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Tim Horton’s is coming to China. It’s aboot time, eh?
Imagine, Canadian coffee on the streets of Beijing. Imagine 1,500 stores competing directly with Starbucks Corp. (NASDAQ:SBUX) and its planned 5,000 store network. Imagine Chinese going around wearing beanies and talking about hockey.
Yes, it’s a cute story, but what’s underneath is what fascinates me, not least because I’ve been invested in Tim Horton parent Restaurant Brands International Inc. (NYSE:QSR) since 2015. The company also owns Burger King and Popeye’s. It runs these brands as franchises with corporate partners, the model McDonalds Corp. (NYSE:MCD) has been moving toward.
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Since I got into the stock its value has risen 50%. It opens for trade July 19 at $63.78 per share, a market cap of $29.8 billion. The stock pays a nice little dividend of $1.80 per year, a yield of 2.9%, so I’m a happy shareholder.
Will I remain one?
A Zero-Based World
QSR was created by 3G Capital, the same Brazilian investment fund that put together Ambev S.A. (NYSE:ABEV), the dominant player in the beer industry, as well as The Kraft Heinz Co. (NYSE:KHC), the packaged food giant.
Warren Buffett of Berkshire Hathaway Inc. (NYSE:BRK.A) admires the 3G guys, and has defended them despite the problems at Kraft. That battle is a tough one for him, and them. The beer company hasn’t been lighting the world on fire, either. But no one is asking Buffett about QSR, because it’s doing great.
The 3G approach is based on “zero-based budgeting,” the idea that managers must justify each year’s spending off a clean sheet of paper. It’s hard work, but increasingly popular, because it creates a culture of cost management — a key to success in any commodity business.
The World Was Wide Enough
The Tim Horton’s deal turns out to be even more interesting than it appears at first glance, once you dig into it.
First, you have Brazilian-inspired managers running an iconic Canadian brand, along with two important American brands, on a franchised model.
The franchisee side is the key to this latest deal. QSR has been working closely with Turkey’s Kurdoglu family, along with private equity. In 2012 they made the Kurdoglus the master franchisee for Burger King in China.
Guess who’s going to run the Chinese Tim Horton’s outlets? The Kurdoglus.
Before the Kurdoglus entered the picture, reporters were calling Burger King in China a bust. Now, working with the private equity Cartesian Group, the Kurdoglus have over 900 Burger Kings in China.