Restaurant Brands International Inc (QSR) 2019 Q4 法說會逐字稿

Good morning and welcome to the Restaurant Brands International Fourth Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Chris Brigleb, RBI's Head of Investor Relations.

Mr. Brigleb, please go ahead.

Thank you, operator.

Good morning, everyone, and welcome to Restaurant Brands International's earnings call for the fourth quarter and full year ended December 31, 2019.

As a reminder, a live broadcast of this call may be accessed through the Investor Relations web page at investor.rbi.com, and a recording will be available for replay.

Joining me on the call today are Restaurant Brands International's CEO, José Cil; COO, Josh Kobza; and CFO, Matt Dunnigan.

Today's earnings call contains forward-looking statements, which are subject to various risks set forth in the press release issued this morning and in our SEC filings.

In addition, this earnings call includes non-GAAP financial measures.

Reconciliations of non-GAAP financial measures are included in the press release available on our website.

Let's quickly review the agenda for today's call.

José will start with some opening remarks and highlights for the fourth quarter and then discuss our performance at Tim Hortons, Burger King and Popeyes.

Josh will then provide an update on technology at RBI, both as a review of what we've accomplished thus far and a frame for key areas of focus moving forward.

To conclude, Matt will review our financial results before opening the call up for Q&A.

I'd now like to turn the call over to José.

Thanks, Chris, and good morning, everyone.

Thank you for joining us on today's call.

I'll begin my remarks today with a summary of our performance in 2019, which reflected the underlying strength of our global business and the power of our growth algorithm.

I'll then share my views on the key drivers of our performance last year as well as our specific plans and priorities for 2020.

On a consolidated basis, we delivered strong results in 2019.

Our system-wide sales grew over 8% to $34 billion for the full year and nearly 10% to approximately $9 billion in the fourth quarter.

Our 8% system-wide sales growth in 2019 included 5% unit growth to over 27,000 restaurants worldwide, combined with over 3% consolidated global comparable sales growth.

Our unit growth this year represents a solid continuation of growth relative to the goal we shared with you at our Investor Day in May of reaching 40,000 restaurants in 8 to 10 years as we grew our global unit count by over 5% for the third year in a row.

The consolidated system-wide sales growth of over 8% that we delivered in 2019 was driven primarily by Burger King, where system-wide sales increased over 9%; and Popeyes, where system-wide sales grew over 18%.

At Tim Hortons, system-wide sales dropped slightly in 2019 as our performance in Canada came in below our expectations.

Despite our challenges at Tims, we were able to achieve system-wide sales growth in the high single digits on a consolidated basis, reflecting an important advantage of our scale and diversified model.

Within our 8% consolidated system-wide sales growth, we generated consolidated comparable sales growth of over 3%, which reflected a very healthy contribution from Burger King, where comparable sales grew approximately 3.5%; and an especially strong contribution from Popeyes, where comparable sales grew over 12% for the full year.

At Popeyes, comparable sales growth accelerated to over 34% in the fourth quarter driven by the relaunch of the Chicken Sandwich in November, which led to nearly 38% growth in the U.S. This has been a very exciting time for the Popeyes team, and in fact, has been an exciting time for all of us who've spent a long time in QSR and have never seen the kind of guest response for a single product launch like the one we had for our Popeyes Chicken Sandwich.

At Tims, comparable sales of negative 1.5%, again, primarily reflected weak top line performance in Canada and represented a drag on our otherwise healthy consolidated growth rate.

Comparable sales at Tims included a meaningful deceleration in the fourth quarter to negative 4.3% globally and negative 4.6% in Canada.

On top of our consolidated comparable sales growth, in 2019, we delivered over 5% growth in net units across our brands.

At Burger King, we expanded our network by nearly 6%; while at Popeyes, we delivered unit growth of nearly 7%.

At Tims, unit growth was approximately 2%.

And for both Popeyes and Tims, our unit growth in 2019 reflected the very early stages of several recent and significant international development deals in key Asian markets.

Turning to franchisee profitability.

We saw a slight year-over-year drop at Burger King in the U.S. due to cyclically high commodity prices, but unit economics remained at a very healthy level as we closed out the year.

This is true especially for our new developments, which have sales averaging over 60% higher than those at the legacy restaurants and the closure program that we discussed at our Investor Day.

At Popeyes, franchisee profitability increased substantially on top of an already strong baseline, boosted by the incredibly strong launch of our Chicken Sandwich.

And finally, at Tims, lower sales combined with some pressure from labor costs in parts of Canada resulted in lower franchisee profitability year-over-year.

However, franchisee profitability remains very healthy at Tims in Canada, and the related unit economics are still some of the very best in the industry.

I'm going to start my brand commentary with Tim Hortons this morning.

Our approach to product innovation and promotions over the last couple of years has led us to disappointing results for the quarter and the year.

There is clearly a sizable gap between what this brand is capable of and the performance we've delivered.

And I'm going to spend some time this morning, sharing what we are doing now to return the business to the growth track it should be on given the strength of the assets we have.

Our year-on-year decline in comparable sales of negative 4.6% in Canada was primarily driven by the investments in our Rewards program we're making to attract millions of Canadians to join and participate in our Tims loyalty program, which contributed approximately negative 3% to our reported comparable sales figure.

Our pursuit of a best-in-class loyalty program is focused on increasing the already exceptionally high level of engagement, deep relationship and personalized connectivity with our guests.

Given Tims' existing dominant market leadership positioning in brewed coffee, we believe this powerful marketing tool has the ability to not only help us defend, but continue to grow market share over time.

We're building a platform that understands what our guests want and engages and rewards our guests for their loyalty with exciting offers and great value for money.

We think this platform will help us deliver continued long-term growth for the brand by driving incremental traffic and increase check average in our restaurants.

Our loyalty journey involves 2 important phases.

