Good morning everybody. My name is Danilo Gargiulo. I'm the senior restaurant analyst here at Bernstein. Thank you very much for joining us today. It's a pleasure to have back on stage Patrick, the chairman of Restaurant Brands International, and Josh, the CEO of Restaurant Brands International. We have a system whereby you can ask any questions that you would like to if you use the pigeonhole app with the code 2026SDC. I'm going to get the questions on my iPad and I'm going to be asking them live as needed and most appropriate. Just to get started, maybe Josh, for those who are unfamiliar with the story of Restaurant Brands International, can you provide us with a quick overview of your business?
Of course, and good morning, everybody. Thank you very much for joining us, and especially thank you, Danilo, for having us. We always love being part of this conference. It's a wonderful one, so we thank you for the time and inviting us again. so our business restaurant brands international it's one of the largest global quick service restaurant businesses in the world we have almost 50 billion dollars in system-wide sales operate four brands in the four largest segments of global qsr and we do that in over 120 countries and territories around the world so one of the largest most diversified and global businesses out there. We operate in five different segments. I'll kind of talk through them really quickly in order. Our biggest one is our Tim Hortons business, which is originally based in Canada. That's our biggest market. It is one of the best quick service restaurant businesses anywhere in the world. It has tremendous market share, incredible unit economics. Our restaurant owner base is incredible. There are small local owner operators who live in their communities or in the restaurants all the time. And we have the most loved restaurant brand in Canada. We're the best positioned for value in the market. So just a really tremendous business that has an incredible track record. Our second business is our international business. So that's the business outside of home markets for all four of our brands. And that one, it's actually in 200 or so brand market combinations. So it's a pretty big business across the globe. It has an incredible growth track record we grow you know around 10% a year and we've done that for a very long time so a very good business with a very consistent track record our brands are modern and vibrant around the world and it's something that we're really proud of our third biggest business probably the one that gets most attention here in the US is our Burger King business we're you know one of the largest burger chains out there in the US and we're proudly the home of flame grilling and and the whopper uh we can talk about it more in a little bit but we've been on a tremendous trajectory there uh over the last few years uh that business has improved uh a ton and then our uh our fourth business segment is popeyes it's our our chicken uh business that we bought about eight or nine years ago uh and that's been doing really well we've grown that multiple times over the last eight or nine years um and we're one of the largest uh fried chicken chains out there They're a wonderful business in the U.S., also a terrific business around the world. And our newest business is Firehouse Subs. We have the best hot subs out there anywhere, and we also proudly support our communities through our efforts with first responders. It's a great business. It's one of the highest AUVs in the sub sandwich sector, and that's been growing consistently. We ramped that up from when we bought it growing just a few units to now it's the fastest growing of our domestic businesses. We did, I think, around 8% unit growth there last year, so that's been going really well, and we're happy to serve our hot and hearty subs to more and more guests and support our local communities and save lives. So that's hopefully a little bit of an overview of the business at a macro level and then our biggest segments.
And maybe, Patrick, you became the chairman toward the end of 2022, and a lot has changed since then, right? So what prompted you, first of all, to look at RBI as your next venture after a very successful career? What has changed in the business, and what do you see as continued opportunity from here on?
