Shares of Restaurant Brands International QSR have rallied 23.3% year to date compared with the industry’s 20.7% growth. The upside can be attributed to the company’s various sales-building initiatives coupled with solid expansion efforts. Meanwhile, its focus on digitalization and enhanced loyalty program is expected to drive growth.
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However, greater dependence on franchisees, intense competition and tricky consumer demand are potential headwinds.
Let’s discuss.
Growth Strategies
Restaurant Brands believes that there is a huge scope for growing its brands around the world by expanding presence in existing markets and entering new markets. It continues to evaluate opportunities to accelerate international development of all the three brands by establishing master franchisees with exclusive development rights as well as joint ventures with new and existing franchisees.
Currently, the company has more than 26,000 restaurants worldwide that includes over 18,000 restaurants at Burger King. System-wide sales rose approximately 8% in the last reported quarter.
Restaurant Brands is encouraged by long-term prospects of the Tim Hortons brand. It is also committed to keep up with the international growth strategy of expanding the brand around the world. In this regard, it formed master franchise joint venture partnerships for the brand in Mexico and Spain.
Moreover, the company is optimistic about the major expansion opportunity that lies ahead for the brand in the United States. The regions where the company has signed development agreements are Cincinnati, Columbus, Indianapolis, Minneapolis, Cleveland and Youngstown.
During the third quarter, the company reinvented the donut lineup with premium donuts that include maple bacon dream donut and the PB&J dream donut. It also plans to roll out the dream donuts across Canada.
Meanwhile, Restaurant Brands is investing heavily in technology-driven initiatives like digital ordering to boost sales. Furthermore, Restaurant Brands launched Burger King mobile order and pay app in the United States. The company continues to expand the size of its delivery program, with availability in nearly 3,500 restaurants in the United States and more than 8,700 restaurants worldwide.
Concerns
Although the company’s fully-franchised model has a lot of positives, it also has its share of drawbacks and risks. Under this business model, the company’s prospects depend on the ability to attract new franchisees for all brands and their willingness to open restaurants in existing and new markets.
Competition among fast-casual, quick-service and casual dining segments of the restaurant industry is expected to stay fierce in relation to price, food quality, service, location and concept, which may affect Restaurant Brands’ revenues.
Zacks Rank & Key Picks
Restaurant Brands currently has a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space include Chuy's Holdings, Inc CHUY, Chipotle Mexican Grill, Inc CMG and Bloomin' Brands, Inc BLMN. While Chuy’s sports a Zacks Rank #1(Strong Buy), Chipotle and Bloomin’ each carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Chuy’s, Chipotle and Bloomin’ long-term earnings are expected to witness a growth of 17.5%, 19.7% and 9.8%, respectively.
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