Burger King® Announces "Reclaim the Flame" Plan to Accelerate Growth in the U.S.

Company investment of $400M over two years will increase advertising firepower; drive higher quality restaurant enhancements and remodels; and support ongoing technology and digital investments

Plan developed in collaboration with Burger King Franchisees and endorsed by more than 93% of U.S. Restaurants

MIAMI, Sept. 9, 2022 /PRNewswire/ -  Burger King® Company ("Burger King," "BK," "Company," "Brand") today shared the details of its "Reclaim the Flame" plan to accelerate sales growth and drive Franchisee profitability. The plan was built in collaboration with Franchisee leaders from across the country and was shared with all U.S. Franchisees at its annual convention this week by Tom Curtis, President of Burger King North America.

The plan includes Burger King investing $400M over the next two years, comprised of $150M in advertising and digital investments to "Fuel the Flame" and $250M for a "Royal Reset" involving restaurant technology, kitchen equipment, building enhancements and high-quality remodels and relocations. This investment will work to enhance ongoing Franchisee investments to modernize the Burger King restaurant portfolio, and when combined with our brand re-positioning plan, menu enhancements and focus on operational excellence, will help drive our overarching goal of improving the Guest experience and attracting more traffic back to the brand over time.  

Burger King Franchisees representing more than 93% of all U.S. restaurants have endorsed the plan and have agreed to co-invest in increased advertising firepower over the coming years. These corporate investments are in addition to Burger King recently expanding its field team to provide increased support to Franchisees as they continue improving restaurant-level profitability and execution.

Jose Cil, CEO of Restaurant Brands International ("RBI"), commented on the announcement:
"Over the past year, Tom has built a talented leadership team that has worked collaboratively with Burger King Franchisees to develop a multi-year plan to drive the performance of the system. We believe now is the time to make a significant investment to accelerate the work given the quality of the team, focus of the plan, commitment of our Franchisees and the opportunity that clearly exists for our iconic brand to Reclaim the Flame and be the first choice for a high-quality meal, an exceptional experience, and a great value."

Tom Curtis, President of Burger King North America, added:
"We are relentlessly pursuing a better experience for our Guests. This is the driving force behind all the initiatives that we are executing collaboratively with our Franchisees. Our plan is focused on a few important priorities — operational excellence, refreshed image, and enhanced marketing — that when put together, provide a superior experience for our Guests." 

"I'm very proud and thankful that our Franchisees have stepped up once again to invest in our performance together, reflecting the genuine partnership and mutual respect we have built between the Franchisor and Franchisees. Ultimately, the success of this Reclaim the Flame plan comes down to execution at the restaurant level and we are so fortunate to have Franchisees who love this brand and are working closely with us to focus on the right priorities. I believe in this team, this plan, and a bright future as we evolve and enhance our Guest experience and drive profitable growth for the business."

Matt Dunnigan, Chief Financial Officer of RBI, commented:
"Our $400M investment into the Burger King U.S. system represents a substantial deployment of capital toward important marketing and image investments aimed at accelerating our sales growth and modernizing our iconic brand across the U.S. In 2023 and 2024, these investments are expected to have an average annual impact to adjusted EPS of approximately ($0.10) to ($0.12), before considering benefits from any potential sales improvements. In 2025 and beyond, we expect the impact to be accretive to adjusted EPS as our advertising investments conclude and we realize the long-term sales benefits of our Reclaim the Flame initiatives and increased advertising contributions from our system."

The Reclaim the Flame plan is designed with targeted initiatives that will work in concert with one another to improve all the fundamental aspects of Guest experience: perception of the brand; high-quality menu offerings at everyday value; engaging and relevant advertising; high quality modernization of our restaurants; and an all-around improved service and execution.  

Burger King is refreshing and modernizing its brand, adding meaning and relevance to historical brand anchors like 'Flame Grilling' and 'Have it Your Way', while also introducing new brand elements to broaden its attraction for a younger and more diverse base of Guests.

Burger King has built a multi-year menu roadmap that is Guest-led and brand focused. Burger King will invest in premium branding to reaffirm the elevated position of its flame-grilled Whopper® and is developing new flavor extensions, while also focusing on Team Member training and rolling out kitchen enhancements to ensure exceptional execution at the restaurant.