Yeah, so I looked at a business that had four amazing brands, five businesses that I could see either in some places some under appreciation from the market. I mean, I came in as an investor, right? I invested a lot of my own capital in the business, and And I was just excited by these businesses, what I thought could be done to either elevate the awareness of how good they were or to accelerate the pace of growth in some of these businesses. And really, if I go through the businesses and how they perform, where the surprises and both up and down were. I mean, Tim's was underappreciated. It's the best restaurant business anywhere. I mean, it's an amazing business. I think people are understanding that. There was a sense when I invested, when I became involved, that somehow there was something wrong at Tim's. It is an incredibly well-run business. It's remarkable. The international business is, I would tell you, I think it's the best international business in the QSR space. It's the consistency of the growth of that business. 10% top line at the scale that we have. It's still a bit under a billion in total cash flow, but it's clearly gonna get there over the course of the next couple of years. I mean, it is a big scaled, effectively 100% flow through cash flow business. It's growing 10% top line year in, year out. It is an amazing business. Then Burger King, that was probably the downside when I came in. It was in tougher shape than I thought. The franchisees' balance sheets were in worse shape. The asset base was in somewhat worse shape than I thought coming in. But we have made huge progress on that business. It was slower to get there than I would have hoped for because I think the hole was a little deeper than I thought it was going to be when I got involved, but boy, it is going now. And Tom and his team have done an amazing job. The franchisees are bought in. You've clearly seen the inflection point on that business now. We've been outperforming the category pretty consistently now for a couple of years, but you're seeing that outperformance accelerate. and we're really excited about that business. Popeye's best food in the business and like unbelievable outside of the US and then Firehouse. Which is really going to be for us, if you look in the overall portfolio, it's going to be a big part of the NRG story. The business is doing very well. The cash on cash returns are kind of in the three to four year range. So it's a great investment for franchisees. You know, when we've been ramping up development, it's going really well. And, you know, I think at the end of the day, one of the big things that you've seen now is, you know, when I came in, I think there was a perception of RBI as, you know, the cost-cutting and financial engineering and all of that. And the answer is this is a really well-run restaurant. business we've got people who understand the business and I couldn't be more excited about where we are and kind of the trajectory ahead of us and we take on the big things right the things that weren't working you know getting Burger King on track buying Carol's which was absolutely the right answer it made the story from an investor standpoint a little messier taking on China which is turning into a great story for us finding a new partner for that business i think will be a big part of nrg going forward um you know we're we're good at this and uh and we're applying it to each of these businesses and we're getting the results so you invested in the business you made some
tough decisions in the past couple of years and then recently you had an investor day that was fairly successful. So Josh, maybe what is the most important takeaway of that investor day? What is the biggest news that you launched that investor day? Yeah. So, you know, I think we took
a little bit of a different approach to investor day as we discussed it. I think what we tried to do is to try and directly address what we felt were the biggest questions on people's minds and really spend the time on that. And I hope people appreciated that approach. You know, one of the questions of course was Burger King so we spent a bit of time on on Burger King and kind of why we felt so good we I think we kind of told the story of what we had worked on and then that was the underpinning for why we were so confident about where we were going and I think you know Patrick said it at the time I think we're seeing stuff that I think you will see you over time more more clearly and I think that's come out since as we've gone through the elevation campaign and you know and seeing the performance of the business really inflect so I think that was a helpful part and then Sammy also kind of talked through a little bit of a clearer vision of where we were going both in terms of some of the complexity and then capital allocation so I think we talked really clearly about simplifying the business we know that taking on some of those big problems that that you all referenced you know that what that was something to digest for people it complicated the story it complicates the financials a little bit and so we tried to give everybody clarity that by the end of 2027 we'll be done with that we'll have refranchised the the businesses that we've taken on we also talked about where we're going with the capital structure and gave clear guidance that we're going to move over time to to an investment grade rating on our debt facilities and you know even just since then we've already achieved some upgrades so you can kind of clear us you can clearly see us moving in the direction that we talked about and I think that's helpful for everybody to know to have a clear understanding of what we're going to do capital structure wise and together with that because the you know the free cash flow profile of the business is so good we're able to announce that in addition to to the dividend that we pay that a lot of our shareholders really appreciate we're going to also start repurchasing shares and we announced that we would start repurchasing with about 500 million this year we've already started that program and started repurchasing shares in in the market since the investor day and we still plan to do around that 500 million this year and i think then importantly from there um you know as our free cash flow grows we'll be able to expand those share repurchases over time and um and get to a place you know down the road especially as we get to those investment grade level uh leverage levels where we should be able to really meaningfully expand um the share repurchase so i think we brought a little bit more balance to the capital allocation approach and i think those were the kind of the few of the big messages that we want to get out there um and i think it was helpful for us to just give a little bit more clarity on on the vision and what the plan was going forward to all of our investors so hopefully we accomplished that and patrick i remember at the end of the
conference you and i were sitting on the side and doing literally mapping map on why it makes sense you know for you to do uh more investment to pursue investment grade as supposed to retain your current leverage ratio and potentially, you know, use your cash for more share repurchases. So can you elaborate on that? So why are you pursuing more an investment grade optionality for you as supposed to, you know, reinvesting more into share buybacks?
