Burger King parent defends strategy as sales growth cools, Reports

Now, Burger King and Popeyes have lost some momentum. Burger King is closing underperforming restaurants as same-store sales growth has cooled. Popeyes has posted falling or flat same-store sales in the past three quarters.

Tim Hortons, Canada’s most popular coffee chain and the biggest of those businesses by revenue, is also in trouble. The company fought with franchisees in Canada as Restaurant Brands cut costs. The resulting negative publicity hurt the brand’s reputation, which fell in rankings in a 2018 survey by the Reputation Institute. With little innovation, tried-and-true promotions that once drove traffic grew stale. Comparable same-store sales fell in its latest quarter.

“We have a lot of work to do with our three brands,” Restaurant Brands Chief Executive Jose Cil said in an interview. A longtime employee and former president of Burger King, Mr. Cil said franchisee profits at the three chains have improved lately and that the parent company’s ample cash flow provided room for growth.

Investors are hoping Mr. Cil and his colleagues will walk them through that work in detail at the company’s first-ever investor day on Wednesday.

“The onus is on them to really put up a convincing plan,” said Kevin McCarthy, an analyst for Neuberger Berman, an investment fund that owns a small stake in Restaurant Brands.

Investors are watching to see if Restaurant Brands outlines a credible strategy for boosting sales at Tim Hortons and succeeding in a planned international expansion for the chain, which has little name recognition outside Canada. Heads of the three chains, who haven’t spoken on investor calls in the past, are expected to lay out plans for expanding business in Europe and Asia.

Restaurant Brands on Wednesday said it plans to expand its global restaurant count over the next eight to 10 years to more than 40,000, from roughly 26,000 now.

A Restaurant Brands spokesman said executives will discuss the company’s progress and future growth at the investor meeting. “It’s going to allow investors to judge for themselves the size of runway for growth that we still have before us,” he said.

Restaurant Brands was created as a holding company in 2014 by 3G Capital, an investment fund led by a trio of Brazilians and known for its extensive cost cutting at portfolio companies. 3G bought Burger King in 2010 in a deal valued at $3.26 billion. It slashed corporate head count and cut budgets. Burger King’s adjusted earnings before interest, taxes, depreciation and amortization in the first year after the deal rose nearly 30%.

Between 2011 and 2013, 3G cut Burger King’s operating costs and expenses by almost 70%. It then merged with Tim Hortons in 2014, and earnings by that same metric for the new combined company more than doubled the following year. Profit growth has since cooled.

Jake Dollarhide of Longbow Asset Management, which owns Restaurant Brands shares, said the company’s earnings performance has been disappointing, “but the Restaurant Brands story has more to do about the improvements they can make.”

Restaurant Brands executives said the company benefits from the 3G model, but has developed its own unique culture. The firm owns 41% of the company. Pershing Square Capital Management LP and Warren Buffett’s Berkshire Hathaway Inc. are also major investors.

Restaurant Brands has paid off for 3G. The firm’s original $1.2 billion investment in Burger King is now a stake worth around $12.5 billion in the combined company.

“We are extremely proud of the growth-oriented company we have built,” said Daniel Schwartz, executive chairman of Restaurant Brands and a 3G Capital partner: “We’re even more excited by the opportunities for growth in the years ahead.”

Competitors in other food and consumer sectors emulated 3G’s cost-cutting strategy, known as zero-base budgeting. Lately, the limits of that approach have become more evident as growth has slowed at some 3G-backed companies including Kraft Heinz Co. Kraft also faces an investigation by federal authorities into its accounting practices and recently restated financial statements back to 2016.

Many fast-food companies, including McDonald’s Corp. and Wendy’s Co., are also facing traffic declines and have sacrificed profit to modernize their restaurants and digital offerings.

Same-store sales at Tim Hortons have struggled more than other rivals in the past three quarters. It has also faced legal issues, with franchisees in 2017 and 2018 suing the company in the U.S. and Canada for what they said was a misuse of funds from a national advertising fund. One suit said that the parent company was overcharging franchisees for items such as bacon.

The company denied the claims and moved to settle some of the suits last month. Tim Hortons agreed to contribute around $7 million to the advertising fund. Executives said they have improved relations with the hundreds of franchisees that operate nearly 4,900 Tim Hortons stores.

At Tim Hortons, new efforts include a loyalty program that the chain is introducing this year, along with efforts to help boost its longstanding roll-up-the-rim promotion, which offers prizes underneath a coffee cup’s lip.

“We need to modernize it,” Mr. Cil said of the promotion, which has run largely unchanged for decades.

Write to Heather Haddon at and Vipal Monga at