Restaurant Brands International (QSR 1.43%), or "RBI," is a fast-food giant that operates Popeyes, Tim Hortons and Burger King in North America and around the world. RBI reported a strong quarter in its recent Q3 2019 earnings. Burger King systemwide sales increased by around 15% internationally, and Popeyes achieved comparable sales growth of more than 10% in the U.S.
Burger King's growth has been broad-based. The brand is expanding not only in established markets like Western Europe, but also in emerging countries as well. The Asia-Pacific region saw the opening of restaurant number 3,000, a significant achievement considering there were only 800 restaurants back in 2010.
Investors may be feeling optimistic about RBI's plans and growth prospects, but there are two clear headwinds they should take note of to avoid being blindsided.
The trend toward healthier living
Health and wellness are the latest buzzwords these days, and millennials (i.e. those born between 1980 and 1999) are driving this trend. Spending on health and wellness is increasing and according to the Global Wellness Institute, the industry is now worth $4.2 trillion. Consumers are increasingly participating in activities that improve well-being, such as using devices and apps that aid sleep, eating organic or natural foods, and taking health supplements.
RBI's two main brands, Popeyes and Burger King, both focus on fast food with French fries and fried items as a main attraction. With more and more people eschewing fast food and turning to more healthy alternatives like salads and poke bowls, this is a trend that will work against RBI over time. Though fast food may satisfy an instant hunger craving, more and more millennials are questioning the long-term effects of consuming vast amounts of fast food, and may alter their diets accordingly.
This trend is growing and may not bode well for RBI.
Eschewing meat-based products for plant-based products
Another headwind is the shift toward plant-based products. Increasing numbers of people are forsaking meat for plant-based alternatives. More websites and food guides are now touting the nutritional benefits of protein sources such as nuts, beans, legumes, and tofu in place of eggs, meat, and dairy products. Such a shift in consumer preferences is seeing demand soar for plant-based products that are able to effectively substitute for meat products.
AT Kearney, a global consultancy firm, also predicts that by 2040, most of the meat we eat will not come from slaughtered animals, but that 60% of it will be grown in vats or replaced by plant-based products that look and taste like meat.
With RBI's brands serving up predominantly meat-based products, this means that a change in corporate direction is sorely needed in order for the group to avoid losing customers to this new trend. As RBI continues to expand into different territories, management needs to be mindful of this trend as more and more people eschew meat-based products.
However, there's hope yet on this front as Burger King recently partnered with Impossible Foods to launch a plant-based patty. The new burger is known as the "Impossible Burger", and according to Burger King, is one of the most successful launches in the company's history. Even RBI's CEO Jose Cil mentioned in the company's recent conference call that "the sales of the Impossible Whopper have been highly incremental and have attracted new types of guests into our restaurants." This seems to stand in stark contrast to McDonald's attempt to introduce a plant-based burger.
It's good news for investors to know that RBI is cognizant of the two headwinds above and has taken active steps to ensure the business adapts to such changes. By working with Impossible Foods, Burger King has, in fact, even attracted new customers even as it avoided alienating existing ones.
RBI is not standing still, though. Last week, it announced that it would be launching meatless burgers across Europe in a big push for plant-based options. With these initiatives, investors should feel assured that the risks of RBI falling behind are mitigated.