Our first phase has seen us attract more than 7.5 million active loyalty members.

And for the last 10 months, they've been receiving a simple and compelling offer that provides a free coffee or baked good after 7 visits to a restaurant.

As we have previously noted, we've attracted far more guests to our loyalty program far more quickly than we had planned, and we currently have about 25% of these guests who have registered and shared their contact information with us.

Our second phase of loyalty will encourage much higher levels of registration by making most of the menu accessible for redemptions and adding exciting, tailored offers based on your purchase history.

We're shifting from a visits program to a points program, where each purchase occasion earns you points that you can redeem for most of our menu items.

Our central priority in the second phase is to drive digital registration and unlock powerful tools like sales intelligence and one-to-one marketing that we'll use to develop stronger relationships with our guests and drive incremental sales over time.

Our extensive research with guests indicates that a large majority of our guests will register over time to take advantage of our great offers and fuller many of our rewards.

This will, in turn, allow us to evolve the program into an engine that delivers incremental value to guests while generating incremental sales for the system.

Guests who choose not to register will shift from a free reward after 7 visits to a free reward after 12 visits.

The timing of the shift to this second phase is now.

Last Friday, we initiated a major shift in our marketing around the program, designed to communicate simple ways to register via mobile or on the web and also highlight the extra benefits available when you register.

We expect that loyalty will continue to be a drag on sales for the coming several quarters as we convert loyalty guests to registered loyalty guests and start deploying incremental offers at scale.

We'll be delivering a more personalized experience to our guests that should bring more benefits and generate incremental sales in the latter part of 2020 and beyond.

In addition to the impact of loyalty, our comparable sales in Q4 also reflected softness in lunch food, which contributed approximately negative 1% to our reported comparable sales figure.

Our weakness in this area is attributable primarily to the sandwich and wrap category, where our offerings this year did not match strong sales from our crispy chicken wrap in 2018.

Over the past several months, I've made Tim Hortons in Canada my top priority and have examined our performance and processes in detail.

The team has spent months dissecting every part of the business, conducting extensive new research, spending considerable time with our restaurant owners, identifying the underlying causes of our weak performance and zeroing in on the large areas of opportunity to drive sustained long-term improvements in the business.

After several months of hard work, our team has emerged with a clear view of what we need to do to accelerate growth and profitability for our owners and for the brand.

It's useful to start by acknowledging what made Tim Hortons the dominant brand and market leader in Canada.

Tim Hortons had 5 informal founding values that we have spent quite a bit of time thinking about.

Each value has been key to our success in Canada over decades and remains relevant today, albeit in a refreshed and modernized way.

When Tims was founded back in 1964, these values embodied the ethos of a brand that would grow over decades to become one of Canada's most loved.

First, Tims has always been obsessed with freshness and quality; second, we made things simple for everyone; third, we offered great value for money; fourth, we believed personal relationships matter; and fifth, we've always given back to the communities where our owners live and work.

In our review of our tactics going back several years, it's clear we strayed from these core values, and we must now adjust our strategy to reconnect with them.

With that as a backdrop, I'd like to now summarize our plans for 2020.

It starts with reorienting and reinforcing our team under Axel Schwan, who many of you have not had a chance to meet yet, but has tremendous experience having served as global CMO of Burger King and more recently, as global CMO of Tims, where he's led the development of our fresh brewers, Welcome 2020 and the innovation café.

Axel and I have been working shoulder to shoulder, focused on building an experienced team of Canadians that have deep expertise in the most critical areas of the restaurant business in Canada and North America.

We've announced a number of meaningful changes, including recently the appointment of a Canadian industry veteran as Chief Sales and Marketing Officer, in addition to well-established Canadian experts to lead our development, restaurant technology and communications efforts.

I've been working hard with the full team to put together a road map for 2020.

Our plan reflects a return to Tims founding values and is designed to reinforce the core product categories that have made us famous over the years.

There's no catchy name to the plan, reflecting our mentality to simplify the business as we return to being the best at our basics and embracing our heritage, all while infusing some more modern features.

As we move forward, we focused our efforts around 3 key principles: first, elevating the quality of our core categories; second, innovating for growth from our core categories; and third, continuing to invest in modernizing the brand.

Within this framework, we've identified initiatives to support each of our principles, some of which we've already seen progress against during the first quarter of 2020.

Let's go through each one by one.

Elevating core quality is about reinforcing the most fundamental elements of our menu and raising the standard for products that bring millions of guests into Tim Hortons every day.

Coffee sits at the very heart of Tims' identity and is one of the most important contributors to sales.

Breakfast food is another huge part of our business and has been one of our strongest growing categories for the past 5 years.

While we already have a market-leading position in both areas, we plan to build on this leadership by committing ourselves to serving the absolute best products in Canada.

In coffee, Tims has an incredibly rich history as Canada's local coffee shop, and our cup is unambiguously the category benchmark.

On the supply side, we truly have some of the best sourcing, blending and roasting capabilities in the world.

We source 100% premium Arabica beans, which adhere to strict standards for grade and taste and have a long-standing in-house team of coffee experts that carefully monitors our roasting and grinding to ensure we meet the highest standard of quality.

While we've meaningfully differentiated ourselves in this respect, we've continued to use decades-old brewing technology while the industry has evolved in ways that both enhance consumer taste and improve efficiency in restaurants.

We're addressing this opportunity head on with the rollout of fresh brewers and water filtration systems at every store across Canada, which we began towards the end of 2019 but is accelerating in 2020.

Compared with a coffee prepared in our traditional glass pots, our guests have told us that the quality of coffee from our fresh brewers is significantly better and more consistent on multiple dimensions.

The fresh brewer system is already in place at over 2,000 restaurants, and we expect to complete the accelerated rollout in the first half of this year.

