So we can really figure out how to refine the deployment model and do it effectively market by market. There’s a big element of training that goes into that. So we want to really make sure we’ve got it right. And from there, what you think we’ll be able to scale it to the entire system hopefully later in 2024 and into 2025. So that’s sort of the game plan. In terms of the impact that the easy-to-run kitchens can have on the business, I would tell you, I probably think about it more in terms of operations and guest experience than I do in terms of restaurant growth. I think what’s going to be magical about this is if we can make it easier to run for the team members, and therefore, improve the guest experience through things like order accuracy, the speed of service and the drive-through friendliness.
Those are the things that I think are going to really unlock the unit level potential. And I would expect to see that in our guest feedback and our product satisfaction and ultimately in the same sort of traffic and sales that we’re able to drive at the restaurants. That for me will be the biggest measure of success of easy-to-run, and that’s what we’re looking at in the restaurants. Patrick, anything you want to add?
Patrick Doyle: Yes. The only thing I’d add is, as you look at the returns we’re going to generate on Popeyes as it gets easier to run. There are really two things that happen when you improve service in restaurants. One is the customer is happier because they’re getting a better experience, they’re moving through more quickly. But the other is, frankly, just being able to fulfill against incremental demand. And if you look at Tims – one of the reasons Tims is generating traffic growth is because they have improved their service times in Canada. You go to a Tims at 7:30 in the morning in Canada, and you are going to see very busy drive-thrus. So if they can improve the speed of service, it’s not only a better experience for the customers, but you’re just simply able to generate more sales because you’re able to get more people through the drive-through over the course of an hour.
As we build more demands with great new products at Popeyes like wings, our ability to fulfill against that, our ability to get them through the drive-thru, to give them better service times not only will make the customers happier, which will, in turn, generate more demand, but frankly, just our ability to get more people through the drive-through is going to increase sales.
Operator: The next question is from Lauren Silberman of Deutsche Bank. Your line is open.
Lauren Silberman: Thanks for the question. I had another one on Tim Hortons supply chain margins. Can you just talk about the underlying supply chain margins, excluding the CPG business and expectations there? And if you could just remind us on how you price the franchisees in the commissary, the timing of that pass-through, how that influences the margins? Thank you.
Matthew Dunnigan: Yes. Thanks for the question, Lauren. So yes, in terms of margins, we look at it holistically across the whole category of sales – cost of sales. And kind of as I said, I think we exited the year in 2023, we’re around the 18% margin. Q1 is seasonally lower. So it will probably be pretty consistent with that. But we do see some opportunity to drive that back up toward 2022 levels which were a bit higher around the 19% level. As it relates to pass-through of commodity prices, we do that, as you recall, we do that with a bit of a lag. So we try to price through in a reasonable way what we see happening in the commodity market, but we do that in intervals throughout the year a couple of times a year. It doesn’t happen on a frequent recurring basis. Having said that, I think the overall commodity cost environment has balanced out and stabilized quite a bit over the past few quarters.
Lauren Silberman: Thanks for the question.
Operator: Next we have a question from Eric Gonzalez of KeyBanc. Your line is open.
Eric Gonzalez: Hi. Thanks for the questions. Congrats on the strong improvement in franchisee profitability at BK U.S. I’m just curious what this might mean for your U.S. franchisees and their ability to fund remodels at a faster pace. With these numbers out there in the public domain, do you think this helps franchisees get better access to capital to fund their projects? And also, I think you attributed about half the improvement to operations. To imply the other half is commodity relief and assuming you won’t get much more relief on the commodity side, do you think you could continue to drive meaningful improvement in solo profitability without significant progress on that remodel program?
Joshua Kobza: Yes. Thanks, Eric. Good morning. Appreciate the question. I think it’s for sure the case that increasing franchise profitability, it impacts the attitude of lenders towards the system. It impacts our franchisees’ appetite to invest and their ability to invest. And I think it also just shapes confidence in the future. When we have sales, traffic and profitability all moving in the right direction, I think the overall excitement of the system about where we’re going, definitely has an impact on everybody’s excitement about investing. You saw that with our decision to acquire Carrols, I think that shows pretty clearly our optimism about where the system is going. So I think that is definitely the case, and we’re definitely feeling better about the outlook for remodels and BK U.S. One thing I would just add there, and we mentioned a little bit earlier, we already had a line of sight to getting to around 65% of the system on modern image just through the first couple of years of our Reclaim the Flame program.
That was before the Carrols acquisition. Now with Carrols, we think that line of sight goes up to about 75%, which is good. But ultimately, I think we want to get the BK U.S. system. I’ve said it many times to a place where almost every Burger King you see around the country is a modern convenient location. We think that probably means something like 85% to 90% of the system needs to be modern over the next few years. So there will probably be some further investments. Just to give you a couple of data points to be in the right ZIP code there, we already have line of sight to 75%. If we want to get to 85% or 90%, that’s about 1,000 more restaurants that we think we would need to – we need to create a remodels on. And in terms of the cost of that for us, if you look at what we’re putting into the existing first couple of years, it’s just a little bit shy of 300,000.