Yeah, they wouldn't let me put all the math in a slide. That somehow made it wrong. But if I do air math, napkin math, it's okay. And so, you know, look, if you do, if, you know, If you're doing 8% kind of AOI growth, you're buying back in the shares at some point. If you're at investment grade, once we've hit investment grade and we're IG facility now at Fitch and S&P, once we've got that at the company level, then you can add debt, which you can still maintain your IG and we're committed to maintaining IG. Once we accomplish that, that means that you can accelerate your share returns and you can see a path pretty clearly to you know to gain low to mid teens on on shareholder return and so you know we're excited about that the other thing that's interesting is think about this the other day I think we are one of once we get to IG at the company level, we will be one of only two predominantly franchised restaurant businesses that are IG. And the reason it matters, apart from the company standpoint, is it actually lowers the cost of debt for the franchisees. If you have a lower risk franchisor, when the banks and people who are lending to our franchisees to fuel growth, to do remodels, all of that. They look at a more solid franchisor that has a lower risk balance sheet, and that actually will take some cost off of the debt facilities for the franchisees as well. And so we absolutely think it's the right thing to do, and it was really a two-step process. One is get to the point where we can start buybacks, which we did. The second part, really, once we are IG at the company level, then you can stay within IG but add actual quantum of debt, and that creates more capacity for you to return capital to shareholders.
Great. And Josh, you mentioned earlier China. You mentioned Burger King, Tim Houlton. So we're going to cover all of that. But before we go any deeper, what are the top three takeaways that an investor should remember at the end of this conference?
So I'll first start with kind of nearer term stuff. I think if you think about the important parts of our growth algorithm, the big one first is same store sales. And I think if you look at our performance in the first quarter, we performed over 3% same store sales. That's one of the kind of the goalposts that we have out there. so we're really happy that we delivered that and you know i i mentioned on the on the q1 earnings call that uh where we were at that point uh in may we still felt good about continuing to do that so things you know still felt pretty good and that continues to be the case today like i said we're always going to have puts and takes some businesses that do better than others but that's the like the main goal post that we have out there and we feel pretty good about how we're performing against it and then i think together with that the other uh big metric that we always look at is our aoi of growth for the year. We've set out that we want to grow 8% plus on our operating income, and we've done that over the last few years, and we continue to feel confident that we'll do that again this year. So those are the kind of near-term takeaways. I think over the kind of medium to long-term, the big thing I would leave you with, and Patrick's referenced this, is just that we're always going to do the right thing by our brands, all of our brands. We're going to try to do amazing things. If we get off track, we fix things. We're always going to stand by our brands. I think that matters for our investors, but to the point Patrick just made, it matters a lot to our franchisees too. We're always going to make sure that all of our brands have a really exciting long-term future. We're committed to all of them, and I think that's a bit of a defining characteristic of us and our philosophy about how we run the company. And I think lastly, together with that, I would just tell you, we have a huge focus on franchise profitability and our franchisees' success. I think we've done this in a differentiated manner than a lot of the other companies out there and that we both disclose our franchisees profitability in good years and bad years when we you know doing that i think it's appropriate you you all as investors i think should want to know that but it also it forces us to be transparent and it also reinforces our commitment to our franchisees profitability and we we actually reinforce that too by putting our franchisees profitability in our own bonus formulas i think that's a bit of a unique one and it really drives a lot of alignment within the system i think it's been both of those things have been powerful to driving better alignment with our franchisees creating trust within the system and trust like in any business is what allows you to move quickly and decisively it's especially important in a franchise business to have that trust and and that fluidity of movement and ability to do big things so i think that's been really powerful it's it's a bit of a philosophical thing i think patrick joining us really reinforced the importance of that, and I think it's been a big part of how we've been performing over the last few years.
Now, for context, you mentioned already a couple of long-term goals that you have. So your long-term guide is to reach at least 3% compatible sales growth, 5% in unit growth by 2028, 8% in AOI, and in the past three years, you have grown system-wide sales faster than peers. Especially in China, your net restaurant growth was about 4% versus 2% from peers. You exceeded your adjusted operating income every single year, again, ahead of peers. Yet the stock only recently started to work and closed some of the valuation gap that you have with some of the bigger QSR peers. So why do you think the stock has accelerated? And what do you think investors are still missing or maybe misunderstanding about your business today?
Yeah. I think like anything, I think you have to prove a track record over time and talk openly about it and show that you do what you're saying you're going to do. And to some of the discussion earlier, we introduced a couple of new factors. We had to take over BK China and Carol, so there was some complexity. I think we've given people more clarity on the complex side, and we've started to build a track record. As I said, we grew AOI more than 8% for three years. We started to grow EPS double digits. I think we've just got to keep doing that. I think once you develop a track record of consistent delivery, that's when you get credit. And I think that's the practical thing for us is to just keep doing it over and over again. And I think as we do that, folks will develop more confidence and it'll be easier to underwrite doing it in the future. So I think that's the practical to do for all of us.