In parallel, we'll be on air across Canada with TV, digital and other marketing that highlights our leadership in coffee quality in a way that the Canadian public hasn't seen or heard for many years.

Taking coffee prep a step further, we also need to respond to changes in consumers' taste preferences over time.

Based on our research, a substantial percentage of Canadian consumers prefer skimmed milk with their coffee and a growing percentage, particularly among younger guests, prefer nondairy alternatives like almond milk.

Up to this point, we have not offered these options to our guests and have lagged behind competitors.

We're working quickly to address this and are launching these alternative dairy options into the market this spring.

These adjustments may seem basic, but that's the point, being the absolute best at the basics that we're already famous for.

You've already seen progress around several initiatives to bolster our brewed coffee platform, including last year's packaging update, and you'll see considerably more progress as we move through 2020.

Improving our brewing technology in-store, enhancing options to customize and putting coffee front and center in our brand messaging are among our most important near-term areas of focus, and there's more to come.

Let's talk about breakfast, which has been a core strength for us for many years.

While our research has demonstrated our unequivocal leadership in sweet foods, it has also pointed to an opportunity to improve our savory offerings, and we're moving quickly to execute against it.

In core offerings like our bacon breakfast sandwich, for example, we're working to enhance the taste, texture and overall quality of our bacon, which as the headline ingredient, must be outstanding.

Similarly, we're moving to significantly improve the bread carriers for our breakfast sandwiches, which our testing has indicated represents a key opportunity to make our savory breakfast food more satisfying and craveable.

The second pillar of our plan is innovating for growth in our core categories.

As I mentioned earlier, it's clear to us that our recent approach to innovation has lacked the focus necessary to resonate with guests.

In 2019, we launched nearly 60 LTOs, 3x our level from 2017, which added complexity to our restaurants, cluttered our menu and diluted our marketing communications.

Some new products over the last 2 years strayed too far from our core categories that we've always been famous for.

Going forward, new launches will be more targeted and will build on our core categories.

Our recently launched Dream Donuts line is a great example of the type of innovation you will see more of.

We first tested this new line of elevated premium donuts at our innovation café in Toronto, where it generated strong and sustained sales at a premium price point of $1.99.

After its success at the innovation café, the line gained momentum in market tests, and from an operational perspective, fit seamlessly into our core baked goods assortment.

We launched 3 Dream Donuts flavors nationally in January, and so far, results have been encouraging.

And you will continue to see us drive innovation for growth from our other core categories.

For example, alongside our work on brewed coffee, we have an opportunity to enhance our cold beverage category through improvements to our iced coffee offering.

In recent years, iced coffee has emerged as an increasingly important core growth category, and we believe we're well positioned to build on top of our already meaningful base.

We've developed a new prep method that results in a much more flavorful brew, which will be rolled out in coming months.

We will support the rollout with a marketing campaign that showcases our leadership in quality and believe this platform will be an important source of incremental growth.

The third pillar of our 2020 plan is to continue our investments to modernize the brand.

We've spoken recently about our growing digital capabilities at RBI, which Josh will discuss later.

At Tims, we're moving this year to integrate technology into our most important touch points with guests.

Consider the drive-through.

In the past 5 years, growth in the drive-through has outpaced growth at the front counter.

And today, we generate more than half of our total sales in Canada from drive-through.

We believe we're uniquely well positioned to capitalize on growth in this channel, given our network of over 2,600 drive-through locations across Canada.

Further, our research has identified speed and reliability at the drive-through as being especially important to our convenience-oriented guests.

Despite the increasing importance of the drive-through, however, our drive-through experience hasn't seen a meaningful update in decades.

In 2020, we're moving forward with an important initiative to modernize our drive-through experience by deploying outdoor digital menu boards to the majority of our drive-through locations.

Our current paper-based menu boards cost millions of dollars each year to print and update and they require manual changes by team members multiple times per day.

Switching to digital menu boards in the drive-through will free up time for team members to focus on serving guests while ensuring that the proper information is always on display.

These outdoor digital menu boards will also allow us to tailor offerings depending on location, time of day, weather and more.

We'll be able to offer complementary products and combos to guests based on the items they've selected, and at a future stage, we believe personalized offers will provide another important layer of growth.

We've already installed outdoor digital menu boards in several hundred stores.

And consistent with prior funding structures, the Tim Hortons Canada ad fund will invest over CAD 100 million to complete the installation across most drive-through locations over the next 12 to 18 months.

Where we've installed the outdoor digital menu boards already, we've started to see some benefits to sales, even before considering the potential future benefits of the future tailored offerings.

We've also seen a positive impact to speed of service, and we know throughput is very important for sales given the heavy ticket volumes of our business.

On top of this investment to update our drive-through experience, we'll also continue to invest alongside our owners to modernize our restaurant network through reimages.

In recent years, we've contributed to several hundred renovations per year at locations where we own or sublease the real estate.

We expect to continue investing at a similarly healthy pace in 2020.

We've shared in the past our belief that cultivating digital relationships with guests will be a critical differentiator going forward.

And all my initial comments on shifting into the second phase of our Tims Rewards loyalty program will sit at the center of our strategy to advance into this new age of digital engagement and personalized interaction with our guests across Canada.

Following the rollout of our new Tims Rewards program, we'll also be updating our iconic Roll Up the Rim program when it returns in the coming weeks.

This year's program will tie into our focus on digital and will be another valuable tool to help drive digital adoption and guest registration in the Tims Rewards program.

We'll be announcing more details around the program soon.

In Canada, Tim Hortons continues to have one of the strongest market positions in all of QSR globally and some of the industry's best unit economics, but we cannot be complacent.

We have not performed to expectations and have not properly put the strength of the Tim Hortons brand to work.

Despite our recent results, we have a clear plan and believe it's within our control to restore Tim Hortons to growth in Canada.

