Restaurant Brands International (RBI), the owner of Burger King and Tim Hortons announced it will buy fried chicken chain Popeyes Louisiana Kitchen for $1.8 billion, or $79 a share, or a roughly 22 percent premium over the stock price before the news broke. The additional bulk may help the company compete with other fast food giants, but it's unclear whether the benefits will roll down the line to franchise owners. The deal will create the third-largest fast food company behind McDonald's and Yum! Brands.
Fast food franchises have been working to focus their businesses, regain revenue, and improve the future. McDonald's and Yum pulled back from China. Chains have also faced regulatory challenges on the labor front, although those may fall away under the Trump administration.
In general, fast food operations have decided they needed to super-size themselves. Larger with more franchisees has meant more money for the central company for marketing and brand building as well as expansion.
Over the last four reported quarters (numbers aren't available for the final quarter of FY 2016), Popeyes saw $266.9 million in sales. RBI recently reported 2016 revenue of $4.145 billion. That puts the two entities together in the $4.4 billion range. That compares to $6.7 billion for Yum and $24.6 billion for McDonald's. To compete at a more compatible scale, RBI will need either to expand rapidly, look for other compatible chains to acquire, or both.
What this means for franchise owners is unclear. Popeyes will continue to be managed independently, suggesting that no one should be looking immediately for someplace to get a burger with a side of chicken or doughnut. Franchise owners shouldn't expect combined brand opportunities right now, although that could change. Yum has done extensive work combining some of its brands -- Taco Bell, KFC, Pizza Hut, and WingStreet -- in single locations.
It also seems unlikely that franchisees can look forward to lower royalties, advertising contributions, or other fees. RBI won't make more money by asking for less. However, economies of scale for the central company might include the ability to drive down advertising purchases, allowing greater reach for the same dollars.
In addition, the company may start pushing all its brands more strongly cross-market. That might mean greater presence of Burger King and Popeyes in Canada, more Tim Hortons in the U.S., and added locations of all three in other parts of the world.