QSR - Restaurant Brands International

[KCLarkin]

RBI is a quick service restaurant holding company. Controlled by 3G, QSR acquires companies, slashes costs, and focuses on growing restaurants using master franchise agreements.

 

Unlike other 3G companies, QSR appears to be more focussed on growing brands.

 

Current brands include:

Burger King - burgers

Tim Horton's - coffee

Popeye's (if deal closes) - chicken

 

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QSR just announced the acquisition of Popeye's:

http://www.rbi.com/file/Index?KeyFile=38154185

 

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Note: I don't really have anything new to add. But just wanted to create a new topic for QSR since the old ticker is obsolete. Historical thread is here:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bkwh-burger-king-worldwide-holdings/

[DooDiligence]

Holy crap! I just got to the Interfood's America page in Walker's Manual of Penny Stocks (2000 ed) love that chicken from QSR (cash flow machine with a nice little capital return which could get bigger...)

 

Looks expensive though (needs a tainted food scandal...)

[KCLarkin]

Anyone have a copy of the Grant's newsletter with the QSR short thesis?

[DooDiligence]

Anyone have a copy of the Grant's newsletter with the QSR short thesis?

 

Good synopsis?

 

Why Restaurant Brands investors could lose their lunch money

[Viking]

QSR has clearly demonstrated that they are the masters of cutting costs and in a massive way. In the short run (the first couple of years) the profitability of the enterprise improves dramatically. What will be interesting is to see what happens to the business after a couple of years. Cost cuts could impair the brand value and sales growth could stall.

 

I used to call on Tim Hortons head office and they were a first class organization to deal with. They also were able to attract top tier people as franchise owners (very important to the long term success of your brand). They also were great corporate citizens sponsoring many local youth sports teams. My guess is for Tim Hortons their best days are behind them.

[JayGatsby]

QSR has clearly demonstrated that they are the masters of cutting costs and in a massive way. In the short run (the first couple of years) the profitability of the enterprise improves dramatically. What will be interesting is to see what happens to the business after a couple of years. Cost cuts could impair the brand value and sales growth could stall.

 

I used to call on Tim Hortons head office and they were a first class organization to deal with. They also were able to attract top tier people as franchise owners (very important to the long term success of your brand). They also were great corporate citizens sponsoring many local youth sports teams. My guess is for Tim Hortons their best days are behind them.

I disagree with this. In Double Your Profits, a book 3G uses, the author makes a distinction between those costs that drive sales and those that don't. A lot of companies (most?) don't understand this distinction. The author recommends outspending your competitors on those costs that drive sales (marketing as an example) and underspending on those that don't (overhead). This seems consistent with 3G's typical playbook. Burger King's success has been largely topline driven I believe.

[Viking]

Jay, time will tell. It may be that I am simply being too nostalgic. :-)

[KCLarkin]

Burger King's success has been largely topline driven I believe.

 

Besides redirecting spending from unproductive uses to growth spending, cost cutting can also increase growth. If you have 40% operating margins, you can put a store in a market that would not be viable with 20% EBIT margins.

 

IMO, people who think 3G is primarily about slash and burn are biased because BUD and KHC are inherently slow or no growth businesses. Tim's is a slow growth business in Canada. But there are international opportunities that wouldn't have been viable with the old cost structure.

[Spekulatius]

KHC is not inherently slow growth. It is no growth because it has under invested in growth for a long time. Unilever and Nestlé have better growth and that is one reason why 3G wants to buy Unilever.

[KCLarkin]

KHC is not inherently slow growth. It is no growth because it has under invested in growth for a long time. Unilever and Nestlé have better growth and that is one reason why 3G wants to buy Unilever.

 

Unilever had 0.9% volume growth in 2016. KHC had 1.6% growth from volume/mix.

 

But these are very different businesses. Unilever's growth is not coming from foods.

[JayGatsby]

QSR has clearly demonstrated that they are the masters of cutting costs and in a massive way. In the short run (the first couple of years) the profitability of the enterprise improves dramatically. What will be interesting is to see what happens to the business after a couple of years. Cost cuts could impair the brand value and sales growth could stall.

 

I used to call on Tim Hortons head office and they were a first class organization to deal with. They also were able to attract top tier people as franchise owners (very important to the long term success of your brand). They also were great corporate citizens sponsoring many local youth sports teams. My guess is for Tim Hortons their best days are behind them.