To do so, we will embody the brand's founding values and execute on each of our principles around elevating core quality, innovating for growth and modernizing the brand.

Over the past 2 weeks, I've traveled to 7 cities across Canada with the entire Tim Hortons leadership team.

We've met with more than 1,000 restaurant owners and have participated in more than 12 hours of collaborative and engaged, open format dialogue and Q&A.

In each session, we've talked at length about their profitability, our priorities for 2020 and our mutual commitment to providing guests with a great experience every time they visit Tim Hortons.

I also shared my commitment to work closely with our team and community of owners in Canada as we execute against our plan.

I'm glad that coming out of these town hall meetings, we all shared a sense of urgency and have rallied behind the plan to refocus on what made Tims famous.

I'd like to turn now to Burger King, where our global business generated strong results in 2019.

But before I do, I wanted to quickly comment on the unfolding situation in China.

Our immediate focus is the health and wellbeing of our partners and guests in cooperating with local and government officials working to contain the coronavirus.

For reference, in 2019, Burger King China accounted for approximately 2% of our consolidated system-wide sales.

While it's too early to say how long the impact on our business there will last, we're monitoring the situation very closely.

Now back to our results at Burger King.

In 2019, system-wide sales grew over 9% to nearly $23 billion, including comparable sales growth of over 3% and net restaurant growth of just under 6%.

Our results for the full year included another very strong contribution from our international business, where system-wide sales expanded over 15%, increasing over $1 billion year-over-year.

Within that figure, international unit growth reached almost 10% and propelled global unit growth to over 1,000 net new restaurants for the third consecutive year.

In addition, international comparable sales continued to grow at a strong pace of nearly 5%.

This growth was broad-based, but system-wide sales growth was especially strong in markets like France, Spain, Korea, China, Brazil and Mexico.

As we outlined during our Investor Day, we believe we have a great deal of runway for Burger King around the globe, especially internationally.

In fact, we've seen that as our presence grows in different regions, our brand awareness and convenience increase as well, powering this virtuous growth cycle.

With system-wide sales of nearly $13 billion, up from $8 billion 5 years ago, our international business now represents a majority of Burger King global sales.

And with double-digit growth in each of the last 3 years across regions, we expect Burger King's international operations will continue to be a powerful engine of growth going forward.

In the fourth quarter, specifically, international system-wide sales at Burger King expanded almost 15%, with strong growth across several markets in Asia fueled by comparable sales growth, increased penetration in digital channels and substantial unit growth.

In Europe, our partners in Spain and France also delivered double-digit systemwide sales growth driven by healthy net unit additions and comparable sales performance.

I highlight these large and fast-growing markets, but again, our growth for the full year and in the fourth quarter was broad-based across regions.

In the U.S., we continued to see healthy momentum in our core offerings and strong performance from the Impossible Whopper during 2019.

Our comparable sales increased 1.7% for the full year, and we saw solid growth across our menu.

Digital sales also continued to increase at a healthy pace.

We now have over 4,200 stores in the U.S. with delivery integrated directly into the POS, and of these, the majority offer delivery via multiple aggregators.

As I mentioned, the Impossible Whopper was a big highlight of 2019 and continue to be an important sales driver in Q4, generating healthy levels of incrementality at a premium price point.

Given the sustained performance of the Impossible Whopper, we're confident that plant-based food represents a new platform for the brand and one that we can build into new occasions, day parts, products and proteins.

We know that the premium price point has limited some guests from trying the Impossible Whopper, so in January, we added the Impossible Whopper to our core 2 for $6 promotion.

The product clearly resonates with our guests, and we plan to invest behind our leadership in the fast-growing plant-based segment.

While we did see a deceleration in comparable sales growth in the U.S. from the third into the fourth quarter, our core business continues to perform well and absolute sales levels remain very healthy.

In the fourth quarter, we didn't run as many price-oriented promotions as compared to last year, like dollar nuggets, and consequently, saw softer year-over-year growth.

In the first quarter of 2020, we're running several compelling offers, including our 5 for $4 deal and our 2 for $6 deal with the Impossible Whopper that we believe will bolster our value layer.

Turning to development.

Our global net unit growth for Burger King was approximately 6%, which was driven primarily by our international operations, where we grew by nearly 10% and expanded our system by more than 1,000 restaurants to nearly 11,500.

In 2020, we will continue working closely with our great network of partners in markets like Spain, Russia, Korea, Brazil, China and India to build our pipeline and open new restaurants.

It's worth noting that our net restaurant growth of 1,042 stores for the year also reflected the impact of our U.S. closures program we discussed at Investor Day, which included about 200 plant closures in 2019, with a similar number expected in 2020.

You may recall that we're targeting underperforming restaurants with average sales of about $850,000 for closure and replacing them with brand-new Burger King of Tomorrow restaurants, which have averaged over $1.4 million in sales.

While it's brought an uplift in sales, the program is also an important part of the evolution towards Burger King's new image.

On that front, in 2019, we delivered more than 800 restaurants in the Burger King of Tomorrow image, slightly ahead of the target we shared at Investor Day.

In short, 2019 was another strong year for Burger King, distinguished by the continued performance of our large and rapidly growing international business, along with strong core sales and the launch of a brand-new product platform at home in the U.S., which has brought many new guests with attractive demographics into our restaurants across the country.

Now let's turn to Popeyes, where, in our view, 2019 was the pivotal year for the brand.

Globally, system-wide sales grew over 18% for the full year and a remarkable 42% in the fourth quarter.

As you might expect, a good deal of this growth was driven by the launch of the Chicken Sandwich, which surely ranks among the greatest product launches in the history of QSR.

In the U.S., comparable sales grew 13% in 2019 and nearly 38% in the fourth quarter, largely driven by the relaunch of our Chicken Sandwich on November 3.