The brand is also building a destination worthy Chicken Sandwich portfolio and has launched the Royal Crispy Chicken — a premium chicken sandwich with unique flavor variations built around a simplified menu and improved operations — resulting in a better Guest experience. This menu addition complements the long-standing and loved Original Chicken Sandwich — allowing the brand to strongly compete in the growing chicken sandwich market while still maintaining its focus on growing its core burger category.

Burger King is currently developing innovative products to accelerate industry leadership in burgers, breakfast, beverages, snacking, and plant-based products.  In addition, the brand will continue to provide a strong everyday value offering in its menu, especially as the cost of food at home continues to face inflationary pressures.

Given our recent momentum and confidence in our multi-year plan, we believe now is the right time to significantly enhance our advertising firepower. In a historic agreement with its Franchisees, Burger King will invest $120M in its U.S. advertising fund over the next two years to grow traffic, accelerate sales growth and amplify the fundamental advancements we are making to the Guest experience. The Burger King advertising investment represents an annual increase of approximately 30% to the brand's media purchasing firepower, inclusive of advertising efficiencies we expect to achieve through our ongoing partnership with our new media agency. Following the investment period in 2023 and 2024, participating Franchisees have agreed to increase their advertising fund contributions by 50 basis points through 2028 if certain profitability thresholds are met, which we plan to share an update on annually. This plan has received the endorsement of Franchisees representing more than 93% of the system, all of whom have agreed to the new Fuel the Flame co-investment program over the past two months.

In addition, Burger King will invest $30M through 2024, in excess of the digital fees collected from Franchisees, to support our Guests ease of ordering on the Burger King app which includes integrated payment processing, enhancing the Royal Perks loyalty program, the addition of digital personalized offers, and improving the overall convenience of delivery and pick up options. This investment will continue to strengthen the brand's digital channels that now generate ~$900M of annual system-wide sales in the U.S.  

The Burger King $250M investment plan will include two important components. The first involves investing $50M of capital over the next two years alongside a comparable co-investment from Franchisees in a restaurant refresh program touching ~3,000 restaurants across restaurant technology, kitchen equipment, and building enhancements. These investments are designed to ensure our restaurants are ready to deliver an exceptional Guest experience as we work to drive traffic back to the system aided by our menu enhancements and Fuel the Flame advertising investment.

In addition, Burger King is launching a Royal Reset remodel program that provides access to $200M of funding for ~800 restaurant remodel projects over the next two years. As part of this program, the company is changing its incentive structure, which has historically focused on advertising and royalty rate discounts for up to seven years. The Royal Reset remodel program is designed to improve returns on capital for our Franchisees by providing more substantial baseline incentives, access to additional contributions in exchange for a higher royalty rate election, and funding of these incentives in upfront cash at the time of remodel completion. The program will also offer greater financial support to better operators, adding further incentive for Franchisees to improve operations across the system.

The Royal Reset remodel program represents a shift toward higher quality remodels and creates a viable path toward modernizing the system. Through a more thoughtful approach and increased funding, we are establishing support for our Franchisees to address their most important investments and lay the foundation for sales and profitability growth in the years to come. This will be the first step toward a more consistent, long-term cadence of portfolio reimaging that is focused on smarter investments and executing with quality to drive sales growth and attractive returns on capital for both Burger King and its Franchisees.

We have historically maintained a reimaging program which has generated average year one sales uplifts of approximately +12% with sustained outperformance in comparable sales relative to non-remodeled restaurants of approximately 2%⁽¹⁾. While the historical sales uplift performance from prior reimaging programs is encouraging, we are focused on enhancing these results through improved project selection and more targeted scope management. We believe this new approach over the next two years will generate the momentum needed to transition into a sustainable reimaging program that reverts to more normalized capital contributions from Burger King in 2025 and beyond.

The Burger King contributions from the Royal Reset remodel program will be accounted for as royalty credits and recognized through our income statement over the life of the new Franchise Agreements, which will be up to 20-years. Given the long duration of the royalty credit amortization in our income statement versus the near-term benefits of royalty rate increases and sales uplifts from modernization, we do not expect any materially negative impact to the income statement from this program. If we are successful in generating sales uplifts consistent with historical experience or better, we expect the program will generate a positive return on our capital and be accretive over time.

The Burger King U.S. brand has substantially expanded its operations team and is intensely focused on creating a culture of "Repeatable Precision" at each restaurant, and improving the brand's employee value proposition to assist Franchisees to attract and retain valuable Team Members. Over the past year, the brand has worked closely with Franchisees to simplify menu items and restaurant operations, resulting in four consecutive quarters of improvements in key operating metrics and Guest satisfaction surveys. In early 2023, Burger King will host dozens of "Royal Roundtables" with restaurant managers and Franchisees across the U.S. to educate and energize restaurant teams as they implement meaningful operational changes within their restaurants.