And I think importantly, the big things that we needed to deal with, we've dealt with. Getting Burger King on track was a really big deal. It took time. It took resources. you know we've got it going the right direction now we're seeing the results our confidence level on it is high we had to get you know our Burger King China business fixed you know we just for the scale of this business we have to be successful with that business in China it's going really well I mean the the outcome from that has really exceeded our expectations. Very excited about our new partner, about the results that we're seeing. But the big things then, buying Carol's to break that up over time. These were big things that we took on and that certainly made the story from an investor standpoint more complicated. They're now behind us. So it's important and people seeing the consistency and the performance and believing that the story is going to stay more simple is what's going to cause the stock to to re-rate and you know we've seen the start of that but you know until we're at a premium to everybody else i'm not going to be satisfied
okay let's touch maybe on on burger king since uh you mentioned this is the part that typically gets most questions here in the united states despite only accounting for about 18 of your with that so starting with Burger King what was the the rationale for the acceleration at Burger King that we've seen in the past couple of years you know outpacing peers even more successfully I have to say in the past couple of months we've seen like a big spike so what was the rationale behind it and more importantly how sustainable is the growth of Burger King going forward and hopefully with the same level of results that you've achieved in
the past you know few months I think there are a lot of the things that we did we've been working on for like three to four years you know the the operational consistency across the base was a huge undertaking that took many years it took a lot of work together with the franchisees and Tom and Peter did a great job on that you know we actually when you look at you know third-party rankings of Burger King consistency of service the the change that we've made is probably the it's the biggest one that i can think of in any large uh you know chain that's been around for dozens and dozens of years and has hundreds of franchisees thousands of units that very rarely happens because it's really hard to do and so i just really have to commend the team for the amount of improvement that they made and i think on average when you go into burger kings you're seeing much more consistent uh service there we also made a bunch of investments in remodels together with our franchisees we knew we had dated restaurants and we made a I think a pretty bold decision to make one of the biggest franchisor investments that's been made in recent history to partner with the franchisees to do the hard work that needed to be done to start to really put put these restaurants into a competitive state and make them modern and welcoming for for families and and all of our guests and I think all of that hard work set us up for what we're starting to do you know what the great work that Tom and the team have done and Joel our CMO has been fantastic on this we refer to it a lot as our elevation campaign and you've seen it come across in a few ways whether those are TV ads or some of the social stuff where we're taking feedback and we're making improvements we knew that when we did that we were gonna welcome a lot of guests back into our restaurants and what was critical was that we were gonna be proud of the of the service experience and the product that we gave them when they came back and that required the three to four years before it like if we couldn't have done this elevation campaign three to four years ago and had the same impact because we needed to do that foundational work first and and that's what gives me confidence about the durability of it is we did all the hard stuff we're bringing people back in and they're having great experiences and I can see it in data where we see return rates of new guests that have gone up and there's some of highest rates that we've ever seen but i i also see it and i hear it anecdotally um you know we one of the benefits of listening is you hear a lot and um and you know tom and i get emails all the time from from guests who write us and you know they say exactly what we wanted which is hey i hadn't come back to you for a while um i'd had a bad experience 10 years ago and i kind of i'd written you off i saw your ad i thought it looked interesting i gave you another try and you nailed it and i came back and you nailed it again and i think people are really having a different experience than what they remember uh from five years ago or ten years ago and that's what's going to allow us to come back not a one-time marketing stunt but bringing people back and them them seeing a different version of burger king than what they recall and that's what gives me confidence in the durability the other other thing about it is you saw the um kind of the elevation of the whopper and that was i would characterize that is a first chapter because it is it's our flagship it's the most important thing it's the first place you know you should always start with with Burger King but there's a lot of other things that we can elevate within Burger King and I think what you should expect to see you know over this year and into next year our new chapters of elevation and us constantly figuring out what are all the things that we can make better we sort of we know more or less what a lot of those things are but we know that this resonates with our guests there's so many people out there who absolutely love Burger King they have wonderful memories and they want Burger King to be better that's probably the biggest theme we get out of these phone calls and we know that there are a lot of things we can do over time to keep making Burger King better and keep writing new chapters they'll bring more and more guests back and if we keep serving them the right way when they do that's how you drive consistent performance over a
long period of time this is not a promotion that's driving these results And that's something we talk about all the time, which is kind of my just to rebase around the business, is I literally sit down kind of once a quarter. I make myself sit down and say, on each of these businesses, is the customer having a better experience today than they were having a year ago? And fundamentally, it's really simple. Is the food that they're getting better than it was a year ago? Is the service level they're getting in the restaurant better than it was a year ago? Is the average image of one of the restaurants better than it was a year ago? Are you doing it for a good value? Those are the fundamentals of the restaurant business. They have been for hundreds of years. They're always going to be. You got to run restaurants really damn well. I mean, that's the bottom line on success and there may be promotions that bring a little bit of extra energy and all the rest of it. But marketing's job is to magnify the truth and if the truth isn't good, you're not going to be successful. You look at Burger King, our core product is the Whopper and it is better than it was a year ago. Our service levels, every metric we've got has been showing that we're getting better and better at running our franchisees at running those restaurants. Our image, we're remodeling hundreds of restaurants every year. So our image is improving. We've got a value platform that has been very consistent because it's very effective. People know that they're going to get the $5 duo, $7 trios when they come into Burger King. It's been that way for a while. We're not jumping around trying to find something that will work. So consistent value, better product, better service, better image.