As we've shared in the past, the Chicken Sandwich has been a great way to introduce many new guests to the brand, and our research shows that Popeyes often shoots to the top of the list in preference once a guest has tried our products.

While we're very encouraged that the Chicken Sandwich was an important driver of sales in the fourth quarter, our other core offerings also performed very well.

And for the vast majority of our guests purchasing the sandwich, we saw that they actually spent more on other products than on the sandwich itself, resulting in very healthy check levels and incredibly valuable awareness and trial.

Also driving awareness and trial was the amazing reaction to the relaunch on social media.

During the relaunch, we trended #1 on Twitter and became the top search on Google.

We also had billions of media impressions and generated earned media worth considerably more than the size of our entire annual U.S. ad fund spend.

On development, our healthy unit growth of nearly 7% of Popeyes does not reflect the potential embedded in the unit economics of Popeyes stores in the U.S. following the brand's step change in 2019, nor does it reflect the impact of our recently announced major international agreements in key Asian markets.

In the U.S., we've seen a significant increase in interest for new Popeyes restaurants following the brand's remarkable success in 2019.

As I noted earlier, the increase in sales across categories helped drive a material improvement in franchisee profitability, and we believe the brand's highly attractive unit economics will support a long runway for growth across the U.S. You may recall that our pipeline for new restaurants follows a longer 12- to 18-month cycle, so we expect development agreements we've put in place last year to begin delivering units this year and next.

In the coming years, we see a huge opportunity for Popeyes to grow from a brand with cult status into a true mainstream player in the U.S., all while maintaining its unique Louisiana heritage.

On the international side, we made good progress in 2019 ramping up the Popeyes brand in Southeast Asia, particularly in Vietnam and the Philippines.

The strong sales performance we've seen so far tells us that the brand resonates in the region.

We also signed a key agreement to bring Popeyes to China this past year with our existing partners for Burger King in the country and spent a great deal of time preparing for the launch, which we expect in the coming months.

With a target to build 1,500 restaurants in the next 10 years, we believe Popeyes China has massive potential.

Our partners have nearly achieved this mark with Burger King in China in just the past 8 years, and last year, opened over 300 Burger Kings in the country.

We're confident they are the right partners to establish Popeyes as a serious player in the world's largest chicken market.

In conclusion, our results in 2019 were solid on a consolidated basis and consistent with the growth algorithm we presented at our Investor Day, even with one of our brands underperforming.

Tims remains our key point of focus in 2020, and we're committed to delivering stronger results.

It's been an exciting first year at the helm for me, full of learning, but also with many accomplishments that we will build on moving forward.

As a team, we're excited about the outlook for our 3 iconic brands and are confident that we have all the resources and capabilities needed to realize their potential for growth all around the world.

With that, I'll hand it over to Josh to provide some more color on our technology initiatives.

Thanks, José, and good morning, everyone.

We haven't had a dedicated section on technology in the past, but we think it's appropriate to share some thoughts with you today, given what an important priority technology represents for us and the significant progress we have achieved.

We started about 2 years ago on a new journey to make technology a core competency at RBI.

Digital adoption in the restaurant space is very advanced in Asia and is accelerating now in the U.S. and other parts of the world.

It is our view that in order to be successful as our industry evolves, we must offer industry-leading digital experiences integrated with our physical restaurants and technology in order to win with guests going forward.

Today, I'll share a brief update on what we've accomplished so far and where we are going in 2020.

Over these past 2 years, we have made significant progress to catch up with key competitors in core technology offerings, and I'll break down our efforts in 4 key initiatives.

First, we have built a strong team, led by our CIO, Frank Liberio, who has over 20 years experience overseeing some of the largest global restaurant technology networks and who joined our team in 2019; as well as Teddy Sherril, our CTO, who joined in late 2018 after building an educational technology firm he cofounded and who currently leads software development of our guest-facing platforms.

Together with Frank and Teddy, we have recruited from leading tech companies to build out Miami and Toronto-based teams in engineering, product and design as well as digital teams within the brands to drive guest experience in new digital sales channels.

Second, we have made and continue to make investments in core infrastructure improvements to enable the future of digital ordering and e-commerce.

The consolidation of the Popeyes POS system from about 40 systems down to 2 was a great example of this initiative, without which delivery and online ordering would have been impossible.

We also launched a new and more modern front-end code base that replaced many of our legacy mobile apps and websites, allowing us to move faster going forward and have end-to-end control over our digital interface with guests, particularly in our home markets.

Finally, we integrated delivery into our POS systems across brands, which has greatly improved in-store order fulfillment and helped accelerate growth.

Many more of these projects related to POS modernization, network upgrades and systems reliability are ongoing.

Third, we enabled digital delivery for guests across all 3 of our brands.

Today, there are more than 4,200 Burger King restaurants offering delivery in the U.S. and over 9,000 globally, representing a run-rate business of over $1 billion on an annualized basis.

Popeyes has also ramped up delivery significantly in the U.S. to over 1,600 restaurants and drove its strong increase in sales this year, especially following our highly successful Migos promotion.

Today, delivery of Popeyes in the U.S. represents about a $250 million business on an annualized basis.

Fourth, we have used delivery, our mobile apps, new websites, loyalty programs, kiosks and other channels to drive digital engagement and digital sales.

At the end of 2019, digital sales at BK and Popeyes were in the high single digits as a percentage of system-wide sales in the U.S., and at Tims, they represent more than 10% of sales in Canada.

Looking ahead to 2020, there are 4 core priorities that our teams will be focused on, all of which are centered on guest experience.

The first is driving amazing end-to-end guest experience in our proprietary digital channels.

We now have mobile apps, web ordering and white label delivery services, with these white label delivery services now allowing our guests to order food directly through our app with delivery fulfillment from our aggregator partners.

