Beutel Goodman Speaker Series: In Conversation with Restaurant Brands International

25 June 2024

Part of the Beutel Goodman Speaker Series, this fireside chat featured Joshua Kobza, Chief Executive Officer at Restaurant Brands International, alongside Vim Thasan, Vice President, Canadian Equities at Beutel Goodman.

An important holding in our Canadian equity strategy since 2020, Restaurant Brands International is the parent company of Tim Hortons, Burger King, Popeyes and Firehouse Subs.

In this conversation, Joshua and Vim discussed Restaurant Brands’ global expansion plans, as well as some of the challenges facing the quick-service restaurant industry currently.

This recording took place on June 5, 2024. The following transcript is edited for clarity.

Note: The information in this transcript and recording is not intended, and should not be relied upon, to provide legal, financial, accounting, tax, investment or other advice. This is not an invitation to purchase or trade any securities. Beutel, Goodman & Company Ltd. does not endorse or recommend any referenced securities.

Vim Thasan: Good afternoon, everyone. Thank you for joining us for the latest edition of the Beutel Goodman Speaker Series. Today, we’re in conversation with Restaurant Brands International. I’m Vim Thasan, Vice President, Canadian Equities at Beutel Goodman, and we have the pleasure of being joined by Restaurant Brands International’s Chief Executive Officer, Joshua Kobza. Before we begin, a brief message from our legal team.

The information in this webinar is not intended and should not be relied upon to provide legal, financial, accounting, tax, investment, or other advice. This is not an invitation to purchase or trade any securities. Beutel Goodman and Company Limited does not endorse or recommend any referenced securities.

And with that, let’s talk about Restaurant Brands. Restaurant Brands International is one of the world’s largest quick-service restaurant companies, with over $40 billion in annual system-wide sales over 30,000 restaurants in more than 120 countries and territories. The company is better known for four of the world’s most prominent and iconic quick-service restaurant brands: Tim Hortons, Burger King, Popeyes, and Firehouse Subs. Today we have Josh, who was appointed CEO in March 2023, having previously served as the Chief Operating Officer since January 2019. Since joining the company in 2012, his roles have included the Chief Technology and Development Officer and Chief Financial Officer. Thank you for joining us today, Josh.

Joshua Kobza: Thanks, Vim. It’s a pleasure to be with you today, and thanks so much for having me.

Vim Thasan: Excellent. Let’s talk a little bit about the company.

You’ve worked at Restaurant Brands for over a decade in multiple roles before becoming the CEO last year. Can you describe for us the evolution of the company during your time and describe what it is today?

Joshua Kobza: So you’re right, I’ve been with the company for about 12 years now, and we’ve evolved a lot over that little more than a decade. If you go back to when I started, we were one brand. It was just Burger King at the time and it was a lot smaller team. We were probably 300 people in our main office, which was one office. And so that was a very different business to manage. And we’ve grown it over time. We’ve added three of the world’s leading global restaurant brands, and we’ve become a much bigger business. We’re operating four brands now in 120 markets around the world. We have a number of different large business units, and that’s changed the dynamics for us a lot. I think we’ve had a pretty good run over the period. We’ve increased our operating income by about four times and our earnings per share by about five times over that period, and we delivered a compelling total shareholder return. We’ve been meaningfully above the S&P 500 over that period. So there’s still so much more we can do and so much we probably could have got more right. But I think when you step back, we’re pretty happy.

We’ve learned a lot over that period. And I would tell you that’s informed a lot of how we operate today. We’ve become much more focused on getting the basics of the business right, making sure the operations of the restaurants are the best that they can be. And I think we’re on the right track in that respect today. We’ve also shifted our approach towards people. We’ve brought in more of a balance of experienced executives across the industry. So, we historically leaned more on more junior talent. And I think we balanced it out with some more experienced folks who are running our businesses and can educate, mentor, and bring the younger folks along. And I think that’s been a big factor in our improved performance. And we’ve also started to invest a lot more. I think we’ve got the investment levels, both across the annual expenses and investment in our assets, right. And that’s one of the big lessons that we’ve learned over time. And I’d say, lastly, we’ve learned to become much more focused on all of our stakeholders. You’ve probably seen over the last year or two, we’ve become really focused on our franchisees’ profitability.

