us up to run a really great process and find an amazing partner like CPE. They're one of the most experienced local operating investment groups that's in China.
They were a spinout a while back from CITIC, if you've heard of that group. But they have a ton of experience. They've done a lot of different deals, including in consumer retail. They've been invested in businesses like POP MART . If you've heard of the Labubu dolls, that's them. And another business called Mixue. But they've done dozens of different investments there. So really knowledgeable about how to operate in China and what can work with Chinese consumers. I'd say they're even better because they're partnering with Johnson Huang, who's going to be our chairman and an operating partner for CPE. Johnson previously ran KFC in China, which is a tremendous business. And he's a wonderful person. I think he's going to be a fantastic fit. We've loved working with him so far. He also previously worked with Danny, who's our CEO. So they had already worked together.
And so I think that sets us up for a wonderful working relationship. And I think both Johnson and the CPE team have a ton of conviction about where we want to go. You can probably see that in both the capital that they committed and the ambitious plans to roll out restaurants. They're putting in $350 million day one. I think that is for sure the biggest primary capital investment to any of our master franchises in the history of our company by more than a factor of two. And I think one of the biggest investments that anybody's made in an international master franchise of a Western brand. Plus, I think there are reasonable commercial terms under the contract where we'll give a couple points of discounts in some of the early years.
But we do eventually get up to our standard 5% royalty rates in the market. So I think for me, the combination of all that, it gives us tremendous confidence in where the BK business can go in China. And I think, like I said, I think that was the best possible outcome that we could have anticipated when we took on the business in February.
That starts at roughly a 3% royalty, and then as the business progresses and they achieve certain targets, that goes up.
Directionally.
Directionally. Yeah. Which brings me to kind of unit growth, which a lot of large-cap multinational businesses like yourselves, it seems like a lot of people have circled around this 5% is a great net unit growth number. And I know that is your kind of longer-term target. But there's been some challenges of late, certain markets or brands, as we just talked about, brand markets, I should say. Your confidence in re-accelerating towards that 5%, I believe you have said by 2028 you expect to be at that 5%. But directionally 2026 versus 2025, I mean, should we just assume with China and other markets that we're going to see steady increases getting back towards fiver? Is that not the right way to think about it?
Why don't I take China? Sorry.
Yeah, go ahead.
One thing in China that was relevant, and then you can take the rest.
Sure. Absolutely.
I would say in terms of what we're doing in China pertains to that question, you can see in our disclosures that we had been cleaning up the store base over the course of this year before we brought on a new partner. So you can see what the closure impact is on this year, and with the new partner and kind of plans that we have there, we'd expect to be modestly positive at least in 2026.
In China.
In China. So that plays into the rest of Sami's, I think.
Yeah. That's an important sort of building block to, I think, what we view as kind of the path to 5%. And so I think we've been pretty clear that 2025 has been a little bit of a reset year from an NRG perspective. We still kind of expect to come in around this plus or minus 3% unit growth for 2025. I think as you look forward, and we are, as you said, still confident in our ability to hit 5% plus unit growth by the end of the long-term period, which is 2028. I think in between, we think 2026 will accelerate kind of off that low point of kind of plus or minus 3%. And a big driver of that is what Josh just pointed out.
I think going from some of the cleanup that we've been doing at Burger King China to modestly positive net restaurant growth in China, that swing factor will help accelerate the unit growth ultimately. I think sort of paves the way to ultimately that 5% over time. I think there are other drivers here, right? We talked about some of the biggest markets in international in one of the previous questions. But I think there's a lot of markets that still have a ton of untapped potential. On the Burger King side, we talked about China, we talked about India. But even you look at markets like Japan, where we're comping 20% same-store sales right now, and the paybacks are between three- or four-year paybacks on new units, that's a good reason to build and build faster. You think about other, Turkey is a really good example.
We're actually the market leader there, and we're continuing to grow at a really strong pace there with our partner there, so I can go through a long laundry list of international markets, but we're feeling really good about kind of the trajectory of that business, and then as you actually think about the home markets, we're excited about the home markets too. Josh mentioned earlier that Tim's Canada is going to return to modestly positive unit growth this year, actually, and we're excited about that, and the one that we don't talk a ton about, but it's Firehouse, and as you look at Firehouse in North America, actually in the most recent quarter, we hit 100 net new units on an LTM basis with Firehouse, so 100 net new units opened in the last four quarters.
If you think about the pace of growth of when we just acquired that business just a few years ago, that's like 3x-4x the pace that we were at before. There are meaningful contributors in our home markets too. I think the one sort of brand country combination, I'd say, where we are very focused and has probably stepped down growth a little bit is Popeyes in the U.S. I think that's been a deliberate focus for us, is we are very focused on getting operations right and growing with the right company.