We've made many other digital experiences available to our guests as well, and we are quickly bringing focus on refining both the software experience and integration with our restaurants so that we are confident that we are able to deliver a reliable and pleasant experience every time.

The second initiative for 2020 is to revolutionize the drive-through experience at Burger King and Tim Hortons through the rollout of outdoor digital menu boards on an expedited basis.

This year, we plan to complete the rollout to approximately half of Burger King locations in the U.S. and the majority of the Tim Hortons system in Canada.

Our teams are already running tests with dynamic content to offer guests, more location or situationally appropriate menu suggestions as well as personalized offers.

We expect to deploy this layer of technology as we complete the hardware rollout.

Third, we plan to deploy an intelligence platform behind each of our digital guest experiences that allows us to capitalize on the system we've built over the past 2 years.

We now have the backbone of customized and algorithm-based offers.

And in 2020, we expect to roll out personalized one-to-one marketing across all brands and touch points.

As José mentioned, this is especially relevant for Tim Hortons as we transition to the second phase of the Tims Rewards program in the coming weeks.

All of these initiatives ladder up to our big priority, which is to drive the penetration of digital sales across each of our brands.

It's our view that future success in our space will be increasingly dependent on digital capabilities and platforms.

So it's critical to establish our brands as leaders in their segments, particularly with younger guests as we navigate the digital transformation of QSR.

This list is just a subset of new projects that we are making progress on, but I think it provides useful context around what we are working hard to achieve in technology.

I look forward to sharing more developments in the future, and I'd now like to turn the call over to Matt.

Thanks, Josh.

As you may recall, during our Investor Day, we set up a simple historical growth algorithm that laid out the key components of how our business grows.

In the algorithm, we shared our historical template of 2% to 3% consolidated comparable sales growth, combined with approximately 5% global unit growth has historically produced systemwide sales growth of about 7%.

And after normalizing for the impact of acquisitions, this sales growth has translated into mid- to high single-digit organic EBITDA growth.

This year, even despite seeing some softness in our sales at Tim Hortons, we were able to deliver results very much in line with this framework.

In 2019, our system-wide sales growth of 8.3% led to consolidated adjusted EBITDA of $2.304 billion, up 6.5% organically year-over-year.

And in the fourth quarter, consolidated adjusted EBITDA grew 7.8% on an organic basis, representing our highest growth rate in 8 quarters, dating back to 2017, primarily attributable to healthy year-over-year sales growth at Burger King and Popeyes.

In our view, this demonstrates both the underlying strength and consistency of our business model as well as the added benefit from diversification that we get from having a multi-brand model with significant operations in all regions around the world.

At the segment level, Tim Hortons 2019 adjusted EBITDA was $1.122 billion, which represents a 1.5% organic increase year-over-year.

This growth was driven primarily by an increase in supply chain sales, the biggest drivers of which were shifts in product mix, growth in our retail business and growth in equipment sales.

In addition, our EBITDA growth also reflected lower segment G&A expenses year-over-year.

In the fourth quarter, Tim Hortons adjusted EBITDA was $297 million, representing a decrease of 0.2% year-over-year.

This variation was driven primarily by a decrease in global comparable sales, which was partially offset by the same factors I just mentioned for the full year.

At Burger King, 2019 adjusted EBITDA was $994 million, which represents a double-digit organic increase of over 10% year-over-year.

This increase was driven primarily by strong system-wide sales growth of over 9%, with continued momentum in global net restaurant growth of nearly 6%, including almost 10% internationally and global comparable sales growth of nearly 3.5%.

In the fourth quarter, Burger King adjusted EBITDA was $266 million, representing an increase of over 9% year-over-year.

This increase was driven primarily by global system-wide sales growth of 8.4%, including comparable sales growth of nearly 3% and net restaurant growth of nearly 6%.

Finally, at Popeyes, 2019 adjusted EBITDA was $188 million, which represents an organic increase of over 20% year-over-year.

This increase was driven primarily by strong system-wide sales growth of over 18%, among the brand's strongest growth rates in the past few decades.

The system-wide sales growth included net restaurant growth of nearly 7% and global comparable sales growth of over 12%.

In the fourth quarter, Popeyes adjusted EBITDA was $59 million, representing an organic increase of nearly 63% year-over-year.

This increase was driven primarily by global system-wide sales growth of over 42%, including comparable sales growth of nearly 35% and net restaurant growth of almost 7%.

Our full year adjusted net income was approximately $1.27 billion, which compares to prior year results of $1.24 billion.

This year-over-year increase of 3% was driven primarily by adjusted EBITDA growth and an additional benefit from the reduction to interest expense from our refinancing transactions, which was partially offset by an increase in stock-based compensation and a sizable impact from unfavorable FX movements.

In addition, our adjusted effective tax rate was slightly higher year-over-year at nearly 20%, but came in a bit better than the low 20% range we shared at the beginning of last year, which we believe remains the appropriate expectation for 2020.

Our full year adjusted diluted EPS was $2.72 and compared to $2.63 in the prior year, representing growth of 4%.

This increase includes a significant headwind from unfavorable foreign exchange rate movements, which reduced our adjusted EPS growth rate by approximately 3 percentage points.

Now let's discuss our cash generation and capital allocation for the year.

We generated over $1.4 billion of free cash flow in 2019, calculated as the sum of cash flows from operating activities less payments for property and equipment.

In 2019, we also paid a total of over $900 million in common dividends and partnership exchangeable unit distributions.

In addition to this, we continued to make progress on key investment projects, including the expansion of our Tim Hortons supply chain network in Canada as well as our previously announced remodel programs at both Tim Hortons and Burger King.

In 2020, we will continue to invest in support of these initiatives, which we believe reinforce the long-term health and growth potential of our business.