We just disclosed the franchise profitability levels, which almost nobody does. And we made a tremendous amount of progress. And that, I think, is really bringing our franchisees along with us on where we’re going in a way that we haven’t before. And we’ve evolved the way that we interact with investors, analysts, and media a lot, too, over time. We’re becoming much more open and transparent. We spend a lot more time with investors. We just disclose a lot more about the business and performance and all kinds of data. We took a big step earlier this year, and we put out long-term guidance as well, to both give a little bit more visibility into a baseline of what we think we can do and create more accountability in terms of the results that investors can expect from us over time.

Vim Thasan: That’s a great background. And, as investors, we certainly appreciate that evolution in the company and the increased disclosure and accountability and focus on the stakeholders. And, also as long-term investors, we’re always trying to figure out and better appreciate what will the company look like three to five years from now? So, you alluded to the long-term guidance to 2028 at a recent investor day.

Can you maybe share your key plans for the company and how it will look different five years from now?

Joshua Kobza: So as I mentioned, we laid out some long-term guidance for the five-year average performance that we expect. And the main elements of that are that we expect to deliver 3% or more of same-store sales. So that’s the year-on-year growth in the sales of each of our restaurants. We expect to produce 5% or more net restaurant growth. So that’s growth in the number of restaurants every year. And that should lead to 8% or more growth in our system-wide sales. That’s the sales produced at all the restaurants, both company restaurants and franchise restaurants. Then we expect to translate that to at least 8% growth in our adjusted operating income. That’s the main profitability measure that we look for. So, we want to make sure that our adjusted operating income is growing at least as fast, if not faster, than our system-wide sales growth. And when you put that all together, you would get our restaurant base growing from about 30,000 restaurants to about 40,000 restaurants. And the system wide sales that you referenced, going from low 40 billions to about $60 billion over the next five years. Those are the main elements of the guidance that we’ve put out there.

And we’ll deliver that by delivering results across our business units. We have five big business units. It’s the four brands in their home markets and then our international business, which is the master franchise outside of the U.S. and Canada who effectively licensed the brands to all of those markets around the world. And within each of the business units, in Tim Hortons, it’s our biggest business in Canada and U.S., we’re focused very much on growing in the PM daytime. So, we do amazing business at breakfast. The 6:00 to 10:00 rush is incredible. You see it with the lineups always at Timmy’s. And we want to expand on that and grow into the afternoon. To make sure that we’re a destination for lunch, afternoon snacks, and dinner. And you’ve seen us doing that through expanding our menu into things like bowls, wraps, flat breads, and pairing those with cold beverages. So that’s been the big part of the Tims strategy.

At Burger King in the U.S., I think we’ll get into this a little bit more later, but we’re well on our way into turning that brand into an incredibly powerful and successful brand in the U.S. We’ve started a couple of years ago the ‘Reclaim the Flame’ plan. That was to reclaim the glory of Burger King. We’re all about flame grilling, and we have an excellent team led by Tom Curtis [President, Burger King U.S. & Canada], who’s really focusing on the core equities of Burger King. There are things like flame grilling, the Whopper, and ‘Have it your Way’. And we’re making big investments to drive that turnaround. We made investments in advertising; we made investments in technology and fixing up the restaurants and doing remodels to make sure the assets are modern and competitive with an incredibly competitive market in the U.S. So that’s been great. I would say that the results there so far are better than we would have expected at this point. So, we’re really happy. I think Tom and the team are doing a great job.

Popeyes, a brand we all love, has been a consistent performer basically since we acquired it in 2017. It’s in one of the hottest segments in U.S. restaurants, which is chicken. And it’s been on a tear basically ever since we bought it. We have the best product in the industry. And with that, we’ve been able to overtake Kentucky Fried Chicken, which historically was the biggest brand in the market for a long time. We’ve now surpassed them and have been growing that brand really quickly. So Popeyes has been doing wonderful.

We recently bought Firehouse Subs, which has the best hot subs in the sub industry in the U.S. And it already has great unit economics, wonderful operations, some of the best products you’ll ever find. We just want to grow it and bring it to more places. There’s a great industry dynamic in the U.S. where subway has been having a lot of trouble and closing a lot of units. And a lot of that space is being occupied, especially by Jersey Mike’s and Firehouse Subs. So we really like the brand, and we really like the market dynamics there and we’re just focused on executing.

