RBI: A Menu for Success
By: Saanvi Kapoor
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
RBI: A Culinary Symphony
Restaurant Brands International (RBI) is a multinational corporation that holds “quick-service restaurants” (QSR) such as Tim Hortons, Burger King, Popeyes, and Firehouse Subs, operating approximately 30,000 restaurants in over 100 countries. Together, RBI’s portfolio has generated more than $40 Billion in annual sales.
RBI’s success lies in its commitment to growth, driven by leveraging each independent brand’s core values, franchisee relationships, menu diversification, and international scaling. For example, the company aims to grow to 40,000 restaurants by filling gaps in emerging markets such as Brazil and Indonesia. Furthermore, the holding company has substantially grown through M&A activity. Approximately two years ago, in December 2021, RBI set its sights on purchasing a large sandwich chain, leading to the acquisition of Firehouse Subs. This decision made sense for the Canadian company, whose priority is scaling businesses and tailoring it to new markets. RBI’s ability to help chains grow by expanding their reputation and developing strategic partnerships has allowed the holding company to succeed significantly.
Quick Bites in the Quick-Service Restaurant Industry
The QSR industry, more commonly known as fast food, is a part of the food industry that focuses on providing fast, accessible, and cheap food options to customers worldwide. The well-known QSR chains that currently exist in the market are McDonalds, Burger King, Subway, KFC, Tim Hortons, and Taco Bell. The global QSR industry is prominent in the food industry as it has a market size that was valued at approximately $7.9 billion in 2022 and is expected to reach $13.3 billion at a CAGR (Compound annual growth rate) of 8.9 percent. The expansion underscores the adaptability of QSR giants to meet the evolving preferences of a diverse global consumer base. It also signifies the continued shift in consumer behaviour towards quick and cost-effective food solutions.
QSRs are facing increasing competition in the food industry from more health-conscious food chains. While the media and health advocates have been exposing the negative side of the fast-food industry, healthier chains such as Chipotle capitalized on this trend, allowing them to realize significant profit and sales growth. More recently, there has been a change in consumer preferences and an uproar from younger, health-conscious demographics for the lack of nutritious food options available everywhere.
Younger generations are beginning to divert their focus and disposable income towards chains that focus on fresh and nutritious ingredients and prioritize transparency in their food sourcing. Statista reports that in 2022, between 19 and 27 percent of consumers born between 1997 and 2012 followed a diet of some sort. Calorie counting was the most common diet, but plant-based or vegetarian eating has grown in popularity since 2017. Additionally, 39 percent of Americans are now looking for healthier options when buying from available fast-food restaurants. For incumbents like RBI, this implies a pressing need to stay attuned to emerging trends and changing consumer expectations. Embracing innovation in menu offerings and updating their portfolio will be paramount for QSR chains to secure their positions in this competitive landscape and capitalize on the projected market expansion.
Menu Makeover: A Swing and a Miss
RBI’s portfolio companies have attempted to meet the recent consumer preference shift by organically entering the health-conscious food market through existing product offerings. Numerous campaigns have come and gone, such as when Tim Hortons’ Beyond Meat offerings were marketed across Canadian locations, but failed in under 6 months due to low demand and widely negative reception from the public. The implication for the limited success of healthy eating alternatives in the QSR industry may be rooted in brand perception challenges. Despite the growing demand for healthy options, RBI’s portfolio of established brand images does not align with the perceived attributes of these alternatives. For example, Tim Hortons has traditionally been associated with classic and indulgent offerings like coffee, doughnuts, and breakfast items. Introducing healthier alternatives might clash with the well-established identity of the brand, causing skepticism or disinterest among its customer base. Therefore, RBI needs to diversify its portfolio by acquiring a new restaurant chain in which healthiness is already a core part of its branding.
The inability of RBI’s portfolio brands to cater to customers looking for healthy eating options will result in missed opportunities. Failing to respond to the growing demand for healthy alternatives may create a vulnerability for RBI as competitors will attract existing customers who align with these food preferences.
Missing a Main Course
Despite RBI’s success, the holding company’s subsidiaries have not prevailed as leaders in any of their respective segments in the market. For instance, Burger King and Popeyes have barely entered the top ten ranking of most valuable QSR options, while McDonald's remains at the top. Meanwhile, Firehouse Subs hasn’t shown any indication of growth in Subway’s market share despite operating for over 30 years. This is evident as they only have 1,200 locations open in four countries, while Subway has approximately 37,000. This indicates a need for RBI to reassess and possibly rebrand its offerings to better compete with market leaders. It, also, necessitates significant investment in marketing, product development, and perhaps restructuring to gain competitive ground either through revamping the existing brands or by acquiring companies that can augment its current offerings. Overall, RBI must consider an expansion strategy that will allow it to compete in the healthy market.
The recent emergence of health-conscious demand could serve as an opportunity for RBI to address its lack of category dominance. As healthy QSRs become more desirable, one will emerge as a leader in the space. By acquiring the right healthy food chain, RBI can use its resources to propel it to a leadership position in the industry.
