Image source: WTSP
On Friday, Burger King announced plans to spend $400 million over the next two years on advertising and renovating its restaurants.
The decision is part of a broader strategy to revive US sales.
The investment
Burger King shared their plan in Las Vegas at their annual franchisee convention.
Investments are expected to weigh 10 to 12 cents a year on adjusted earnings per share for this year and next.
The company expects its investments to pay off in 2025. Meanwhile, Wall Street analysts, interviewed by Refinitiv, expect earnings per share of $3.24 next year.
Sales
During the second quarter, Burger King experienced flat sales growth at the same store in the United States.
Compared to rivals like McDonald’s and Wendy’s, the burger chain has lagged behind, recording poor sales in the United States over the past year.
The sales figures have raised concerns for Jose Cil, CEO of Restaurant Brands.
During his time as CEO, Cil led efforts to revive Canadian demand for Burger King’s sister chain, Tim Hortons.
Last year, he also hired Tom Curtis, former CEO of Domino’s Pizza, as the new president of Burger King in the United States and Canada.
Some changes at Burger King include a slimmer menu to reduce dwell times and reducing paper coupons to ask customers to use their mobile app instead.
Changes
Burger King will make bolder changes. The company plans to spend $200 million to fund renovations at more than 800 locations.
More than $50 million will be provided to upgrade more than 3,000 restaurants with technology, kitchen equipment, and building improvements.
Burger King hopes that taking a more selective and strategic approach to other projects will lead to better revenue growth, although it may take some time to see results.
“We might see remodels start to hit the market mid-2023 and going forward,” said Cil.
“It should really be a gradual ramp of the business over the course of the couple of years.”
The company will also increase its advertising budget by 30%, investing $120 million over the next two years.
The investment will start in the fourth quarter.
“We expect that to start having an impact on sales over the next quarter,” Cil said.
Until 2024, $30 million will be spent on improving the mobile app.
Burger King also plans to enhance their menu with a multi-year project to include developing new Whopper flavors, putting their trust in the Royal Chicken Crispy sandwich, and investing in more employee training.
Franchise support
Burger King’s strategy garnered the support of affiliates who ran 93% of its restaurants in the United States.
The operators, along with the company, will waste their money on renovations and advertising.
Tom Curtis and his team have spent the past three to six months assembling a group of franchisees to develop the strategy.
In addition to the money from Burger King, franchisees upgrading restaurants would have to make comparable investments to fund the projects.
Burger King is also changing its incentive structure, encouraging operators to undertake larger renovations.
Previously, Burger King operators who renovated their restaurants received rebates on their advertising and licensing fees for more than seven years.
The new program also gives them money after the project is completed and allows them to choose the discount they get on the royalties they pay to the company.
However, if profitability targets are met, Burger King franchisees will face higher advertising fund fees.
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