Lastly, our international business, perhaps one of the biggest long-term opportunities, where we’re distributing all of our brands through all kinds of different master franchisees across the world. And I think that’s where we have decades of growth in front of us. Some of those brands are just getting started in various international markets. And that’s an amazing business that we’re really excited for many years to come.

Vim Thasan: Thanks very much for that rundown. And I can tell you from my due diligence of Restaurant Brands, I’ve gained several pounds in doing due diligence on each of these brands to validate your assertions. When we got involved with Restaurant Brands, it was at a point in time when the market was very skeptical of the Tim Hortons turnaround. As you noted, you have really proven the market wrong and showed the value and the ability to turn that around.

Can you describe a little bit more around this turnaround at Burger King, which is a focal point for the market to see if you can use the same playbook that you’ve used at Tim Hortons.

Joshua Kobza: I think that’s a great way to structure the thought, because frankly, a lot of what we’ve done at Burger King was inspired in many ways by the experience that we had in terms of running Tim Hortons from five years ago up to today. And there were a few different elements to that plan. One was having a consistent, experienced leadership team that was local to the market. And we did that at Tims. We’ve had basically the same leaders running the Tim Hortons business throughout the past five years, and they put in place a really thoughtful long- term plan for the business, which involved us investing. With the Tims case, we invested in the ad fund to kick things off, and we’ve been investing in many other ways, whether it’s the team or making sure the assets are up to speed. And there was a big piece of bringing the franchisees along and changing the nature of the franchise relationships in Canada. We’re in such a different place today than we were back five years ago, and I think that’s been one of the most important parts of the plan. When you translate it all to Burger King, it’s very similar.

It started out with some work on the team. We brought in Tom Curtis who’s been the President of Burger King now for a few years. He’s a 30-plus year veteran of the restaurant space. He had been a franchisee at Domino’s and then led the corporate restaurants for Domino’s. So, he’s seen all the different pieces of the business, both the franchise side and the corporate side, and was part of one of the most successful restaurant stories that we’ve seen over the last decade or so. So I think we were very fortunate to have Tom join. And he’s built a wonderful team similar to what we have at Tims that have driven all the success. Then they put in a place a plan. It was a multi-year plan called Reclaim the Flame, which we all love. And in many ways similar to the Tims plan — it was a multi-year plan for fixing what needed to be fixed in the business. It started with an initial investment from us as the franchisor to improve the advertising spend. And so we put in a bunch of money to increase the amount of advertising for a couple of years. And that really kickstarted sales. And eventually, the franchisees will pick up that investment over time. But that’s allowed us to drive sales at the beginning. And then we also put together a big investment to improve the assets.

One of the things that anybody who spends time in the U.S. will see is that there’s inconsistency in the restaurants across the U.S. Some of them are newer, but some of them really needed work. And so we pledged hundreds of millions of dollars to invest alongside the franchisees to update the assets. We’ve already started, and we’re seeing incredible sales uplifts on the restaurants that we’re remodeling. I think we have a beautiful and very competitive and distinctive new image that we’re remodeling those restaurants to. And as with the Tims case, importantly, Tom and team are really bringing the franchisees along. We made their profitability one of the central focal points of the plan, and we made tremendous progress. Just in in the first year, we grew their profitability per restaurant from around $130,000 to $140,000 at the beginning to already above $200,000 just in one year. So, it was pretty tremendous change in the success of our franchise franchisees, and I think that’s done a lot to bring them along.

We’re only a couple of years into Reclaim the Flame at Burger King, but I would tell you, I think Tom and his team have come much farther than I would have expected at this point, and I’m really excited for the outlook of that business and what they’re going to do over the next few years, especially as we make even more progress with the franchisees and more progress on getting more and more restaurants remodeled towards having every Burger King that you see across the U.S. be a modern, convenient, and competitive. And that’s the plan that we’ve already set out for the next three to four years.

Vim Thasan: That’s great. That’s an exciting path for Burger King. And maybe we can pull on that thread of leadership and people. You know, arguably, the intangible assets of leadership and culture are really important value drivers, and we’ve seen this time and time again.

RBI has had three different CEOs over the last 10 years or so. I’d love to hear your perspective on the stage that your predecessors’ set for you and how you might do things differently in the CEO seat.

