Burger King Parent RBI to Buy Carrols to Accelerate U.S. Remodels

This is an English adaptation of a FoodBud historical article originally published on January 16, 2024.

Restaurant Brands International, Burger King's parent company, announced on January 16, 2024 that it planned to acquire Carrols, Burger King's largest U.S. franchisee, for US$1.0 billion, or about RMB 7.1 billion.

The offer price was US$9.55 per share. That represented a 23.1% premium to Carrols' 30-day average price through January 12, 2024, and a 13.4% premium to its January 12 closing price. The transaction was expected to close in the second quarter of 2024.

Why Carrols Matters

Carrols has operated Burger King restaurants since 1976 and was Burger King's largest U.S. franchisee.

At the time of the announcement, Carrols operated:

• 1,022 Burger King restaurants across 23 U.S. states, equal to roughly 15% of Burger King's U.S. system
• 60 Popeyes restaurants across 6 U.S. states

For the 12 months ended September 30, 2023, Carrols generated US$1.8 billion, or about RMB 12.8 billion, in sales. Burger King's annual sales per restaurant were about US$1.7 million.

Remodel Strategy

RBI had already announced a US$400 million Burger King investment plan in September 2022. The plan included:

• US$120 million to increase advertising spending by 30%
• US$200 million to remodel about 800 restaurants
• US$50 million to upgrade technology, kitchen equipment, and buildings across about 3,000 restaurants
• US$30 million to improve the mobile app

The Carrols acquisition was positioned as a way to accelerate Burger King's store remodel program. RBI planned to invest US$500 million to remodel 600 Carrols restaurants.

After acquiring Carrols, Burger King planned to refranchise most of the restaurants to existing or new smaller franchisees. RBI expected that process to take five to seven years.

Carrols had already reached an agreement with RBI to remodel 64 restaurants during 2023 and 2024, according to Carrols' third-quarter reporting.

Franchise Economics

Carrols' Burger King and Popeyes franchise agreements generally had 20-year terms, with the right to seek an additional 20-year extension at the end of the term.

The initial franchise fee per restaurant was US$50,000. Burger King restaurants paid 4.5% of sales as monthly franchise fees, while Popeyes restaurants paid 5% of sales.

For the quarter ended October 1, 2023, Carrols paid US$21.3 million in franchise fees.

Since May 2021, Carrols had also paid digital platform fees. For the quarter ended October 1, 2023, those fees totaled US$800,000.

Restaurants also generally allocated 4% of sales to brand marketing. For the quarter ended October 1, 2023, Carrols' related spending was US$18.8 million.

Third-Quarter Operating Snapshot

According to Carrols' third-quarter financial report, restaurant sales were US$476 million in the quarter.

• Burger King sales: US$450 million
• Popeyes sales: US$23.869 million

Carrols' third-quarter cost structure included:

• Food costs: 27.3% of sales
• Labor costs: 32.3% of sales
• Rent costs: 6.8% of sales

Note: acquisition terms, expected closing timing, remodel plans, and refranchising timelines are historical figures and guidance from the January 2024 article.