I disagree with this. In Double Your Profits, a book 3G uses, the author makes a distinction between those costs that drive sales and those that don't. A lot of companies (most?) don't understand this distinction. The author recommends outspending your competitors on those costs that drive sales (marketing as an example) and underspending on those that don't (overhead). This seems consistent with 3G's typical playbook. Burger King's success has been largely topline driven I believe.

Maybe I spoke too soon: https://www.bloomberg.com/news/articles/2017-06-26/tim-hortons-u-s-franchisees-form-alliance-as-tensions-simmer

[mateo999]

Anyone have a copy of the Grant's newsletter with the QSR short thesis?

 

https://www.dropbox.com/s/1ki1nyskrw349vd/Grant%27s-1.pdf?dl=0

[KCLarkin]

Thanks.

[DTEJD1997]

Hey all:

 

I want to ask the question if Burger King is the "Sears" of fast food?

 

When I was a child, I was taken to Burger King and even went there from time to time when I was a teen ager.  At some point, I stopped.  I think it was after eating two whoppers and not feeling so hot afterwards.  In the intervening decades, I can probably count on one hand how many times I've been there...the whoppers looked NOTHING like what they did on TV....not even close...they looked sad & broken down.

 

Skip to last week.  A buddy of mine who is a total cheapskate was raving on & on about the price wars going on in fast food.  Wendy's has 4 items for $4.44...He then showed me the Burger King coupon sheet.  Two chicken sandwiches and fries for $4.  Two whoppers, fries & drinks for $9.  How can they be making any money?  Where are there even any Burger Kings.  I had to think long & hard, but there are indeed several in my area, but they are "out of sight, out of mind".

 

I queried the group of people I was playing poker with the other day and asked if any of them had been to a "Burger King" lately and was met with a wall of laughter and derision.  Not a single one of them had been to one in recent memory.  One person complained that they were "creeped out" by the advertising.  Specifically, the "Burger King" looked like a mass murdering clown and the Chicken Fries commercial were bizarre.  Not the best way to build brand equity.

 

So I ask the enlightened members of CofBF if they have been to a Burger King, and if so, what was your experience?

 

I might work up the courage to go to one myself and will report my findings...

[rb]

I had BK only twice. The first time I wasn't feeling very well after. The second time the food was really greasy and remembering my first experience I just had a little bit and left the rest. This was over a decade ago. Haven't touched the stuff since.

 

While my experience is similar to yours, I should say that you should be careful of going just by anecdotes. My sisters do have BK from time to time and have no complaints about it (I asked). It may also be the case that the people that frequent the place may not be in your or my social circle.

[DTEJD1997]

I had BK only twice. The first time I wasn't feeling very well after. The second time the food was really greasy and remembering my first experience I just had a little bit and left the rest. This was over a decade ago. Haven't touched the stuff since.

 

While my experience is similar to yours, I should say that you should be careful of going just by anecdotes. My sisters do have BK from time to time and have no complaints about it (I asked). It may also be the case that the people that frequent the place may not be in your or my social circle.

RB:

 

Point well taken...HOWEVER, the guys I was playing poker with frequented fast food, at least from time to time.  Their favorite restaurant seemed to be Wendy's, as the quality of the food was OK to above average. They also reported going to McDonalds semi-frequently (though the quality was low, children, wife & girlfriend nagging), Taco Bell (in drunken stupors), and having their juniors/interns get carry out from the Capital Grille (not fast food in traditional sense?).

[atbed]

Hey all:

 

I want to ask the question if Burger King is the "Sears" of fast food?

 

When I was a child, I was taken to Burger King and even went there from time to time when I was a teen ager.  At some point, I stopped.  I think it was after eating two whoppers and not feeling so hot afterwards.  In the intervening decades, I can probably count on one hand how many times I've been there...the whoppers looked NOTHING like what they did on TV....not even close...they looked sad & broken down.

 

Skip to last week.  A buddy of mine who is a total cheapskate was raving on & on about the price wars going on in fast food.  Wendy's has 4 items for $4.44...He then showed me the Burger King coupon sheet.  Two chicken sandwiches and fries for $4.  Two whoppers, fries & drinks for $9.  How can they be making any money?  Where are there even any Burger Kings.  I had to think long & hard, but there are indeed several in my area, but they are "out of sight, out of mind".

 

I queried the group of people I was playing poker with the other day and asked if any of them had been to a "Burger King" lately and was met with a wall of laughter and derision.  Not a single one of them had been to one in recent memory.  One person complained that they were "creeped out" by the advertising.  Specifically, the "Burger King" looked like a mass murdering clown and the Chicken Fries commercial were bizarre.  Not the best way to build brand equity.