Joshua Kobza: I’ve had the good fortune of getting to learn from a number of different CEOs, both from Danie [Schwartz], up to around 2019, then José [Cil] for a few years, and now I’m learning from Patrick [Doyle, Executive Chairman of RBI]. And I think I’ve learned different things from each of them. Daniel was tremendously powerful in creating the company that we have today. He brought this mindset of ownership, being thoughtful about cost, and in a big dream, he wanted to push and build something that was really exciting. I think that was very inspiring to a lot of people. And José brought something even different. Jose would go into a restaurant and everyone would light up. He would go and make burgers in the back of the restaurant. He would make the manager feel that they were the most special person in the world. He would take selfies. That was the José Cil version of a selfie with everybody, and they loved it. So that ability to inspire and connect with everybody in the system is something that I’ve always respected with José, among many other things, and something that I learned a lot from.

And with Patrick, he is one of the most, I think, respected and successful leaders in the restaurant space over the last 20 years or so. I’ve learned so much from him, too. I think some of the biggest things that he’s brought is really focusing on our franchisees’ success as perhaps the most important thing in moving these systems in the right direction. He pushed for having disclosure of the franchisee’s profitability, for making it even more prominent in everything that we do in the company and our goals. And I think that’s been an extremely important part of our success over the last year or two. So I pulled lessons from all of them, and that’s helped me shape what I’m focused on. The other thing I would say that I’ve learned over the last few years that’s impacted the way I want to run the business. And I touched on this earlier on when we talked about how the business has evolved. It’s now a really big business. We have five different business units, presidents of all those businesses, hundreds of people just in our corporate offices, and then hundreds of thousands across the globe within our system. And I think as you grow, you have to think about giving more autonomy to the business units. It’s really hard to operate a very centralized decision-making approach to things.

And so I’ve tried to push some of that autonomy out to the business unit presidents and give them more control, more accountability, more ownership of what they do in their businesses every day. I think it allows us to move faster. It allows us to make better decisions, and it allows us to attract better presidents to those businesses because the best people, they want to be empowered. They want to know that they get to make the calls within some reasonable bounds. I think it’s made us more effective in the way that we manage the business. I think it’s also made people enjoy working here more. That’s been one of the big themes that I pushed on from the beginning. It’s impacted how we run the business. It’s impacted a little bit of the structure of the organization, and I’m pretty happy with it so far. The last one I would say that I think we’ve evolved on, and Patrick was a big part of this, is having a mindset of investing for growth. He’s pushed a lot for us to bring ideas of where are the most attractive places we can invest in our core business to drive growth.

You’ve definitely seen us over the last couple of years look at more investments, whether those are investments in our teams or investments that we make, capital investments that we make in the business, like the Reclaim the Flame plan at Burger King and many others like that. At Firehouse, we’re putting a bunch of money into growing faster and helping our franchisees to develop more restaurants. But we’re looking, I would say, more proactively for where we can invest to really get to the growth rate that we want to achieve over the long term here.

Vim Thasan: That’s fantastic. I’d love to go from micro to macro. Josh, you gave a great background on what’s going on with the team, what’s going on with the franchises. Sometimes the question, or the elephant in the room is, well, there are a lot of uncertainties with the consumer and the economy. No matter what you do, ultimately, your business relies on consumers coming to your stores to buy coffee, to buy burgers or chicken or subs.

Given the concerns about the overarching potential recession, what are you seeing on the ground regarding changes in consumer behavior? And how do you feel that your company is positioned to weather the storm if there is one?

Joshua Kobza: We have seen some consumer softness through the first half of the year, the first quarter and beyond. And so I think you see some of the macro pressures on the consumer. You see people being a little bit more selective about spending and attachments and things like that. But I think we’re really well positioned in that context. If you think about what we do, what is our business? Our business is about providing convenient, high-quality meals at a compelling price. So we are the provider of the compelling value to guests. And so if you look at the performance of our businesses through past consumer cycles, they actually tend to be pretty good because we’re already providing that thing that people are looking for in some of these tough moments. And I think you see that in some of our businesses already. So if you look at the Tim Hortons business, Tim Hortons is famous for many things, but one of them is being the best value for money in the market. And so even as Canadian consumers look for that value, I think we’re so strongly positioned to deliver it. And I think you see that. You probably saw that in our first quarter, we outperformed. We had a good quarter, and we outperformed the market by a healthy margin. So we’re looking to make sure we’ve got the right value in the business and making sure that we’re outperforming whatever the market’s doing. And I think that’s been the case across essentially all of our businesses over the past few months. I think we’re actually in a pretty good place across our businesses.

