Tim Horton’s parent company inks two deals to bolster presence in China

Restaurant Brands International says it’s spending up to $45 million on two deals intended to boost its presence in China and spur growth in what the company sees as a promising market.

The parent company behind Tim Hortons, Burger King, Popeyes Louisiana Kitchen and Firehouse Subs says the first deal will see it acquire Popeyes China from Tims China, which operates Tim Horton’s franchises in the country.

RBI values the purchase at $15 million, noting Popeyes China has opened 14 restaurants in Shanghai since initially launching in August 2023.

The Toronto-based company says it plans to work with local partners and establish a “master franchisee” model for Popeyes similar to what is in place in other countries.

RBI also says it plans to partner with Cartesian Capital to invest up to $50 million in Tims China via three-year convertible notes, of which it will receive up to $30 million.

The moves come months after the company announced it would need to ramp up spending in China to propel further growth, and executives are striking an optimistic tone about the potential for expansion in the country.

“China is one of the most compelling long-term market opportunities for both our Popeyes and Tim Hortons brands. Popeyes China is off to a strong start and we are excited to unlock its development potential,” Asia Pacific President Rafael Odorizzi said in a statement. “… Today’s announcement allows Tims China to redouble its focus on quality restaurant development and providing Chinese consumers with our high quality Tims coffee and food offerings.”

The investment in Tims China will grant RBI the right to appoint two directors to the Board and will see its equity ownership in the business increase to up to 18%, the company said.

RBI was sounding a cautionary note about expansion in China just five months ago, when it used the release of its fourth-quarter financial results to soften its outlook for the region.

RBI had once expected net restaurant growth — a metric that takes into account locations both opening and closing — to climb by at least five per cent between 2023 and 2024.

“A key factor to delivering this level of growth was our expectation that our development in China would accelerate in 2024 off of 2023 levels,” RBI chief executive Joshua Kobza told analysts in February.

“We now believe that outlook is less certain and have updated our outlook to reflect a lower level of net unit additions in China this year.”

The company said at the time it expects its consolidated global net restaurant growth in the mid-four per cent range this year before accelerating in 2025.

The prediction came amid a drop in consumer spending in China, which has seen an economic slowdown in recent years. Disruptions and job losses during the COVID-19 pandemic, coupled with falling prices for homes — a staple form of investment for most Chinese families — have left many Chinese unwilling or unable to spend, sapping the economy of another major driver of business activity.

But RBI remained bullish about its prospects in the Chinese market.

“We have a strong belief in China as an attractive growth market for our brands,” Kobza said on the earnings call.

“Given the incredible geographic scope and population of the market, success there requires a serious long-term capital commitment from our partners, a long-term time horizon and a commitment to grow the brand in the face of tough competition.”

This report by The Canadian Press was first published July 1, 2024.

Companies in this story: (TSX:QSR)

— With files from Tara Deschamps and The Associated Press.

The Canadian Press