 

So I ask the enlightened members of CofBF if they have been to a Burger King, and if so, what was your experience?

 

I might work up the courage to go to one myself and will report my findings...

 

Some people, like my father, like their whoppers. As a result, I have had them but I only think they are alright.

 

In high-school, my buddy and I became fans of their quad-stackers. It became somewhat of a ritual for us to get them before track meets. But that was ages ago, and I have not been a regular since. I don't think my gut can handle it these days.

 

In recent years, their 2 for $5 deal were very popular. It helped drive many years of strong performance. For a while, they churned out many great product ideas that were well received. Often, new products levered SKUs already in stores but just in a new format. New products which refreshed the 2 for $5 deal really drove SSS for years. Since Burger King store margins here in the states are typically lower than average for QSR, sales growth really drove big cash flow improvements for franchisees. But in the past two years, we have seen a resurgence of sorts from MCD. One change was the release of their own version of the 2 for $5 deal, and this has taken some wind out of BK's sales.

 

Despite the burger value wars, this stock has performed well. The BK's SSS weakness has hurt the story a bit, but SSS really is just one pillar of QSR's growth algorithm. Plus they are still outperforming the industry

 

 

[KCLarkin]

QSR to buy Domino's?

http://braziljournal.com/exclusive-burger-king-considers-bid-for-dominos-pizza

 

 

[Jerry Capital]

A 680 news reporter (local Toronto radio station) reported something similar today as well.

[NBL0303]

A 680 news reporter (local Toronto radio station) reported something similar today as well.

 

Hi all - if anyone has deep knowledge of this company, I would love to hear an interpretation or hypothesis as to the rationale for a Domino's acquisition (if it comes to pass), I can think of some ideas but I am not an RBI expert and at least superficially it seems somewhat different than many 3G acquisitions - so I was just curious why you all think this could be a target for them as opposed to some other chains that aren't as expensive, at least as superficially expensive.  Obviously, Dominos success speaks for itself - but there doesn't seem to be a great deal of low-hanging fruit, shared costs that they could rip out, etc.

[DooDiligence]

A 680 news reporter (local Toronto radio station) reported something similar today as well.

 

Hi all - if anyone has deep knowledge of this company, I would love to hear an interpretation or hypothesis as to the rationale for a Domino's acquisition (if it comes to pass), I can think of some ideas but I am not an RBI expert and at least superficially it seems somewhat different than many 3G acquisitions - so I was just curious why you all think this could be a target for them as opposed to some other chains that aren't as expensive, at least as superficially expensive.  Obviously, Dominos success speaks for itself - but there doesn't seem to be a great deal of low-hanging fruit, shared costs that they could rip out, etc.

 

Yeah, it does seem strange.

Don't they buy businesses which are somewhat inefficient (which Dominos is NOT) & then whip them into shape?

[KCLarkin]

Don't they buy businesses which are somewhat inefficient (which Dominos is NOT) & then whip them into shape?

 

That is the KHC playbook but not really the QSR playbook. QSR seems to prefer buying high quality businesses with good margins and transform them into unbelievable margins.

 

People had similar sentiments when they bought Tim Horton's and even Popeye's. These companies were bought at what seemed like very high multiples. Actually, compared to what they paid for Popeye's, DPZ looks like a bargain.

[voyager]

Another integral part of their playbook is international expansion.

 

I don't know much about pizza in other countries.  I'd guess there would be serious consideration if delivery can do as well there as it has in the U.S.

[NBL0303]

Another integral part of their playbook is international expansion.

 

I don't know much about pizza in other countries.  I'd guess there would be serious consideration if delivery can do as well there as it has in the U.S.

 

I guess that was one of the other areas I also was curious about in regards to how Domino's fits into the 3G type playbook, they have already had significant international growth.  They clearly can have further international growth, but it is not likely that there is lots of low-hanging fruit in this area either.  I do think that the 3G "playbook" is often oversimplified in the sense that they have more than one mode of operating and have made many different types of acquisitions work well for them over the years - it is not as simple as "buy bloated companies and lean them out" - but still even with that said, this one seems to be quite far afield from their typical acquisition strategy.

[KCLarkin]

Another integral part of their playbook is international expansion.

 

I don't know much about pizza in other countries.  I'd guess there would be serious consideration if delivery can do as well there as it has in the U.S.

 

Unlike Tim's, DPZ has large international footprint with strong master franchisees. So they are already executing that part of the playbook.