Vim Thasan: You’re absolutely right. The search for value is a common theme that you hear across much of the value space, and you are positioned in that. What I’m always amazed by is that you operate in 120 different countries, and yet you have such a dominant position in Canada.

I’d love to get your perspective about your experience of the Canadian marketplace versus some of these other countries, and what makes it different from the different countries that you operate in?

Joshua Kobza: I think Tims in Canada is like no other business that I’ve seen in restaurants anywhere in the world. Our market share, our brand love, how people view Tims. It’s interesting how people view their local Tims as theirs. It’s so embedded in the consumers’ lives and in the communities. I just don’t think there’s anything like it. To your point, Vim, I’ve worked on businesses in 120 different countries and markets around the world. There’s no parallel I’ve been able to come up with yet. We have almost 4,000 restaurants in a country with about 40 million people. That’s one of the most highly penetrated restaurants, and it’s such an important part of people’s lives — I think it is incredible. It’s also one of the most economically compelling businesses. If you look at it for our franchisees, they make about $300,000 a year per restaurant on an investment that’s probably in the $600,000 to $700,000 range. So getting those two-and-a-half-year paybacks, that is really compelling in the restaurant space. There’s almost nothing else like that that you can find the opportunity to franchise.

And I think that’s why we’re able to attract incredibly talented and engaged franchisees who are really fantastic operators. And that further strengthens our market position in Canada. So it is really just one of the best businesses around. And what we’re focused on is just building that leadership. We want to figure out how Tims can be even more relevant in the lives of Canadians. As we mentioned earlier, we already are the vast leader in coffee and breakfast. We want to take that leadership to other parts of the day, and we’re working on that. You’ve seen us do that through the food and cold beverage initiatives that we have. I think there are some really great precedents for restaurant concepts doing it. One of the ones that’s probably clearest in our minds is what McDonald’s did with breakfast over time. McDonald’s started as a lunch and dinner hamburger restaurant, and they built into breakfast. That was an amazing story over a couple of decades. Now, in the U.S., about 30% of their business is that breakfast business. But it was decades in the making. We think we’d like to do something similar with Tims, just in the opposite direction. That’s what we’re working on, and I expect we will be working on for many years.

Vim Thasan: That’s some good context on the evolution. It’s remarkable that you are celebrating the 60th anniversary of Tim Hortons. You’ve shared a lot about what has happened with this turnaround on Tims, what you’re doing to approach the daytime [business]. I’m cognizant of, is it the happy hour initiative to help also drive the sales? Can you just elaborate a little bit more about what Tims could look like 10 years from now, because you also have initiatives to grow the brand beyond Canada.

Are there any highlights you would share with us about what the 65th anniversary or the 70th anniversary of Tim Hortons could look like as a brand on its own?

Joshua Kobza: You’re right. So we are celebrating the 60th anniversary this year. You probably see it on our coffee cups. We also have a big celebration and convention coming up in Toronto in a few weeks, which will include the launch of our musical: “The Last Timbit”. So we’re doing a lot of fun things this year to really celebrate the 60th anniversary. In terms of where we’ll go over the next five years, 10 years, and what it will look like, I would love to see a Tims in Canada that has an even bigger business, that’s built the restaurant sales by having the restaurants work throughout the day and being a market share leader, not just in breakfast, but in lunch, in dinner, and the afternoon snack piece of the business. I think that’s the clear path to taking our current excellent restaurant sales to something that’s even much higher and building an even more important business. Another piece you hit on, which I think we’re all excited about, and I think could make Canadians really proud, is to make Tims one of the most well-known, truly global brands. And that’s been one of the goals, frankly, since we got involved with the company 10 years ago.
And we’ve actually made a lot of progress on that front. Back in 2014, we really just had one international market, basically the Gulf and some of the Middle Eastern countries. We’ve now grown that to businesses across many, many countries around the world. We’re in Mexico, the U.K., Spain, the Middle East, in India, in China, Korea, Singapore; so many places, and we’re adding many more every year. So that takes a long time. But when you take a long time-horizon, it really starts to compound. The growth rates are really high in those markets. And I would love to see Tims be even more important in Canada — one of the few brands that Canadians are really proud of, that’s a powerful global brand all around the world. So that would be my goal and what I’d like to see in five, ten years from now.