Case Study: Foodtastic Acquires Freshii
Just this year, Foodtastic, a Canadian holding company that primarily has a portfolio of fast-food and restaurant chains, such as Pita Pit, Milestones, and Shoeless Joes, acquired Freshii, a healthy food-conscious chain restaurant. This acquisition enabled Foodtastic to expand its presence in the health-conscious dining segment. Healthy food options such as grain bowls, superfood smoothies, and burritos complement Foodtastic's existing offerings, allowing the company to cater to a wider range of consumer preferences. Freshii's acquisition was a synergistic addition to Quesada, another recent acquisition at Foodtastic, indicating its aggressive growth strategy, which RBI could replicate.
Early Bird Gets the Green Worm
To address their stagnant growth and the recent changes in market preferences, RBI should take inspiration from Foodtastic by delving into the “fast-casual” dining space by acquiring a chain that focuses on healthy food options. Some options RBI can look into acquiring are Sweetgreen, Chopt Creative Salad Co., and Blaze Pizza. Based on RBI’s internal capabilities and acquisition criteria, one of the three options below can help address RBI’s key issues. This will allow RBI to enter a fast-casual, health-oriented dining category, diversifying its portfolio and reducing its dependence on traditional QSR brands. These brands focus on promoting healthy eating and their independence from existing brands creates opportunities for additional sources of revenue in an expanding market segment, without needing to rebrand current subsidiaries.
Sweetgreen
Sweetgreen (SG) is an American chain that serves healthy salads and bowls in 140 restaurants across the US, while directly working with 200 domestic farming partners. However, even after 17 years in the business and two years after its IPO, SG has never been profitable as leadership has lacked the corporate vision and backing of resources to scale efficiently.
An acquisition would allow RBI to finally diversify its portfolio and delve into the healthy food market industry which is rapidly growing at a CAGR of 6.6 percent from 2021-2028. SG serves as an attractive acquisition due to its technological capabilities, which RBI could integrate into its existing portfolio brands. For instance, SG’s use of machine learning and AI to personalize recommendations for customers can be implemented into RBI’s current franchises to optimize customer experiences. Additionally, SG uses this technology to anticipate demand to determine how much food to make at different times of the day. As consumers become more health and waste-conscious, utilizing this technology and extending it beyond SG can allow RBI to realize major gains across its entire portfolio. More recently, SG introduced Infinite Kitchens, which are “robot-operated” restaurant locations. Essentially, this is an automated vendor that requires less human labour and can create more bowls per hour than a regular QSR. Ultimately, SG has a variety of capabilities and R&D that RBI seeks to benefit from through this acquisition. RBI can use its infrastructure, supply chain, and franchise expertise to help SG further accelerate growth first in the U.S., and pending success, potentially internationally.
Chopt Creative Salad Co.
Chopt Creative Salad Co. is known for its focus on providing customizable salads made with fresh and high-quality ingredients in approximately 70 locations across the US. Chopt’s leadership has made significant investments in the digital experience of the fast-casual ordering process by opening digital-only stores in metropolitan regions to optimize sales volume and average price per order. The fast-casual dining chain is currently owned by an American food holding company, Founders Table Restaurant Group.
The acquisition would be a seamless opportunity for RBI to expand its market presence into the northeast DMV area of the U.S. Further, the Chopt founders would benefit from RBI’s experience and resources more than Founders Table Group because of RBI’s scale and history in M&A. This will provide shareholders with a higher potential for value for the transaction. In addition, RBI can use its resources to help Chopt grow as a leader in the salad segment in new regions like Canada. As such, Chopt’s current offering and standing, combined with RBI’s resources, can help RBI finally have a leader and be better positioned to attract new customers
Blaze Pizza
Blaze is a California-based fast-casual pizza chain with over 300 locations in 6 countries. The chain is popular for its “never-frozen, house-made dough” that cares “about what goes in your body and what goes into the earth.” They provide ingredients without artificial flavours and have a wide selection of vegan options available to customers, positioning themselves as a sought-after fast-food option for consumers born between 1997 and 2012 who may want to have healthier options for the food they usually love.
The acquisition of Blaze Pizza by Restaurant Brands International would be a strategic move, offering multiple benefits like alignment with consumer trends, sustainability leadership, market expansion and diversification, innovation, and brand rejuvenation. Blaze's emphasis on healthy ingredients is something RBI is missing, and acquiring Blaze will make RBI more appealing to the influential healthy eating consumer group. Blaze’s commitment to sourcing local ingredients and reducing carbon impact is something RBI can employ to enhance its brand image and appeal. Blaze Pizza operates on a franchise model, which aligns well with RBI's existing approach. This similarity in business structure means RBI is already equipped with the expertise and infrastructure to effectively manage and grow a franchise-based brand like Blaze and can help efficiently expand and manage Blaze's locations. This synergy could result in streamlined operations, cost efficiencies, and enhanced growth prospects for RBI in the future.
A Healthier Tomorrow
The acquisition of a fast-casual dining chain that diverges from its existing portfolio brands will allow RBI to be a part of the movement of making healthier food options more accessible and enable RBI to finally own a market leader amongst other global health-conscious fast-casual dining, such as Freshii and Chipotle.
