Burger King needs franchisees to be profitable if operators are going to remodel locations. | Photo courtesy of Burger King.
Restaurant Brands International in recent years has been intent on improving its per-store profitability, a key ingredient at a company that plans to get back to the business of franchising. Franchises can’t do a thing if the franchisees aren’t making money.
Nowhere is this need more acute than at Burger King, which has traditionally had lower profitability than any of its main rivals. At one point, its average store-level profits were $125,000 per location, which means the average store was just a couple of faulty pieces of equipment from being in the red.
In 2022, that number was $140,000 per store—better, but still not great. And it was notably lower than the $180,000 the average store did in 2018.
But improve they did. In 2023 and 2024 the average Burger King generated $205,000 in profits.
And that’s when beef costs hit. Soaring prices for beef took a massive toll on your typical Burger King location, whose average profits declined to $185,000, or not much more than that 2018 level.
Executives aren’t necessarily panicking. They note that, without those beef prices and higher ad fund contributions, franchisee profits would have risen last year.
“Actions within our control—operations, marketing, remodels, franchising—they are working to expand franchise profitability, even within a challenged environment,” Tom Curtis, president of Burger King in the U.S. and Canada, said on the company’s Investor Day presentation on Thursday.
RBI gets credit for not only talking about per-store profitability but for reporting it so investors and others can keep the company honest. Burger King in particular has been undone by unprofitable franchisees that file for bankruptcy and close stores while operators delay or just don’t do remodels because they simply can’t afford them.
The lack of profitability is both the result of the chain’s poor performance over the years and a contributor to them. As Burger King struggled to generate sales growth, profitability took a hit. Discounts used to get some sales growth made that profitability worse. And with worse profits, franchisees cut staff, keep wages low and delay maintenance. And they don’t remodel. All of which makes things worse.
But, at the same time, there are some things that are beyond the control of both the company and its franchisees, and beef costs are one of them. Beef prices increased 20% last year, which led to 7% commodity price inflation and ultimately did in that profitability.
In Burger King’s case, the out-of-its-control beef prices threaten a key component of the company’s comeback plan, increased marketing. Franchisees had agreed to an increased marketing fund contribution of 4.5% of sales, but that was predicated on the system’s per-store profitability.
Burger King had hit its targets until now. But to extend that ad fund contribution through 2028, the company needs to get that profitability to $230,000 per-store this year, which seems unlikely. “We may fall short of that mark due to all-time high beef costs,” Curtis said.
Operators instead gave them a break, agreeing to the higher ad fund through 2027. If profitability hits $230,000 by then, they’ll pay the higher fund through 2028. And 97% of operators agreed to the ad fund extension. “Our franchisees know these headwinds are temporary,” Curtis said, noting that the higher ad fund contribution is a big reason the chain has outperformed the broader fast-food market for the past few years.
But there’s one other thing that Curtis said franchisees can do to improve profits: Run better stores.
The chain’s higher-level, “A”-rated operators on average generate sales per store of $1.9 million and profitability of $245,000, or 30% higher than the system average. “While this number is not where we want to be long-term,” Curtis said, “that gap is proof of what’s possible with strong execution, and it gives me confidence that the system has room to grow.”
