Burger King plans whopper of an expansion

Burger King could be getting much bigger in Canada.

Having kick-started a more aggressive expansion of the Tim Hortons brand in the United States, Restaurant Brands International Inc. is now gearing up to grow the coffee chain’s fast-food sibling more substantially across this country, where it has only 300 restaurants.

“Burger King is still fairly small (in Canada), and it’s one of the markets where we see a lot of potential for growth,” Daniel Schwartz, the company’s chief executive, said in an interview Thursday.

“We have been growing (Burger King’s) same-store sales at a very healthy pace in Canada over the past few years. Now it’s on us to also start growing our restaurant count to have a greater presence throughout the country.”

The news came as Restaurant Brands, the world’s third-largest quick-serve restaurant company, posted significantly higher sales and earnings in the first quarter, beating analyst estimates.

The company has more than 19,000 Burger King and Tim Hortons restaurants worldwide.

But in Canada — unlike rival McDonald’s — its Burger King outlet count does not mirror the typical 10-to-one population for retail and food service penetration between the U.S. and Canada. Schwartz did not outline specific growth targets or the pace of further rollout of Burger King across Canada.

“We are actively working to accelerate the pace of growth,” Schwartz said.

McDonald’s has more than 14,000 restaurants in the U.S., a market with roughly 10 times the population of Canada, and 1,400 in this country. By contrast, Burger King has 7,100 restaurants in the U.S.; that suggests there is room to more than double its size in Canada before it reaches the 10-per-cent threshold.

Restaurant Brands has also aggressively accelerated Tim Hortons’ expansion plans over the past year, upping its international store count by 95 per cent.

The Oakville, Ont.-based food service company reported strong sales and profit growth in the first quarter as it promoted new pulled pork sandwiches at Tim Hortons and hotdogs at Burger King, where U.S. franchisees have reported strong consumer demand for the classic fast-food staple.

“We offered grilled dogs at more than 7,000 of our restaurants and they have quickly become guest favourites,” Schwartz told analysts on a conference call.

Tim Hortons also saw traction from baked goods featuring Nutella spread, he said.

Same-store sales, a key measure of food service growth calculating volume at units open for more than a year, grew 5.6 per cent at Tim Hortons and 4.6 per cent at Burger King in constant currency.

Net earnings were US$50 million in the three-month period ended March 31, or US21 cents per share, compared with a loss of US$8.3 million (a loss of US four cents per share) in the same period a year ago. Adjusted per-share first-quarter earnings surged 96 per cent to US30 cents per share, versus US16 cents a year ago, and beat average analyst estimates by Thomson Reuters of US22 cents per share.

System-wide sales grew 7.9 per cent at Tim Hortons in constant currency to US$1.42 billion, and were up 10 percent at Burger King in constant currency to US$4.2 billion.

The company took a steep hit on currency fluctuations, though, with a four-per-cent overall revenue drop at Tim Hortons due to the weak Canadian dollar.

Actual revenue was US$657.8 million at Tim Hortons, compared with US$683.7 million a year ago. Currency had a weakening effect on Restaurant Brands’ overall revenue, which fell 1.6 per cent in the period to US$918.5 million from US$933.3 million a year ago.

“We believe our focused approach on delivering a great guest experience and growing franchisee profitability will support longterm, sustainable value for our guests, franchisees, employees and shareholders,” said chief executive Daniel Schwartz.

The company added 25 new Tim Hortons restaurants and five Burger King outlets in the quarter.