After making considerable progress on the build-out of our Canadian distribution centers last year, we expect to finish the project in the second half of this year.

Once the project is complete, our distribution coverage will increase from about 75% to nearly 90% of total delivered cases, which we believe will help us meaningfully improve service levels to owners by reducing complexity to fewer deliveries per week and improving delivery times.

In terms of restaurant reimaging, we expect to maintain a similar path of investment as 2019, in which we contributed several hundred Burger King of Tomorrow and Tim Hortons Welcome renovations.

As José mentioned earlier, over the next 12 to 18 months, our owners will also invest over CAD 100 million to revolutionize the drive-through experience through the deployment of outdoor digital menu board technology at Tim Hortons drive-through locations across Canada.

This investment will be funded by the Tim Hortons Canada advertising fund, similar to how our indoor digital menu board initiative was funded several years ago.

Now turning to the capital structure.

As of December 31, 2019, our total debt outstanding was $12.3 billion.

Our net debt calculated as total debt less cash and cash equivalents of $1.5 billion was $10.8 billion, and our net debt-to-adjusted EBITDA leverage ratio decreased further to 4.7x.

In October, we took advantage of favorable market conditions to execute our second refinancing of the year, through which we reduced the size of our $6 billion term loan B to $5.4 billion, extended our maturity by over 2 years to 2026 and reduced our interest rate from LIBOR plus 225 basis points to LIBOR plus 175 basis points.

We funded the transaction by issuing $750 million of second lien notes due 2028, which priced tightly behind our recent first lien bond issuance at an interest rate of 4.375%.

Additionally, we were able to extend our floating to fixed interest rate hedges, locking in favorable rates through 2026.

Through these transactions, we generated significant interest savings, extended our maturities and further improved our flexibility going forward.

Altogether, these fourth quarter transactions are expected to generate approximately $25 million of run-rate interest savings.

And when combined with our third quarter refinancing initiatives, add up to approximately $50 million of estimated run-rate benefits, some of which we started to see flow through our results in the fourth quarter.

In addition, we were also pleased to receive upgrades on our corporate credit rating from both S&P and Moody's to BB and Ba3, on account of continued improvement in our business, leverage profile and free cash flow generation.

2019 also represented the continuation of a strong multiyear period of capital allocation and ongoing reduction of leverage, driven by our highly capital-efficient growth model.

Over the past 5 years, we've generated almost $9 billion in total unlevered free cash flow, allowing for a considerable reduction in our net leverage from 7.5x to 4.7x adjusted EBITDA, along with continued and meaningful reinvestment in key business initiatives such as remodels alongside our restaurant owners and the build-out of our digital capabilities.

We've also been able to deploy our cash flow to return over $3 billion in cash common dividends, invest over $1 billion in cash for share repurchases and acquire another iconic brand in Popeyes for $1.8 billion in cash.

As we've shared in the past, we will maintain a balanced approach to capital allocation, allocating excess capital where we believe it will create the most incremental long-term shareholder value.

Currently, our capital structure affords us significant financial flexibility and optionality to drive meaningful long-term shareholder value creation.

This morning, we also announced that the RBI Board of Directors declared a dividend of $0.52 per common share and partnership exchangeable unit of RBI LP, payable on April 3, 2020, and a target of $2.08 in total dividends to be declared in 2020.

This announcement represents a 4% year-on-year increase in declared cash dividends and our eighth consecutive annual dividend increase.

Since we first paid a dividend in 2012, our quarterly dividend has increased by 13x its original level, reflecting our commitment to maintaining a balanced approach to capital allocation as we've grown.

Thank you, everyone, for joining us on the call this morning and for the continued support.

I'd now like to open the call for questions.

Operator?

(Operator Instructions) The first question today comes from Dennis Geiger with UBS.

José, thanks for all the insights and the

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on Tim Hortons.

Just wondering if you could talk a bit more about the changes made to the loyalty program.

Specifically, maybe if you could highlight different customer behaviors that you may be able to affect the financial impact from the adjustments.

Focus on app download and utilization is clear, but maybe just anything that you look for from the tiered loyalty system benefits there across day parts, whether the recent drag that you've seen from the program changes, some -- and anything else on your research and testing of the program?

Hey, Dennis.

Thanks for the question.

I'm going to have Josh walk you through some of those details.

Yes.

Hey, Dennis.

And thanks a lot.

So we've done a lot of work thinking about where we take the loyalty program next, and we're very excited about the changes that are coming up here just in a few weeks, actually.

And I think if you go back, we were really pleased with the initial adoption of loyalty program, as we've talked about a bunch.

We saw a huge reaction from the markets, and I think they were really pleased with the rewards that we were able to bring to them.

And now I think we're ready to take our next steps with loyalty in the New Year here, we did a lot of research together with -- both with our guests and with some of the best experts across the loyalty industry.

And spent a lot of time looking at some of our peers, both here in Canada and other geographies in the U.S. looking through where we should take the program next, really, with a big focus on our guests and how we take the business forward in the best way in the long run.

And I think some of the exciting things, some of the key features about where we're going to take loyalty are, one, we're going to be able to open up the menu and bring rewards across a number of additional menu items.

That was one of the big pieces of feedback that we heard is that we have many guests who want to be able to be rewarded across many other categories in our menu.

And one of the great features of the new program is that we'll be able to offer rewards in terms of food items, in terms of donuts, in terms of ice cap.

So we're really be able to broaden the rewards that we can give.

I'd say, the other really big feature that we're going to enable with the new version of rewards is that it's going to become a much more digital program.

So we're going to strongly encourage our guests to register with the program, and we're going to provide a lot of encouragement to guests to interact with us on the mobile app.

And I think that's going to allow us to better understand how our guests interact with our branding and use our brand, and I think also allow us to provide even better benefits as we understand how our guests interact with our brand and provide more personalized benefits to those guests.