Founded in 1954, the Burger King® brand is a global fast-food hamburger chain known for food quality and value as the only place guests can get the iconic flame-grilled Whopper® sandwich. The Burger King system operates more than 18,700 locations in more than 100 countries and U.S. territories. Almost 100 percent of Burger King restaurants are owned and operated by independent franchisees, many of them family-owned operations that have been in business for decades. To become a member of our Royal Perks loyalty program, please visit www.bk.com/signup. To learn more about the Burger King brand, visit the Burger King brand website at www.bk.com or follow us on Facebook, Twitter, Instagram and TikTok. 

Restaurant Brands International Inc. is one of the world's largest quick service restaurant companies with over $35 billion in annual system-wide sales and over 29,000 restaurants in more than 100 countries. RBI owns four of the world's most prominent and iconic quick service restaurant brands – TIM HORTONS®, BURGER KING®, POPEYES®, and FIREHOUSE SUBS®. These independently operated brands have been serving their respective guests, franchisees and communities for decades. Through its Restaurant Brands for Good framework, RBI is improving sustainable outcomes related to its food, the planet, and people and communities.

Forward-Looking Statements
This press release includes forward-looking statements, which are often identified by the words "may," "might," "believes," "thinks," "anticipates," "plans," "expects," "intends" or similar expressions and reflect management's expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements include statements regarding: (i) the amount, timing and use of the additional investments related to digital, advertising and restaurant enhancements into the Burger King U.S. system and ability to achieve advertising efficiencies; (ii) the expected financial impacts of the Reclaim the Flame investments on RBI's results of operations, including our expectations that the costs of the plan will primarily impact 2023 and 2024 adjusted EPS and that the plan will be accretive in 2025 and beyond; (iii) our expectations regarding the amount and timing of Franchisee co-investments in the Reclaim the Flame program; (iv) the ability of the Reclaim the Flame plan to drive profitable growth for our Franchisees and the Burger King system, as well as our belief that the Royal Reset modernization investments will result in Franchisees substantially enhancing sales growth and their return on capital; (v) our intent to provide annual updates on future Franchisee contributions to the advertising fund; (vi) our belief that the Royal Crispy Chicken sandwich positions the Burger King brand to strongly compete in the chicken sandwich market; (vii) our belief that the implementation of the Reclaim the Flame plans will improve the experiences of our Guests and Team Members; and (viii) the anticipated accounting treatment of the investments associated with the Reclaim the Flame program.

The factors that could cause actual results to differ materially from our expectations are detailed in filings of RBI with the U.S. Securities and Exchange Commission and with the securities regulatory authorities in each province and territory of Canada, such as its annual and quarterly reports and current reports on Form 8-K and include the following: (1) risks related to RBI's ability to successfully implement the Reclaim the Flame plan and the ability of participating Franchisees to meet the profitability thresholds; (2) risks related to the franchised business model; (3) risks related to technology and the ability to successfully implement digital initiatives; (4) risks related to ownership and leasing of properties by us and our Franchisees; (5) risks related to our Franchisees financial stability and their ability and willingness to access and maintain the liquidity necessary to co-invest in the restaurant modernization initiatives; (6) risks related to the ability of the Burger King Franchisees to compete in an intensely competitive industry; and (7) changes in accounting, tax and other laws and regulations or interpretations thereof. Other than as required under U.S. federal securities laws or Canadian securities laws, we do not assume a duty to update these forward-looking statements, whether as a result of new information, subsequent events or circumstances, change in expectations or otherwise.

SUPPLEMENTAL: QUESTIONS AND ANSWERS

Fuel the Flame Advertising Investment

How much incremental investment per quarter?

• Burger King U.S. will pulse investments behind key initiatives as it sees opportunities in the market to drive sales. 
• For competitive reasons, Burger King U.S. does not intend to signal in advance in which quarters or channels it will make incremental investments.

How will the Burger King advertising investment impact the income statement?

• The incremental investment will be reflected in the BK Segment Results and Consolidated Statements of Operations under "Advertising expenses and other services".
• The expense will be recognized in the period spent.

How will the Franchisee co-investment work for incremental advertising funds?