you're going to grow your business um thinking about burger king compared to peers you're you still have a significant auv opportunity if you if you look at yourself and make a better version of yourself over time you talked about adding new chapters um you know in the investor day you talked about potentially leaning in a little bit more into the family occasion something which is potentially under penetrating there are many other chapters along this journey like what will take for Burger King to double the AUV you know to get to maybe like three million dollar plus in
the box yeah I think a few of the pieces in it honestly it goes back to some of Patrick's basics but I think a couple of the chapters will be continuing the elevation on service levels as I mentioned earlier we've made tremendous progress we went from a place where we were very inconsistent to a place where we're more consistent but we want to be one of the best and so we're going to continue chapters of further elevating the quality of service and the consistency of the service that we give in the restaurants we also while we've we've done some remodeling we're nowhere near done the good news is we've got an awesome new image that we know consistently provides big uplifts and good returns but we've got to get through the rest of the system so bringing a modern image beautiful new signage welcoming restaurants that help us bring those families back in that's going to be another piece of the bridge from where we are today from to where we want to get to and I think the new chapter that you've started to see but i think you'll see more over the next couple of years is figuring out ways that we can even further elevate our food and and we did that with the whopper we took america's favorite burger and we made it a little bit better we made it the bun a little bit fluffier we made it a little bit more beautiful we put it in a box to preserve the the physical presentation the height of of the whopper and really to celebrate the how great that that sandwiches but that's a first chapter there are other places we still think we can do even better for our guests across our menu and I think that's something that you know we can tell from what we've done so far people love that people love our products they love the idea that that brands want to give them more and do better by them and so I think you'll see a few other chapters of that coming over the next 12 to 24 months.
Excellent. Moving on to the international businesses, specifically the relevance of net restaurant growth. This has been a focus point for investors and at the recent investor day, you were talking through the building blocks to get to 1,800 net new restaurants by 2028. So if you were to be decomposing the net restaurant growth expectations by brand and maybe by market, where do you have the greatest conviction level and where are some of the watch-outs? Where are you monitoring the evolution a little bit more closely?
I'll share my few thoughts. Patrick, feel free to jump in here on any different ones you have. So just as a quick recap, as Dinalil said, we laid out a path to get to 5% restaurant growth or 1,800 net new units by 2028. That's composed of a few pieces. It's 300 to 400 restaurants in our U.S. and Canada domestic markets, three to four hundred restaurants in China and then eleven hundred restaurants across the rest of our international business which is about 700 in our top ten growth markets we're doing something near that today and around 400 in the other 190 brand market combinations so that one's a little bit more diversified and I'll tell you that perhaps the one where I would characterize I think there's the most upside to is our China business you know just to give an illustration of that, you know, we laid out guidance to get to doing about 200, a little bit more than that in our Burger King China business. I think the opportunity there is much more. If you look at how fast, you know, how many trade areas there are in China and how fast some of the other brands are growing there, you know, you have competitors doing upwards of a thousand units a year. And many of our team members were part of those brands doing a thousand units a year. So they know that's the possibility. They know how to do that they know what it looks like and I think you know the our ability to unleash some of that possibility is all about our performance we've got a great partner there now we've got the capital they funded 350 million dollars of primary capital on the balance sheet so we're ready to grow and our team is doing an awesome job the combination of Johnson Huang who's our chairman Danny Tim who's our deputy CEO they're doing great the business is performing really well we announced it's doing over it's doing over 10% comps already so we're off to a great start if we keep making that kind of progress we keep making the unit economics better so it's more compelling for our partners to accelerate growth you know I think that's one of the places where we have the the most upside any Patrick any different ones you know I mean we've got
I mean they put 350 million in primary capital into a bank account the day that that we close this deal with it. They have pre-funded 1,500 plus restaurants. And so really excited about that business, about what we're going to accomplish there. We've all been spending time over there. The other thing I'd say, and I just, I'm going to keep saying it over and over and over again until I see it showing up often enough in people's analysis. Our run rate on our Popeyes International business now is at 2 billion. It did a half a billion in Q1 outside of the U.S., and it's only been growing 30% or 40% annualized for a few years now. You know, you do the math. You can do 30% or 40% on $2 billion long enough. It becomes a really big business, so Popeye's outside of the U.S. is just an extraordinary business, you know, And the difference between the U.S. and the rest of the world in the chicken category is there's fundamentally only one player outside of the U.S., and they're gettable. And so we're pretty excited about that business and the growth prospects for that business. And overall, I mean, we've got a great business. I mean, it is growing faster than anybody out there. where the consistency of the execution has been great. The average restaurant in our international business is very well run. We've got great partners. I mean, it's just a really good business.