So hopefully, those data points kind of give you a sense of where we want to go and some of the related investments that will come over that sort of 2025 to 2028 time horizon. And then in terms of the kind of the contributors to the performance, we do think a big part of that sales and traffic performance came from operational improvements. There’s obviously a lot of other stuff going on as well in terms of effectiveness of marketing and advertising spend. And I think our confidence in the ability to continue that is just driven by all the fundamentals that Tom and team are driving. And we think there’s a lot more – we just think there’s a lot more to do in the BK system that will take us more years to fully realize. Patrick, do you want to add anything?
Patrick Doyle: Yes. The only thing I’d add is Josh just took you through the rough math on what could be the spend to kind of get us up to that 85%, 90% level. And the only thing I would say is we want to reward franchisees who are leading and investing early and are excited about the brand and the business. So if we do something at that level, that would be equal to what we had done before. And frankly, what we want to do is reward franchisees who are doing these things ahead of the curve, not at the end of the curve.
Operator: The next question comes from John Zamparo of CIBC. Please go ahead.
John Zamparo: Thank you. Good morning. I wanted to ask about the international business and in particular, store level profitability. Obviously, you’ve got lots of countries and formats, but I wonder if you can give any clarity on this. And I wonder how you look at store level profitability internationally, is it by country or by region or by brand? Do you have as much visibility internationally, at least in your most important markets as you do for your domestic markets? And I know you don’t – well, you want to save a lot of this for Thursday, but is store level profitability is something you plan to offer long-term guidance on?
Joshua Kobza: Yes, John, thanks for the question. I think it’s a great point. And I would tell you, as we’ve thought about the last year or so, I think we really brought a big level of focus, especially to our home market franchise profitability. It’s where we felt like we had the most work to do, and it’s a little more straightforward. As you pointed out, it’s a few markets and it’s a little bit closer, we operate those markets. So I think we made a lot of progress on that, and we’re going to bring increasing focus to our international markets over the next year or so. We do tend to look at it. We look at it by brand market combinations. So we’re looking at Burger King France, or Popeyes in Spain. So that tends to be the lens.
And as you can imagine, that’s a lot of brand market combinations for us. It’s a little bit more complicated. We’re looking there – when we look at each of those, we are looking at profitability per unit. But I think probably the easiest metric to look at across all those markets is the payback period. We want to get to a model where our franchisees are realizing compelling paybacks. That’s what drives the viability of the business and causes folks to want to reinvest and grow those businesses more. So that is exactly the right way. I think as we shift increasing focus to those international country paybacks, we’ll bring more visibility over time, and we’ll figure out the right ways to communicate that sort of balance, I think, simplicity with trying to be clear and transparent with everybody.
Patrick, do you want – anything else you want to add on kind of long-term outlooks or anything?
Patrick Doyle: I mean, it’s complicated on the international side. What we’ve focused on, and we have had that discussion many times inside. And there’s no way to kind of give you a clean, single answer on that. What we look at is our team, David and his team’s job is to find great partners and then help those partners in the early years work their way to a good return on those units. There is a point at which the master franchisee kind of takes over that job. You’re going to continue to help them over time. But if you’ve gotten them to a good cash-on-cash return, they understand the business well. In France, we’ve got great returns on our business. In Spain, we’ve got great returns on our businesses, and these are very experienced master franchisees.
We can help them some, but frankly, it’s probably more important for us to get, for instance, Popeyes launch in France right versus the contribution we’re going to make to Burger King in France where they’ve already got 500 units. So we’ve spent a lot of time kind of working through that. And there’s – I don’t think there’s a way we’re ever going to be able to give you kind of a clean answer for overall on international. Really, what we’re going to give you more, I think, is just guidance on look, and this is true. Overall, returns are very good in our international business. But it clearly varies market to market, brand to brand, and particularly, is going to vary early in the launch of a new brand in a new market.
Operator: The next question comes from Gregory Francfort of Guggenheim Partners. Please go ahead.
Gregory Francfort: Hey. Thanks for the question. I want to ask on – I don’t think it’s gotten a lot of attention today. But just on Popeyes, I know the wings launch was pretty late in the fourth quarter. But can you talk about what you’re seeing either from a sales contribution or how it’s attracting new customers or changing your delivery business? Just any thoughts on that would be helpful. Thanks.
Joshua Kobza: Yes, Greg. Thanks, and I say we’re all really excited about the new wings at Popeyes. Most people are probably surprised to know that Popeyes didn’t have a flavored wing platform. So we’re really happy we could do that. And I think it’s another terrific example of the work of our culinary team led by Chef Amy. They did a really outstanding job on these wings. If you haven’t tried yet, please do. We were already starting to see some impact of the wings in Q4. I would tell you more of the behavior that we saw initially was add-on behavior as opposed to new guests. And that was a lot of what was behind the thought of doing the Super Bowl ad because we didn’t have high awareness, mass market awareness that Popeyes had wings and the Super Bowl is a tremendous vehicle to drive vast market awareness.
And I think the Super Bowl this year was no exception. It was one of the best. I think the viewership was actually the highest ever. So we got even more bang for our buck. And I think now that we have greater awareness, we’re hoping to see even greater incrementality to traffic over the course of Q1 and beyond. But really happy with the wings so far. I think it’s a terrific addition to the Popeyes menu, and we’ll keep you updated as we see progress through the quarter and for the rest of the year.
Operator: The next question is from Jeffrey Bernstein of Barclays. Your line is open.