• Burger King has committed to invest $120M in advertising from Q4'22 – Q4'24.
• If system average EBITDA is in-line with 2019 levels by December 2024, then Franchisees will invest an incremental 50 basis points of sales into the advertising fund for 2025 and 2026.
• Following 2026, this 50-basis point investment will continue assuming reasonable growth in system average EBITDA has occurred.
• As of September 12, 2022, over 93% of the system have signed the new Franchise spending agreement to participate in the Fuel the Flame co-investment.

Royal Reset Refresh Program

What is the anticipated timing and scope of the $50M near-term Royal Reset Refresh Program initiative?

• Burger King expects to deploy $50M over the next 24 months which will be spent on restaurant technology.
• The investment will target restaurants that would benefit most significantly and will be done in partnership with Franchisees who match the investment, through spending on kitchen equipment and building enhancements, resulting in approximately a $100M total investment in the system.

How will the $50M restaurant refresh program impact RBI's financial statements?

• Income Statement Expenses: The Royal Reset refresh program investment will be capitalized and recognized in Depreciation and Amortization, which the company expects will carry an average depreciable life of approximately 5-7 years.
• Statement of Cash Flows: The investment will be accounted for as capital expenditure and appear under "Payments for property and equipment" under "Cash flows from investing activities".

Royal Reset Remodel Program

What is the anticipated timing and scope of the $200M Royal Reset remodel program?

• The Royal Reset remodel program is targeting approximately 800 high-quality projects from 2023 to 2025, supported by a bottoms-up approach focused on maximizing returns on investment.
• We expect to formalize commitments for all $200M by the end of 2024, with the cash largely deployed by the end of 2025 given project lead times.
• We expect the significant majority of remodels under the Royal Reset program to be completed in 2023 and 2024, supported by benefits from the Fuel the Flame and Royal Reset refresh programs.
• Following the completion of the program, we expect to revert to more normalized capital contributions from Burger King in 2025 and beyond. 

How will the size of the Burger King remodel investments be determined? 

• The level of investment by Burger King U.S. for each remodel will depend on the following:

How will the Royal Reset remodel investments impact RBI's financial statements?

• Income Statement: 
• A royalty credit will be recognized over the franchise agreement period of up to 20-years, as a contra revenue item in the "Franchise and property revenues" line of the income statement.
• Franchisees participating in the program may elect for an increased royalty rate in exchange for a larger capital contribution which, all else being equal, would result in increased Franchise & property revenue.
• Given the long duration of the royalty credit amortization in our income statement versus the near-term benefits of royalty rate increases and sales improvements from modernizing the restaurants, we do not expect any materially negative impact to the income statement from this program.
• If we are successful in generating sales uplifts consistent with historical experience or better, we expect the program will generate a positive return on our capital and be accretive over time.  
• Statement of Cash Flows: The remodel investment will appear on the cash flow statement as a change in "Other long-term assets and liabilities" under "Cash flows from operating activities" at the time of remodel completion.

What is the difference between this incentive structure and prior remodel programs?

• Prior remodel programs primarily identified opportunities based on franchise agreement expiration schedules rather than identifying the highest potential return projects.
• In addition, unlike prior programs where Franchisees were incentivized with royalty rate and advertising fund discounts over up to seven years, the Royal Reset remodel program will deliver 100% of our contribution at the time of remodel completion and provide access to greater levels of funding as compared to past programs.
• The Royal Reset remodel program represents a shift toward higher quality remodels and greater support for Franchisees to amplify our system modernization. Through more refined site and scope selection, along with increased funding, Franchisees can substantially enhance their restaurant image with strong returns on capital to lay the foundation for sales and profitability growth in the years to come.
• This remodel investment program is also expected to provide Burger King U.S. with a positive return on capital over time through sales improvements and higher average royalty revenue. 

What level of sales uplift do you expect from Royal Reset remodels?

• Historically, remodeling efforts have generated average year one sales uplifts of approximately +12%².
• After the initial sales uplifts, remodeled restaurants have also experienced sustained outperformance in comparable sales relative to non-remodeled restaurants of approximately 2%.
• While we believe the historical performance is encouraging, Burger King looks to build on this progress in future years through improved project selection and scope management. 

View original content to download multimedia:https://www.prnewswire.com/news-releases/burger-king-announces-reclaim-the-flame-plan-to-accelerate-growth-in-the-us-301621350.html

SOURCE Restaurant Brands International Inc.