What is the secret sauce? Because to your point, this is not just about the net unit growth story. International markets comps has also been accelerating ahead of peers. So what is determining the success factor for international business for you?
Yeah, I mean, so I'll compare it to the, because 90 percent of it still is you know close to 90 percent is still Burger King so if you compare international business Burger King business to Burger King in the US the restaurants on average are new and look great they are very digital many markets are fundamentally a hundred percent digital business today the food quality and execution overall has been great we've We've got great local partners that are doing a terrific job of translating what the Whopper and flame grilling means to consumers in local markets. I mean, it just, the execution, I mean, if you look at kind of your product, service, and image, and your value, and add on a bit of digital, and And it is a more digital business than our domestic business today. It's just extraordinarily well run on average outside of the US, and we're seeing the results from that, plus a Popeye's business growing 30% to 40% a year.
We'll touch on Popeye's momentarily, but let's touch on Tim Hortons first, 42% of your adjusted operating profit. In 2022, they had the Investor Day, and they were putting out an algorithm of 2% comp that was clearly exceeded very successfully in the subsequent years. Now, recently, we've seen some growing concerns among the investment community on the state of the Canadian consumer and the economy softening, migration flows potentially tightening a little bit compared to the past few years. And coincidentally, the same store sales of Tim Hortons has decelerated to 1.5%. So is this like an early sign of consumer distress, or are you expecting Tim Hortons to continue to come in the, call it, 2% to 3% range going forward? And how do you see Tim Hortons' relative value positioning as you look into the menu today? Where do you see opportunities going forward? And how does Tim Hortons compare to peers when it comes to a more compressed economic scenario?
Yeah, you know, Tim's, it is one of the best restaurant businesses I think we've seen anywhere in the world. It has so many, all of the basics that you want to see, it does a great job of those. And I think that's what's allowed the business to perform so well throughout all the economic cycles of its existence. And one of those characteristics is that, well, two maybe, we're the number one brand in Canada. We're also number one for value. And it's always been an everyday value positioning that we do so well on. and I think that's what allows us to do well even if in tough times from a macro perspective and you referenced back to 2022, I do think it's important to call out the businesses had a really consistent track record for a long time and I think Axel and the rest of the team have done a nice job they laid out a plan and they stuck to it and they executed it in the details for a long time so I think that's exactly what you want to see more recently there was some softening in in the Canadian QSR space you saw that in our comps I think we were about a point and a half in Q1 I would say importantly we outperform the industry by about a point and a half and in terms of where the Canadian macro is a few things that that I look at you know one employment it's a little bit higher than the US I think it's around 6.9 percent right now that's been state it goes up and down a little bit month to month but if you look at it on a like a one-year basis it's kind of been stable in that range and consumer confidence it's not in a great place but I would say it took a little bit of a dip when you had the conflict in Iran start it's come back a little bit so you've seen some fluctuations month to month there but I would say it kind of it came back a little bit from where it was maybe a month or two ago so what's
your what's your confidence level on Tim Hortons going back to like two to 3% on a foreseeable future.
I think that business, because it's got all the fundamentals that are so great, I think it's gonna continue to perform really well over time. I mean, that's what we've been able to do, so that's what we're focused on. We gotta execute our basics really well, make sure we keep our great value positioning, and I think that'll be the basis for performance over the next few years.
