Dive Brief:

• Burger King bought 32 units in Montana, Utah and Wyoming from its bankrupt franchisee Meridian Restaurants Unlimited in an auction that disposed of 70 of Meridian’s 91 remaining units, according to federal court records detailing the proceedings of Meridian’s Sept. 19 auction.
• Meridian filed a motion seeking court permission to close the remaining 21 restaurants, with a hearing set for the afternoon of Sept. 28.
• The other 38 units sold were to KRAF, Kansas King, Snake River Foods and Dakota Restaurant Partners, all of which are regional Burger King operators.

Dive Insight:

The auction of Meridian’s restaurants to regional operators dismantled one of Burger King’s largest franchisees. The move also reflects the geographical concentration strategy announced by Restaurant Brands International CEO Josh Kobza on the company’s Q1 2023 earnings call. This tactic calls for Burger King U.S. to shift the emphasis of its franchising system down to geographically coherent operating groups of 50 or fewer restaurants. 

RBI began pursuing that strategy after Meridian and Toms King, two large, geographically dispersed operators, filed for Chapter 11 bankruptcy protections early in 2023. Burger King U.S. had suffered from stagnant sales and weakness compared to competitors, which eroded store-level EBITDA and left operators overburdened with debt. Those problems have led Burger King to forecast that it may close up to 400 stores in the U.S. this year. To turn around its franchisee EBITDA, Burger King has been implementing a $400 million combination of remodels and boosted marketing spend called Reclaim the Flame. 

Burger King successfully moved to force Meridian to sell off its restaurants earlier this summer, though the operator at the time felt it had the cash on hand to continue operating its restaurants. Meridian closed more restaurants between this time and the auction, dropping its unit count from 96 to 91 at the time of the sale.

Burger King agreed to pay $4,727,000 for its 32 units and to support Kansas King’s efforts to buy restaurants with $1,508,948 in supplemental funding. Kansas King bought 16 units in Kansas and Nebraska for $700,000. KRAF bought 7 Arizona restaurants for $7,000,000. Snake River Foods bought 3 Montana locations for $632,250. Dakota Restaurant Partners purchased 12 stores across Minnesota, North Dakota and Montana for $3,404,000 bringing the total purchase price to about $17.9 million.

In 2022, Burger King’s franchisee store-level EBITDA was about $140,000, meaning that Burger King paid just north of one year of EBITDA per-store. Kansas King bid about $43,750 per store, but supplemental funding brings the price up to $138,059.25 per store, or about one year of four-wall EBITDA. Snake River Foods bid $210,750 for each unit, or about 18 months of store-level EBITDA. Dakota Restaurant Partners and KRAF both paid more per store, with DRP paying the equivalent, $283,666 per store, of two years of four-wall EBITDA, and KRAF offering $1,000,000 for each unit, equal to about 7 years of store-level profits.

Burger King was also a major buyer of Toms King restaurants during that franchisee’s bankruptcy auctions earlier this year.

RBI did not immediately respond to a request to clarify whether it intends to refranchise the 32 units purchased from Meridian.