Vim Thasan: We’re looking forward to getting a Tims anywhere in the world then, Josh. As you reflect on your role as a CEO, you have a very attractive business model. It’s a great royalty model. It generates a significant amount of free cash flow. A key part of your job is capital allocation and making the right decisions with that free cash flow to generate the right returns.

I know you get this question a lot, but how do you think about allocating capital to create value for shareholders? Is there going to be another brand on the horizon for Restaurant Brands?

Joshua Kobza: It’s a great question. You’re right, I think it is one of the better business models in the world. We have very healthy operating margins and relatively low capital intensity. As you mentioned, that generates a lot of free cash flow. I view my role and our CFO’s role and our board’s role, as being good custodians of that capital for our shareholders. I’ll tell you, maybe in order, my priorities for that capital are first, we need to look for the best, most attractive organic investment opportunities, things we can do safely with high confidence in our core business that makes our core business even stronger. Those to me, are the best opportunities that you can find in any business. And so that’s the first thing that we look for.

Next, I would say our dividend. We view our dividend as rock solid. It’s something that we want to have and want to grow forever. What we articulated earlier this year is that we would seek to grow our dividend at a pace that’s a little bit slower than our earnings growth until we get to a level that’s about a 50 to 60 % payout on our adjusted earnings. And we’re a little bit above that right now. So we’ll get down to somewhere in that 50 to 60 % range, and then we’d look to grow it more in line with earnings over time. But we know that dividend is really important to a lot of our shareholders, so we are focused on growing that in a meaningful way over time.
The next one that we have very much in our mind is making sure that we keep our leverage at the right level. So, we’ve said we’re going to de-lever to the mid-4x range by the end of this year, and we feel we’re on track to do that. And from there, we’ll look to maintain leverage in the three to five times EBITDA range. And it’s a little bit of a wide range, but that’s meant to be guidance over a five-year period. I think where exactly we sit at any point in time will be a function of market conditions and some of the investment opportunities that we find along the way. Within those investment opportunities, I think there’s two big buckets. One is share repurchases, which is reinvesting in ourselves. I would say we do that when we see we have capacity to invest and we see that the shares are at a really attractive level. So we did that actually back in the latter half of last year when our shares got to a point where we felt like the excess return on purchasing those shares was too high. And we were excited to deploy some excess capital there.

And then lastly, M&A. We have done M&A over time. We bought the three additional brands and ended up with four brands so far, and we’re extremely happy with all those transactions. I would say we’re very selective with it. We’re not out trying to buy multiple things every year. We only bought something once every four years, actually, in the past. We really want to buy businesses that we want to own forever, things that we think we can grow all around the world for decades to come, some of the most special restaurant brands that are out there. That said, I think in the near future, you’re going to see us more focused on our existing business. We really want to prove that we can run these businesses much better as part of RBI than they would be on their own. And we think we still have some work to do on that front to really prove that.

I think we’re on a good track, but I’d like to see it happen for another couple of years and really build a positive track record with the businesses that we have before we consider the possibility of adding more brands over time. I think that may happen over the longer term. I don’t think it will be a near term focus for us. I think we’ll be more focused on reinvesting in our existing business. And the one other detail I would add in there, we actually just did a big investment that was closed a couple of weeks ago. We bought the biggest franchisee of Burger King as part of our Reclaim the Flame plan to advance our plans to remodel all those restaurants and to move to a little bit more of a fragmented franchise network where we have smaller, more hands-on local operators. If that sounds familiar to anybody in Canada, it’s no accident. We know the power of having those hands-on operators who are in their restaurants, in their communities every day. So, we’d like to move the Burger King system a little bit more in that direction. We think it’ll help the way that the business operates and the experience that our guests get at our restaurants every day. So that was an important, I would say, internal investment in ourselves, but a big capital allocation decision.