Earlier you mentioned also that you added franchisee profitability in your bonus pool. So in 2025, franchisees for Wall-Ebida reached about $295 Canadian dollars, which is 3% above 2024 EBITDA, despite elevated coffee prices and tariffs. What do you see as the health of franchisees today, and how do you think it's going to be evolving in 2026 if, again, the macro were to turn a little bit softer?
yeah so i think when you look at the the the specifically on tim's canada on the franchise profitability uh it's a great place if you're at 295 000 uh that is a fantastic business that's why everybody wants to become a tim's franchisee when we have units available everybody wants them it's a wonderful uh business for for folks so that's great and also the you know the balance sheets of our canadian franchisees are one of the healthiest we maintain very low leverage levels so i think it's a great business with very good balance sheets and plenty of capacity uh to invest it's always going to be our goal and that's in those bonus targets every year that we we want to grow and improve our franchisees probably profitability and further strengthen the system uh so that's going to be our our goal in in each period the best way to do that is by growing sales and so that's what we're most focused on but i mean for a franchisee in canada you know
they buy the equipment package when you know we build we build out the unit you know we're in the real estate business there so they're putting in what seven seven fifty something like that Canadian their cash flow at around 300 it's a
really good business actually can touch on that point on the pipeline for net unit because you know Tim Hortons was not opening units for a long period of time and then recently started to reaccelerate your units you talked about Tim Hortons becoming a lever that you want to unlock both in Canada and in the U.S. So can you talk about not just the cash-on-cash returns that you're touching on, Patrick, but also the pipeline that you're seeing and why do you think that there is room for Tim Hortons to keep opening stores in Canada where you have probably the highest penetration on store per capita even compared to some other peers in the United States?
Much lower penetration today than there was 10 or 15 years ago is the answer. Canada's population did grow a lot. It has slowed down now, but you've had a flat unit count for TIMS fundamentally for 10 or 15 years. And the market has gone from being, what, 32, 33 million people to around 40 million. And so there are a lot of areas, particularly Western Canada and Quebec where you know there's still more in Ontario as well but particularly Western Canada and Quebec where there are real opportunities and our average unit volumes in the West are higher than our national average and our penetration is much lower so it's very easy to see how you get more built and just in terms
of the visibility on the on the pipeline it's a little bit different from from some of the other markets say an international market that we might have and that we're doing a lot of the development. We have internal teams. We're putting capital behind the project. So we're actually leading all the development projects. So that gives us, I would say, a much higher degree of visibility into exactly what's going to happen in any given time frame.
Finally, on Popeyes, we hear many plausible reasons for contraction of Popeyes. We heard rising competition in the chicken space, growth of other national brands, changing consumer preferences, increased discounts from traditional burger players on to the chicken given the high cost prices for beef, execution challenges, GLP-1. So what do you think the same source, what do you think caused the same source sales contraction at Popeye's and what must Popeye execute well over the next 12 months, hopefully six, you know, to structurally win share again?
We're doing it right now. We're not waiting for six or 12 months, just to be entirely clear. I think Peter's made a bunch of progress already in just the first few months, which is great. But zooming out for a second, you know, I think the chicken segment and Popeyes have been a tremendous success for us. If you look at it over the last eight, nine years, we got into chicken because we were really excited about where it was going, both in the U.S. and around the world. and that's played out very much as we thought. It's been a wonderful period of ownership for us. And I continue to think chicken is a great place to be. Logically, when you have a great segment, other people are going to go after it too. So that's natural. That's okay. I'm still happy to be in the segment, happy to compete there. I think more recently, probably we got a little bit out of focus on the core of the menu. We expanded things a little bit and we're a little bit too focused on things like wings and some of the LTOs. And what Peter's doing right now is bringing that focus back to the core, focusing on the few things that we think we do the absolute best in the space, things like our amazing bone-in-chicken where we are absolutely the market leader and the chicken sandwich where we sort of changed the whole chicken sandwich category in the US as well as our tenders that we've already made improvements to. So we're bringing that focus back to the core both in terms of our operational teams but also what we're communicating to our guests and that's an important part. The second big thing is we've always known that we've got to bring more consistency to the level of operations across the restaurants in the U.S., and that's one of the big reasons that we brought in Peter. He had done what I think is the most impressive turnaround in large-scale QSR of the last many years as I can remember. So he knows exactly what it takes to bring a system along and upgrade the average experience, the consistency of that experience that our guests are getting. That's something we've known we need to work on for a while, and we're now going to make progress on it. I think that's going to be a big lever because, frankly, the level of expectations are going up in the space. A lot of the growing players are doing a good job, and I think we've got to move there with them, and that's very clear to Peter and his team. And the last piece I would say is having consistent value, and that we've basically already done. We've put in place the $5 faves, which is basically a single-leader value proposition as well as a $20 family offering. So we've already made a lot of progress there that we're seeing results from. So I think those are the few things. I have a ton of confidence in what Peter's doing, and I think the good news is a lot of the things that we need to improve on, they can be done more quickly. And I think he's moving very expeditiously to make progress on all those fronts.
