After suffering a disappointing 2022, Burger King wasn’t about to let it happen again.

That year, the burger chain’s restaurants had about $140,000 in store-level profits, down compared to 2019 and previous years even though profitability rose 40% during Q4 2022. But Burger King recovered from this slump in 2023 after investing millions of dollars in marketing, redesigns and refreshes.

Average franchise profitability at Burger King U.S. rose nearly 50% to $205,000 last year compared to 2022, according to the chain’s earnings report released on Tuesday. This average exceeded parent company Restaurant Brand International’s initial expectations under its Fuel the Flame initiative, which targeted franchisee profits of $175,000 in 2024, executive chairman Patrick Doyle told analysts on Tuesday. 

Burger King U.S. also saw traffic growth in the low single-digits in the fourth quarter, as well as significant operational improvements and comparable sales of 6.4%, Restaurant Brands International CEO Joshua Kobza said Tuesday.

Burger King U.S. reported a decline in net restaurants of 3.7% in 2023 due to an elevated number of closures. This contraction was part of RBI’s efforts to strengthen the overall system and address underlying issues with franchisees overextending themselves during the past few years, Kobza said. 

Three Burger King franchisees went bankrupt last year, which led to several closures, and Burger King also bought out many of these locations. RBI’s Burger King segment, which includes the U.S. and Canada, had 7,144 units open at the end of 2023 compared to 7,389, according to the earnings report. 

“We expect most of these closures are behind us and expect a more normalized level of closure activity in 2024,” Kobza said. 

Burger King also reported significant success in various initiatives that helped bolster the guest experience. Its Royal Crispy Wraps and Halvsies, an offering of half onion rings and fries, highlighted its “Have it Your Way” brand positioning, Kobza said. 

Burger King also leaned into various Whopper-related campaigns, including the Whopper Jingle and Ways to Whopper last year. Last week, it launched its Million Dollar Whopper Contest, calling on guests to design its next Whopper. Loyalty rewards members can pick out up to eight ingredients for their burger creations. Burger King’s generative AI tech then builds the burger that customers can share across social media. So far, members have created more than a half million new Whoppers, Kobza said. 

“This campaign is one of the many ways we will accelerate digital adoption to address our guest frequency,” Kobza said, adding that digital sales were up 40% year over year — leading to a digital sales mix of 15%.

During Q4, the company spent $40 million, including $37 million for marketing, of its $150 million Fuel the Flame advertising and digital investments. The chain has $58 million left to spend on marketing this year, Kobza said. 

RBI expects that operators’ marketing contributions will increase from 4% to 4.5% in 2025 as franchisee profitability grows. If average franchisee profitability reaches $230,000 by the end of 2026, this elevated fund contribution will remain in place as of 2028, Kobza said. 

The impact of remodels, refreshes

Perhaps the biggest contribution to Burger King franchisee profitability is the company’s Refresh program, which involves updating existing restaurants with new equipment. 

The company plans to shift roughly $50 million from its $200 million investment for remodels to its short-term Refresh initiative. It will instead spend $100 million on refreshes – which involve adding new technologies to a store — and $150 million on remodels — which are a complete overhaul of a restaurant . Refreshes will support assets to improve the drive-thru and digital experience, and are expected to impact over 6,000 restaurants, Kobza said. 

“We have seen an overwhelming positive response to our Refresh program for franchisees,” Kobza said. “We’re seeing the results show up in their sales and operating metrics. 

Burger King’s remodel program is also having a positive impact on the system, with average sales up 20% at about 50 remodeled units that have been open for over six months, he said. 

Last year, the chain completed 264 remodels and exited the year with 46% of its restaurants with a modern image. 

This year, Burger King plans to complete 400 remodels, with 80% committed to a full remodel or scrape and rebuilds. The company expects to have its Sizzle format, which incorporates elements like kiosks and double drive-thrus, in as many of these restaurants as possible to improve the digital guest experience, he said. 

Burger King also made a big move earlier this year to accelerate its modern imaging efforts with its $1 billion acquisition of Carrols Restaurant Group. RBI will use about $500 million from Carrols operating cash flow to fund remodels. 

Without this acquisition, the funding would have been taken out of Burger King’s remodel program for the first couple of years. Instead, that capital is being freed up to accelerate restaurant updates, Kobza said. Previously, he said they expected to get 65% of the system to a modern image, but Burger King now expects to reach 75% during the first few years of its Reclaim the Flame program, he said. 

Burger King will refranchise a bulk of Carrols’ 1,022 restaurants to smaller local operators, which Kobza said tend to have better finances. Operators with less than 50 units have 51% of their restaurants modernized and have an average profitability of $15,000 more per store compared to franchises with over 50 restaurants, Kobza said, adding that these smaller operators also tend to be better capitalized. 

Given its marketing and restaurant image investments, profitability will likely improve in the near future, which will spur more franchisee interest. 

“Franchisees are excited to invest in their restaurants. Great operators, not yet franchisees, are excited to work hard for the potential opportunity to become a franchisee one day and deliver over and above guest experiences,” Doyle said. “And guests receive the consistent great experiences they deserve every time they visit or order from one of our restaurants.”