Vim Thasan: Well, we appreciate the prudence on those existing brands and really truly unlocking their potential, as well and your thoughtful approach, Josh. I wanted to touch on a few areas that might be challenging for the business overall. Maybe first, we can touch on labour. RBI is one of the largest private sector employers in Canada.

How are you thinking about addressing the labour challenges that we are hearing about in the restaurant industry to ensure you have the highest quality people delivering quality service to drive results and also maintain engagement?

Joshua Kobza: It’s an incredibly important question. I would tell you, our franchisees are really the ones who manage the restaurant-level labour. And I say that not to defer responsibility, because I think we have a big responsibility. But I think the biggest thing that we can do is focus on having amazing local hands-on restaurant operators, because when our restaurant teams, they know the franchisee who runs the restaurant, they see them every day, they have personal relationships with them, that’s when we see the best guests experiences. That’s when we see our team members in the restaurants really happy, with managers who feel like they’re getting support. And it translates into sales. It translates into guest experience, it translates into lower turnover, which is one of the most important things that you’ll see in our best restaurants. I was out in Alberta a few weeks in Lacombe with one of our local franchisees there, Tanya Doucette. She actually runs the advisory board. She’s the President of the Advisory Board. And it’s just amazing to see so many of these vignettes . But Tanya and her husband, they’re in the restaurants all the time. They know everybody incredibly well. And because of it, people love working there, and they stay.

I think having the right franchisees who are really engaged, who are in the restaurants all the time, is one of the best things that we can do to try and improve the experience of our team members and to make us a really attractive employer. A couple of other things that I think that we can do as corporate, we have more responsibility on the training side. So, the training resources that we provide are a big part of improving the employee experience and ultimately our guests experience. Another thing is the quality of the assets. So having beautiful modern restaurants that are well maintained with proper functioning equipment, that’s one of the biggest things that helps you to attract employees and retain employees. They want to work somewhere that they feel proud of for a brand that they feel proud of, and they want to serve products that they’re proud of. So everything that we do in terms of product quality, in terms of making the asset, the assets are up to date and are well maintained. All of those things are things that we control that I think impact the employee experience a lot and allow us to be one of the more attractive employers in periods where you have tighter labor markets.

Vim Thasan: Now, all fair points, and we’ve certainly noticed the improved focus and relationship with the franchisees, which are a key driver of value for your overall business. If we shift over, maybe, let’s talk about health considerations, especially in the quick-service industry.

You hear about topics of sugar, shifts to plant-based foods, changing diets, and of course, the weight-loss drugs, and what that means to the quick-service restaurant business. How does your company think about these issues and how it might impact growth in the future?

Joshua Kobza: My own personal perspective is, I think the biggest thing that we need to do is focus on the quality of the products, and especially the quality of all the ingredients that go into products. I think consumers are much more conscious of ingredients these days, and there’s a lot more transparency about what goes into our food. So, our focus on everything from upgrading to things like fresh cracked eggs in the restaurants or removing artificial colors and flavors, all of those actions that drive product quality and ingredient quality and allows us to be really proud of the food we serve and ingredients that go into it. I think that’s the most impactful thing that we can do that moves our brands more to where consumers are going these days. I’ve definitely noticed all the news about the GLP-1s. It’s been a big topic of conversation over the last year or two. I would say we haven’t really seen a big impact in our business or a noticeable impact in our business yet. I think if you look at the adoption rates of some of those drugs within the U.S. and Canada, it’s still very low.

So you don’t really see it at the scale where it would impact our business. To the extent that there’s more adoption over time, it could have some marginal impact, but I think it’s going to be fairly small and fairly gradual if we see anything at all.

Vim Thasan: Great. Thanks for sharing those thoughts, especially on very timely topics. And maybe the last topic around risks or challenges is this concern about competition. You compete in a very competitive industry. There are several large players, and you’re competing to win a customer and have them come to your restaurant.

So how do you think about your ability to compete and how has it changed? And are you seeing a risk of more aggressive competition?