The structural issues that we had in Burger King are not present in Popeye's. The assets are fine, the balance sheets are fine, you know, the franchisees. I mean, we don't have the, this is a very, very, very different situation. We've got to execute better in the stores. We've got to have consistent value and have people know that it's there. And frankly, our market share is low enough that no matter what else is going on in the chicken category, we can't use that as an excuse. We can grow this business. We're going to grow this business. But we've just got to execute better, and we're doing it.
Is the unit growth in international market for Popeyes dependent on the performance of the US?
Yeah, that's one of my favorite questions. I'll jump on that one because I don't believe that you can have a great international business unless your core business is good in your domestic market, period. When I was at a pizza company before this, I ran the international business for five years. And I used to tell the CEO that the constant complaint from our master franchisees out of the US is I'm paying a full royalty for this supposedly great pizza business. And I come to the US and it's a disappointing experience. Why am I paying you when you can't run it well in your own home market? And I made the comment one too many times and he said, hey, come back and run the US. And it ultimately worked out, but we had to fix the U.S. business. You are, when you're going into international, I mean, the global QSR business is dominated by U.S.-based chains. They are paying for a brand and know-how that's coming from North America. And you've got to be great here. You can't have a weak business here and expect to have success in your international business, period, full stop.
What is the strategic rationale for running a portfolio of companies instead of having four separate businesses?
Want me to take it? Yeah, go for it. So, you know, it's really interesting because I've done both. I've been involved with both, right? And here are the advantages. To me, there are really, it comes down to three things that are having this portfolio, why it makes difference. There is leverage from a purchasing standpoint that we are getting more and more, and that scale matters. There is the ability to accelerate international growth in the other brands because you already have a network. Basically, the reason we are able to grow these other brands, and particularly Popeyes, so quickly outside of the U.S. is we're already in 110, 120 markets with Burger King. We already know all of the players in all of the markets. We know the suppliers. When we go in, we are not starting from scratch. So that's a big deal. And then the last one, and I think it's ultimately the most important, is people. And you're able to move people around, get them the experiences that they need. So when you've got an issue, an execution issue at Popeye's, Josh can look around the company and say who is best at executing at the store level in our system that we can put in charge of Popeye's. And there's Peter Perdue who's been doing it on Burger King and moving that business forward and we're able to pull him across. you know he's already known he's known to us and you know and so that part of it is really important and it allows you to attract great talent because they know they're going to get those opportunities you know it's a little hard when you are a single brand company you know and you want to be the cmo it's exactly one cmo job you know and we have multiple cmo jobs and we have multiple coo jobs And we have multiple heads of finance for a brand jobs. And we have the ability to give a great career and development opportunity to great talent. And I'll put our talent up against anybody in the industry. And then the important thing is we focus everybody around what ultimately matters, which is, if we're going to be a great restaurant company, then you've got to generate great returns for franchisees. That's what's going to generate growth. And so everybody gets closer to that, understanding the core of the business, how you improve that, and that's how you build real momentum.
I'll have to compliment. Could I add one or two other ones? I think there was also an advantage to our ability to invest behind the brand through cycles and difficult moments. I think you've seen a lot of other concepts go through tough times, and they struggle to get out of it. They get under various constraints, and I think one of the benefits of our business, and also, frankly, the investment-grade credit rating that we're going to, is we have the ability to always invest through good times and bad times of the economy, of brands, of everything, and I think that should give comfort to all the folks involved, whether investors or franchisees as well. If I'm a franchisee, I'd want to invest in a business that I know is going to invest behind it when it needs it, good times and bad. And the last point I would make is also for franchisees, too. It's an exciting thing sometimes to know that if I'm a fantastic Tim's franchisee in Western Canada, I might have the opportunity, you know, I'm doing a great job in my town, but maybe I'm built out with my Tim Hortons business. I have other options. I can do other things to grow. I can build firehouse so I think there's some attraction both from the stability of the business the long-term perspective we're able to take the financial capacity we have and the growth options that you get as a franchise partner that are also a bit of an advantage to to our setup great
running out of time so thank you very much everybody for joining thank you Josh thank you Patrick