CA - Restaurant Brands: Well Positioned To Stand Out In The 'Value War'

2024-06-20 11:11:19 ET

Summary

• Understand how major industry players are positioned for the "Value War".
• Restaurant Brands International is well positioned in the promotional environment with attractive offers and value-oriented marketing, anticipating competitors and showing adaptability.
• The company's expansion project aims for credible growth rates and lean unit strategies, prioritizing international growth and operational robustness.
• Valuation models indicate an upside potential of approximately 22-30%, suggesting undervaluation and a buying opportunity.

Industry scenario and how the company is positioned

It would be highly unwise to begin unraveling Restaurant Brands International (QSR) and my investment thesis in the company without first introducing the environment in which the restaurant industry and especially the QSR sector is going through.

In the first quarter of 2024, the industry seemed to understand the real reason behind the decrease in restaurant traffic. While many still blamed the weather in January, as time passed, they came to a common conclusion. The reduction in traffic was intrinsically linked to the decrease in visits from guests with lower incomes . And that was to be expected. In the last decade, restaurants (and in particular QSRs) have increased their prices by an average of 60% in the last ten years. This is almost double the American inflation recorded in the period!

McDonald's ( MCD ), according to FinanceBuzz research, raised its prices more than three times inflation during this period. According to this same survey, restaurants that are part of the RBI (such as Burger King and Popeyes) showed varying increases, with Burger King showing a 55% increase (about 24% above inflation) and Popeyes increasing 86% (approximately 55 % above inflation)....

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