Jeffrey Bernstein: Great. Thank you very much. Actually, just two clarifications. The first one, Patrick, I think the U.S. and Canada home market franchisees are probably pretty happy with the direction of profitability. I’m wondering with you or Josh, as you travel around meeting with franchisees, what’s the new number one topic of discussion? Or what’s the greatest pushback or concern, whether it’s topline or bottom run related. Just curious how those conversations are going. And the second one was just the Reclaim the Flame commitment. Just wondering whether you think those levels were set at the right level now that you get a chance to look back over the past year. I think you talked about shifting dollars towards refresh, but I’m just wondering the potential to actually increase the dollars.
I think, Josh, you just gave an example of the math around the $300 million needed to hit those 1,000 Burger King units. I’m just wondering who’s expected or who’s potentially considering foot in that bill, whether that’s a potential corporate consideration or whether that’s more just encouraging franchisees to do so. Thank you.
Patrick Doyle: So I’ll let Josh handle the second question. I’ll take the first. We are more aligned with our franchisees, and I think we have ever been. There is great excitement about the progress that we’re making. Clearly, great excitement about the focus we’re putting on their profitability and the progress we’ve made and the number one concern that they have is whether or not there’s any sense that this is a one and done that we would get happy with the progress that we have made. And the answer for all of them listening is absolutely not. And we will talk about goals on Thursday for each of the home market brands. But we are not happy yet with where we are. We are very happy with the progress, but more to be done, and we are going to keep hammering away on it.
Joshua Kobza: Thanks, Patrick. And on the Reclaim the Flame original program, if we’re happy with it. I would tell you, I am really happy with it. I think it was very thoughtfully structured. And I think it was the right plan for that moment. Tom talks a lot about the importance of sequencing and I think he got it exactly right here. We started with advertising, which we could move quickly. And now we’ve been deploying dollars into the short-term royal reset to a lot of those equipment and technology upgrades. And increasingly, we’re shifting to these high-return remodels. And I think that was – I think it was the right sequencing and the right form of partnership. All of those things, we’re investing together alongside our franchisees, and we all achieved results and returns together.
So I think it was right structure, right sequencing, and I’m very happy with it. In terms of future investments, I referenced a little bit. I’ve said over and over again, I think it is absolutely critical that we have to get the BKU system to where nearly every Burger King in America is modern and convenient and we are totally open to investing alongside the franchisees further in that. We still have to work – we’ve got to work through that with our franchisees. Tom and team will be doing that over the coming months and talking to them about where the future takes us. And once we’ve got that all figured out, we’ll definitely come back and share more detail on those plans.
Operator: The next question comes from Andrew Strelzik of BMO Capital Markets. Please go ahead.
Andrew Strelzik: Hey. Good morning. Thanks for taking the question. Curious if you could share some color on the same-store sales gap that you’re seeing across the BK U.S. system between the better performing and lower performing units or however you think about bucketing that? Are you seeing that gap narrow? And in particular, curious what you’re seeing on the lower end of the system as you gain momentum across the initiatives you put in place as well as the closures?
Joshua Kobza: Yes, Andrew, we do see a gap, frankly, in all metrics between our sort of our higher-rated and lower-rated franchisees on the sort of ABDF scale. So everything, whether it’s same-store sales, same-store traffic, restaurant profitability, that’s been pretty constant over time. We haven’t seen kind of a big shift in those gaps amongst the cohorts. And I think it’s just reinforced for everybody in the system both for us and for the franchisees and the value of good operations. I think to Patrick’s point earlier, when you see it on the page, it becomes really compelling to realize that being an A operator means a whole different level of profitability than it is to be a lower-rated franchisee. So I’d say it all just reinforces where we’re going in terms of our focus on operations, and we’re pleased with that.
One of the things I would point out is we’ve seen our franchisees moving up sort of some of those rating scales. It feels like the message is working, people get it. And I’m very thankful that our franchisees are investing to improve their operations. I think they have a huge hand in the results that we’ve seen over the course of the past year.
Operator: The next question comes from Jon Tower of Citi. Your line is open.
Jon Tower: Great. Thanks for hanging in to take the questions. Just two unrelated quick ones, hopefully. First, on the China business, I know you have a couple of franchisees in that market, but I’m curious what sort of recourse you might have should either franchisee not live up to expectations with respect to hitting their unit growth or perhaps committing more capital to the brands? And then the second question, I know we talked a lot about the health of the franchisees and the consumer across some of the core markets, but specifically Tim Hortons Canada and BK U.S. Can you help us think about how the franchisees are thinking about pricing in 2024 relative to 2023 levels? Thank you.
