Investment firm 3G Capital recently combined Burger King and Tim Hortons into Restaurant Brands International (NYSE:QSR). In this clip, Sean O'Reilly and Vincent Shen go over some of the numbers from RBI's recent earnings call to see how this new company has been doing since its debut on the market. Also, the team looks at some of the other big players in the space to get a picture for how fast food has been doing in the face of fast-casual chains like Chipotle Mexican Grill and Panera Bread.
Listen to the full podcast by clicking here. A full transcript follows the video.
This podcast was recorded on Feb. 16, 2016.
Sean O'Reilly: So, Vince, we're moving on here to kind of a follow-up story to a show we did, I don't know, three to four months ago, something.
Vincent Shen: Yeah, some time ago.
O'Reilly: Basically, it's a follow-up to 3G Capital, the private equity buyout-type firm, and all the restaurant brands they snapped up, which in this case is Burger King, and the profits and the success that they've had with this so far.
O'Reilly: They've just reported earnings for their Tim Hortons/Burger King brands. How are things looking?
Shen: Sure, so, Restaurant Brands International for full year 2015, just, I think, was really impressive to see. Tim Hortons enjoyed comparable-store sales growth of about 5.6%. Burger King logged 5.4% growth, this is in...
O'Reilly: These are almost Chipotle-ish numbers from back in the day.
Shen: Pretty impressive for both of those brands. And also, they opened 155 and 631 new locations, that's respectively for Tim Hortons and Burger King...
O'Reilly: Did you, if you didn't catch this, that's fine. Is that mostly Tim Hortons or is that mostly Burger King?
Shen: No, that 630 was for Burger King; they have a much-bigger network.
O'Reilly: Oh wow, OK.
Shen: Their total store base increased about 4.2% during the year. Both businesses saw a lot of successful promotions and new products coming out, and they also were pretty aggressive in terms of their overseas development in markets like the Middle East and Europe. The stock, investors are really excited; it's trading up, I think, about 5% when I checked in early-morning trading.
The main theme I wanted to bring up is how those results compare to some of the other big fast-food burger chains. McDonald's (NYSE:MCD) also reported earnings recently; they saw their comps go up about 1.5% in 2015, but the thing is, momentum really picked up for them during the fourth quarter when comps were up 5.7% in the U.S. because of the launch of all-day breakfast. They're seeing some really nice momentum there from that promotion, and it seems like that was a big success that helped turn McDonald's around when, honestly, it wasn't that long ago when people were thinking about writing the obituary for that company. Know what I'm saying?
O'Reilly: On that note, with just the rollout of certain products in order to draw in customers, talk to me about hot dogs and Burger King.
Shen: Yes, so, interestingly, Burger King announced that they would actually start serving hot dogs as part of their regular menu, consistent menu offering, not like some special promotion, and so they've been testing this for about 18 months in markets like Salt Lake City, Memphis, Baltimore, Detroit, and Kansas City. So the hot dogs are launching on February 23rd, and because Burger King has, I think, over 7,000 locations in the U.S., they're going to become the largest chain to offer hot dogs as part of their regular menu.
Shen: There's a tie up here with -- who you mentioned earlier, 3G Capital -- because 3G Capital, obviously, they brought together Burger King and Tim Hortons at the end of, I think it was 2014. It was a big like, $11-12 billion deal, so obviously, you know, we talked about 3G Capital again a few months ago, maybe half a year ago, in the big Kraft Heinz mash-up...
O'Reilly: And of course Burger King has Heinz ketchup everywhere so, anyways.
Shen: Exactly, as if that's not already part of it, Kraft Heinz also owns Oscar Mayer, which is working with Burger King to offer up these hot dogs.
O'Reilly: Oh my gosh.
Shen: It's kind of a funny thing where 3G Capital obviously is leveraging the companies in their portfolio.
O'Reilly: The incestuousness of this little arrangement is ...
Shen: The strong results that we're seeing from Burger King, from McDonald's, also goes to Wendy's (NASDAQ:WEN) who, I tend to think of as the No. 3 player in terms of traditional fast food, or for burgers at least, they're seeing restaurant sales were up 3.3% for 2015, and all of them seem to enjoy accelerating comps during the fourth quarter.
Some of them attributed that to their promotions, but also the really warm weather during the winter maybe helped keep store traffic up, and overall, I just wanted to bring this up because a lot of people tout the fact that these higher-quality, better-ingredients, fast-casual chains are going to be the way of the future, going to start replacing a lot of the traditional fast-food players, but the fact of the matter is, these companies in their management teams seem to be adapting very well and offering very value-minded promotions like the "two for $5," or the "four for $4" deal that these companies are competing with, and it's resonating with people. Whether it's breakfast or hot dogs, we'll see how well that works.
O'Reilly: You want to go get one? I kind of want to go get one now.
Shen: These companies are far, far from being on their death beds, so to speak.