“A few things are clear priorities. One of them, certainly, is franchisee profitability,” says Joshua Kobza, who takes over as Restaurant Brands International CEO on March 1.The Globe and Mail
The parent company of Tim Hortons is replacing its chief executive officer, the second major leadership change in a matter of months as the fast-food chain seeks to boost its performance while facing a looming battle with some disgruntled franchisees.
Toronto-based Restaurant Brands International Inc., which also owns Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, announced Tuesday that chief operating officer Joshua Kobza will replace CEO Jose Cil, effective March 1. Mr. Cil will remain with the company as an adviser for one year.
RBI’s board has made the change just a few months after it hired Patrick Doyle, who is known for leading a turnaround at Domino’s Pizza Inc., as its new executive chair. Mr. Doyle was tasked with accelerating the company’s growth, and with advising its leadership team as it invests US$400-million in turning around Burger King’s lagging U.S. business.
“A few things are clear priorities. One of them, certainly, is franchisee profitability,” Mr. Kobza said in an interview. “We’re taking a further step to enhance focus on it and to drive accountability.”
RBI has also announced that it will begin reporting on franchisee profitability on an annual basis, information that it has not shared since its investor day in 2019. And profitability has fallen: the average Tim Hortons location made $220,000 in earnings before interest, taxes, depreciation and amortization (EBITDA) in 2022, down from $320,000 in 2018. Profitability has also declined at the company’s other chains: the average Burger King location made US$140,000 last year, compared with US$180,000 in 2018, and Popeyes average profitability was US$210,000 compared with US$230,000 in 2018.
One of the challenges Mr. Kobza will face in his new role is navigating mounting tensions with Tim Hortons franchisees who have voiced concerns about declining profits. The chain’s comparable sales rose by 9.4 per cent in the fourth quarter, but according to a group representing some of the chain’s restaurant owners in Canada, that has not been enough to offset the squeeze on their bottom line. The new executive director of the Alliance of Canadian Franchisees, Dave Lush, told The Globe and Mail in an interview last week that the situation has “reached a crisis state” for many.
Franchisees are required to buy many of their supplies from the company – such as food and other items – and the ACF has questioned whether, amid inflation, Tim Hortons has raised its prices for those goods more than necessary. RBI’s revenues from Tim Hortons have risen partly because of increased commodity prices that were “passed on to franchisees,” the company reported Tuesday.
But in an interview, Mr. Doyle emphasized that RBI has absorbed part of the price increases for products such as coffee to help relieve some inflationary pressure on franchisees – even though this has led to higher supply chain costs in Canada, sparking concern from investors.
Mr. Doyle seemed to fire a shot across the bow on Tuesday, telling analysts on a conference call that “it’s likely that a few people will leave the system and transition their restaurants to franchisees who share our long-term mindset for success and growth.”
In an interview, he said that both franchisee profitability and sales are already improving: “Franchisees who are in the business – they’re in their restaurants, they’re committed to making them work – we’re going to back those people and work our tails off to make them successful.”
Mr. Kobza, 36, has been with the company for 11 years, first joining Burger King in 2012 before Brazilian private-equity firm 3G Capital acquired Tim Hortons in late 2014, and merged the two companies to create RBI. Mr. Kobza then spent five years as chief financial officer of the parent company, before being appointed to a newly created role in 2018 overseeing digital initiatives across its restaurant chains. He was promoted to COO in 2019. Mr. Cil, 52, was appointed CEO of RBI in January, 2019, after nearly two decades in various roles at Burger King, including as president of the chain.
This week’s leadership change was announced as RBI reported a 28-per-cent jump in profits in the fourth quarter, partly reflecting an income tax benefit in the period compared with an expense the year before, as well as growth in adjusted EBITDA at both Tim Hortons and Popeyes. RBI QSR-T reported that its total revenue grew by 9.2 per cent in the fourth quarter, to US$1.7-billion.
RBI’s net income grew to US$336-million or 74 US cents per share in the three months ended Dec. 31, 2022, compared with US$262-million or 57 US cents per share in the same period the prior year. On an adjusted basis, however, earnings were down from a year earlier and slightly below analysts’ expectations. RBI shares fell by nearly 3 per cent on Tuesday.
When asked whether further acquisitions could be on the horizon for RBI, Mr. Kobza said the leadership team remains focused on its four brands in the near-term. In addition to improving franchise profitability, he said another key focus will be expanding into further international markets. The company currently has 30,722 restaurants globally. In 2019, RBI announced a plan to grow to 40,000 within 10 years.
“I would love to see if we could do it even faster,” Mr. Kobza said. “We see big opportunities to grow the business around the world.”