Joshua Kobza: Hey, Jon. So in terms of China, it applies to all of our international businesses. We have master franchise agreements with our partners. And those tend to outline kind of the expectations – mutual expectations of the parties. So our preference is always just to work collaboratively with our partners anywhere in the world to build those businesses. But there are some – there are certain expectations that are set out in those agreements. In terms of Tims and BK profitability and pricing expectations, I would just say broadly that we – I would expect to see less pricing taken in 2024 versus 2023. I think you all have probably seen that across the restaurant space and in other spaces like grocery, for example.
I think some of that is a reflection of commodity prices that have started to stabilize a bit. So I think you’ll see a pretty decent step back in level of pricing across the industry, and I expect that will be the case for Burger King in the U.S. in Tims and Canada as well.
Operator: The next question comes from Jim Sanderson of Northcoast Research. Please go ahead.
James Sanderson: Hey. Thanks for the question. Just real quick, I wanted to go back to the U.S. performance for BK. You mentioned that performance improved across all income groups. Any insight on the sale mix for promotions, whether consumers are leaning in more frequently to deals that are offered in the quarter?
Joshua Kobza: Jim, it’s Josh. No, I haven’t seen anything particularly of note in terms of changes in behavior there.
Patrick Doyle: Employment drives consumption in the category. You’ve heard that from me often, but that is the answer. It’s really about employment levels. And as long as employment stays strong, I think the categories continue to be good.
Operator: We’ll now take our last question from Jake Bartlett of Truist Securities. Your line is open. Please go ahead.
Jake Bartlett: Great. Thanks for taking the question. Mine was about the focus on smaller franchisees in the U.S. I’m wondering if you could just frame that out into, for instance, how many total franchisees or average size in 2023 versus maybe 2022 and what you expect that to land on in 2024. And really with an eye on how that impacts G&A spend. In the past, I thought that consolidating the franchisee base was a source of efficiency for you. It seems like that’s unwinding. So I’m just wondering what the impact of that might be.
Joshua Kobza: Hey, Jake, thanks for the question. I would tell you, we have been focused on having more local operators in their communities. You’ve heard that expressed in different ways across each of our businesses. If you look at Tims in Canada or Firehouse in the U.S., we already have that. We have operators that have 1, 2, 3, 4 stores. I think that’s fantastic. And I think it reflects itself in the engagement of those operators with their communities and the operations of those restaurants. And so we have articulated that we want to move to something not – maybe not as small as that in Burger King and Popeyes. But we certainly do – we do want to have our operators living and operating in their communities. I would say it’s just so clear to us that, that has a big impact on the quality of the operations that we get.
And that can manifest itself in a lot of different ways. We have 50 or 100 store operators that live in their markets that do an incredible job. They’re A operators all day long, and that’s great. We’re super happy about that, and we’ll support those operators. But we’ve also had some of the situations that you’ve seen, particularly in Burger King in the U.S., where you have larger operators who have a couple of hundred stores, they’re spread out across some pretty geographically divergent areas. And that’s one of the common denominators that we’ve seen in some of these portfolios that have gotten in trouble. So we’ll probably try to steer away from some of those situations as we move forward. And where some of the portfolios change hands, we’ll seek to move to some of these smaller portfolios with local operators in those communities.
You’ve seen us do that in a few of these BK U.S. workout situations over the past year. And I think you’ll see us keep kind of nudging the systems in that direction over time. So that’s what I would expect. It really doesn’t have anything to do with views on G&A spend. It’s really about the quality of service that we’re able to provide and the success of our business in these local markets. I think that’s going to dwarf any differences in G&A structures, which I don’t really expect to see much of. So I would just tell you, it’s entirely focused on driving better operations in our restaurants. And that’s what we’re focused on.
Operator: Thank you. This concludes the Q&A session. So I’ll hand back to Josh Kobza, Chief Executive Officer, for any closing comments.
Joshua Kobza: Well, thank you so much, everybody, for taking the time to join us today and for the great questions, as always. We’re very thankful to our teams, our franchisees, our restaurant teams for all the great work that they did to produce the results that we were able to share today. We look forward to seeing a number of you on Thursday in New York and sharing some more outlook on the future there. Have a great day, and thanks for joining the call.
Operator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.