Joshua Kobza: I do think you’re right, the restaurant space has always been one of the most competitive industries that’s out there. There’s a lot of different competitors. There’s some that are fading away, some new ones that are coming in. For me, I think the best thing that we can do is to make our brands the most relevant to customers, have very differentiated products that are the highest quality products out there, and make sure our brands have a really sharp positioning in the market. That’s your best defense against competition in any business, to make your business better such that it’s an even higher bar for somebody to try and steal your customer. And so that’s why I’ve been so focused on getting the fundamentals right across our brands. That’s what makes you unbeatable. I think the brands that are doing this the best, in the U.S., it might be Chick-fil-A. Chick-fil-A, it’s the same chicken that Popeye sells. They do an incredible job across all the fundamentals every single day. I think that’s the best defense against any competition that’s going to come up in the restaurant space. I would tell you, there are only so many big global scale brands out there.

And relative to other industries, I think if you would track changes in market share position for the largest restaurant chains, it’s one of the most stable industries out there. If you look at the league tables of who’s the biggest and who has the highest market share, the changes are marginal. And the cases where people lose a lot are pretty dramatic cases. And it’s usually because they mess up the fundamentals. They get those basics wrong and the customer notices. That’s why I’m just focused on if we get the basics right and do a really good job at that, I think we’re going to be in a great spot. I do think when you go to the international markets outside of the U.S. and Canada, a little bit more mature, those are very nascent markets in general for branded restaurant concepts, and they tend to have a lot less competition. Those are some really attractive markets, and it’s one of the reasons why I’m so excited about what we’re doing in our international business and why I see so much space for decades of growth there.

Vim Thasan: That’s perfect. Thanks for addressing those questions and concerns head on. I wanted to save the hardest question for the end, which is …

As a CEO of a company with four different brands, I’m just curious, what is your favorite product or the product that you’re most excited about, whether it’s in Tim Hortons or any of the other brands?

Joshua Kobza: That is a very hard question. I’ll tell you, my go-to Tims order is, I get a cold brew and a bacon, egg and cheese on an English muffin. That’s my go-to every morning when I’m going to Tims. At Popeyes, I love the spicy chicken sandwich. That’s for sure my favorite. At BK, I love Whoppers, but my favorite is actually a double cheeseburger. That’s what I’ve gotten ever since I was a kid going to Burger King. And Firehouse is probably a Hook and Ladder, though it’s very hard to decide. I eat basically every sandwich on that menu. Because I love them all. But probably a Hook and Ladder most of the time.

Vim Thasan: That’s great, great items to try out. Thanks, Josh.

And do you have anything else you’d like to share with our clients about your ambitions for the company or other things we just keep in mind as we think about Restaurant Brands?

Joshua Kobza: I would just tell you a bit of how I think about our company and what I want it to be. I think a lot about the life cycle of Restaurant Brands. A lot of them, they start out created by a founder, and the founder scales them. And then at some point, they have to transition from a founder-owned company to a public company or a corporately-owned company. And I would love for us to be the preferred home for post-founder restaurant companies. The place where any founder would be most excited, comfortable for their amazing restaurant brand to live on a permanent basis. So, I’m always thinking about what do we need to do for that? We need to have the most incredible people in the restaurant space who are going to be wonderful custodians of these brands for the long term. We need to be people who are willing to invest behind those brands to give them the resources that are going to make them truly successful in the marketplace. And I think we need to bring other things to those brands that they couldn’t have otherwise. And I think one of the biggest things we can bring is the ability to take those brands global.

We did that with Burger King. We took Tim Hortons from one country to, I think, over a dozen countries now outside of Canada. We’ve made Popeyes one of the fastest-growing global chicken brands. It’s now challenging KFC. And we’re starting to take Firehouse all over the world in a way that they never contemplated before becoming part of RBI. So that’s what I have in mind. I want us to be the place that’s the best custodian of these incredible global restaurant brands and their forever home. And so that’s how I think about what we’re trying to create and what we’re what we’re going to do here every day.

Vim Thasan: I think that’s a great place to finish our conversation, Josh. Thank you very much for your time. Restaurant Brands has been an important holding for us in the Beutel Goodman Canadian equity strategy since 2020 and added a lot of value during that time. And as we’ve discussed today, the company has great potential for continued growth in North America, but especially, I think, in the international segment. Thank you to everyone for joining and listening to the latest Beutel Goodman Speaker Series, and we hope you can join us for the upcoming webinars later this year. Thank you again, Josh. I really appreciate your time.

Joshua Kobza: My pleasure. Thank you for having me.

Beutel, Goodman & Company Ltd.

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