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Does Restaurant Brands International Have a Popeye’s Problem?

Motley Fool Staff, The Motley Fool

For companies that own multiple restaurant chains, a common theme seems to be that it's hard to get growth humming at all of them simultaneously. For Restaurant Brands International (NYSE: QSR) -- parent company of Burger King, Tim Horton's, and Popeye's -- the fourth-quarter's problem child was the latter, its newest. Given that the company pre-announced its earnings in January, there weren't a lot of surprises in its quarterly report on Feb. 11.

But now that the up-to-date numbers are out, Market Foolery podcast host Chris Hill and senior analyst Abi Malin can address the key questions for the company: Has Popeye's weak performance signaled bigger issues; what plan does the company have in the rapidly growing delivery game; and what does it need to do to keep up with the competition.

A full transcript follows the video.

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This video was recorded on Feb. 11, 2019.

Chris Hill: Let's move on to Restaurant Brands International, which is the parent company of Popeyes, Tim Hortons, and Burger King. Fourth quarter results were good. The stock isn't really popping today, but they pre-announced in January, so just in the last five, six weeks or so, this stock is up more than 20%. I'll tell you what stood out to me, you tell me what stands out to you. Once again, we've got an umbrella corporation that's got several restaurants, and one of them is lagging the others. In this case, Tim Hortons and Burger King performing, at least in this quarter, much better than Popeyes.

Abi Malin: I think that's a this-quarter issue. Popeyes for the year, sales were up 9%. That's driven by 7% restaurant growth and comp sales of about 1.6%, which I don't think is anything insignificant. But, definitely, for this quarter, Popeyes was the drag.

Hill: Do you have a sense of what the delivery strategy is for QSR -- Restaurant Brands International, I should say. The ticker is QSR. In my mind, one of the great ticker symbols. Do you have a sense of, are they approaching delivery in an integrated way? Meaning, "This is what we want across all of our restaurant brands." They're all in that fast food space. Are they doing it by essentially letting each restaurant brand decide upon themselves? You and I have talked about delivery before. Investors, if you're looking at restaurant stocks, this is a box you need to check.

Malin: I would imagine that it's more uniform across the entire system. They've mentioned they have delivery in about 3,000 restaurants for Burger King in the U.S. and about 7,000 around the world for Burger King. And Popeyes, especially, it's their push in bringing that restaurant back up to speed, maybe. They have delivery in about 1,100 Popeye's restaurants in the U.S., and that's about 50% of all of their restaurants. And that was really done 0 to 100 in just one year. It's definitely a necessary technological investment. We've seen a lot of restaurants get in this groove of how they're going to figure it out. You've seen some big partnerships between Grubhub and Yum! Brands. I think it's the question to be answered, and it's just about how you can do it most efficiently.

Hill: It would seem on the surface -- you know a lot more about the delivery industry and Grubhub in particular than I do -- like unless you feel like your restaurant can operate at a high level when it comes to delivery, that the partnership route seems like it would be an easier route to go.

Malin: Yeah, theoretically it should be like as long as there's an existing marketplace there. Part of that is also about these brands, though. Are people going to go on Grubhub's site and specifically look for Popeyes or Burger King? I think those are strong enough brands that perhaps they could, and maybe they could even be strong enough that they demand their own app, which is what you've seen a lot of the pizza industry do. They haven't really partnered, because traditionally, pizza was takeout, so you were so acclimated to looking for it by itself.

I think it's interesting, especially in this middle segment. Maybe Popeyes is fast food, maybe it's a little bit higher, but probably more fast food. It's definitely a consumer behavior shift, and I think companies are just struggling to catch up.

Abi Malin owns shares of Grubhub. Chris Hill has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.