So I think those are some of the most exciting things for us in terms of what we're going to change.

If you think about the underlying mechanics of it and the underlying rewards, it's not really going to change very much.

We're going to keep the underlying benefits to our guests pretty similar for the most part.

It's really evolving to allow more options to the guests and to make the program more digital.

And I think as you think about it, and as we go kind of further into this year, especially in the back half, that's where we see a big opportunity for the program.

If we can make the program a lot better for our guests, open up more of the menu and be able to bring more personalized offers to our guests over time, that's where we see the big opportunity to really bring a big business benefit from Tims Rewards probably later into this year and as we go on into future years.

The next question comes from Nicole Miller with Piper Sandler.

I want to ask about Tim Hortons and a couple of things.

First, how is Canada overall as a region?

How is the peer performance there?

Even if you know it's better, the same or worse, context would be helpful.

Second, I wanted to simplify the dollars going into the plan.

So the $100 -- or excuse me, CAD 100 million of ad funds, does that reduce other aspects of advertising?

I just want to understand that.

Or other financial means to support the plan?

And then just third, and I'm sorry it's a little harsh, so I apologize.

But I was trying to compare and contrast these comments back to the Analyst Day, and there was commentary at the end of the prepared remarks today about things generally being the same from that plan.

But if that's the case, I mean, why now on Tims this is going to work?

I'm assuming there's going to be some elements that are being reprioritized and just essentially saying, what do you want us to expect?

It's okay if you're going to buy comp through loyalty this way to get the data, but then we should be understanding that maybe this quarter is an anomaly in terms of same-store sales?

Hey, Nicole, thanks for the question.

I think I'll start with kind of the third and fourth questions around the Tims -- or the third and fourth sub-questions on Tims' plan and what we shared in May.

And as I mentioned, I've spent probably 60%, 70% of my time in Canada since October, working closely with Axel and the team to address some of the gaps that we have in the plan and in the team.

We've hired a lot -- a number of strong leaders, Canadians, with expertise in key areas of the business, including marketing, loyalty and rewards, real estate development, restaurant technology as well as communications and a few other areas.

We've also, over the last 60 days, conducted the biggest consumer research study that Tims has done in nearly 2 decades, which has helped us understand better how Canadians are deciding where to spend their money, where to go -- or where they go when they want brewed coffee or specialty coffee or where they go when they want a breakfast sandwich versus a sweet baked good.

And what's important about this and one where this is creating an important pivot for us from a strategic standpoint is that the research confirmed, first and foremost, that Canadians absolutely love Tim Hortons.

And additionally, it's helped us sharpen the lens and focus on a plan with a heavy, heavy emphasis on the core, being greater to things that make Tims the incredible brand it is today.

I think it's a bit different -- or quite different from where we were a few months ago.

And I think I mentioned in my prepared remarks that the brand and the business in Canada has spent quite a bit of energy on limited time offers.

We've introduced more than 60 limited time offers in the year 2019, which is nearly 3x what we've done in the past.

I'm not sure what the right number of LTOs is, but we know with certainty that what we need to be doing is focusing on the fundamentals that created this amazing brand and business in Canada.

And what I touched on in my prepared remarks is what we're focused on today and will be focused on going forward, elevating core quality, innovating for growth and modernizing the brand.

So for us, this pivot is an important one as a leadership team and it's an important one that we've shared and aligned with our owners across Canada.

I spent -- along with the team, I spent the last 2 weeks visiting 7 cities and talking to more than 1,000 owners about the plan, about the direction of the business and about our focus on what made Tim Hortons famous in Canada.

And there's a lot of excitement, a lot of work to do for sure, but we feel confident that if we put all of our energy and resources behind this plan, we're going to get the business and this great brand back on track from a growth standpoint.

I think you touched on -- you asked about Canadian peer performance.

We don't comment on others in these or any other discussions.

But obviously, the market -- we feel very good about the market and the long-term prospects of growth in Canada, and we continue to focus all of our energies on driving growth here for the long term.

As it relates to capital and kind of the uses of ad fund to help drive the initiatives and drive-through, I'll have Matt answer that question.

Yes.

Hi, Nicole, it's Matt here.

In terms of the capital investment, I think as José mentioned, we think this is an important part of the overall plan at Tims to drive sales over the long term and the right place to invest our resources.

And so with the CAD 100 million investment that will be made over time over the next 5 to 6 years.

And as a result of that, I think we'll also see some pretty significant savings within the ad fund, saving millions of dollars per year on menu printing and delivery.

So overall, we don't really expect a material impact on ad fund spending.

And just to come back to your final question on performance.

As you know, we don't provide guidance.

But that said, we see no -- there's been no material change in initiatives or performance Q1 to-date versus Q4.

The things we've talked about are structural changes and investments we're making around coffee, breakfast, Loyalty 2.0, drive-through outdoor digital menu boards, coffee communication all the time.

And these initiatives are aimed at providing layers of sales growth over time, throughout the year and beyond, and we're confident that these will have an impact on the top line in the coming years.

Thank you so much.

The next question comes from Jeffrey Bernstein with Barclays.

Another question on Tims.

José, I'm just wondering whether you could talk about franchise relations.

It sounds like you've met with, like you said, 1,000-plus owners in recent weeks.

So I'm just wondering how you describe that today.

And whether or not the recent comp headwinds, and like you said, the profitability down this year, has kind of overrode the prior successful efforts, it seemed like, in improving relations with franchisees?

And on the base of that, just -- can you just provide us the percentages -- in terms of the percentage of the system that, like you said, invest to modernize, but where the system is in terms of remodeling the entire units?

And whether the franchisees in your discussions are keen to invest on that or whether they'd be a little bit more hesitant to do so ahead of their required remodel cycle?

Great.

Thanks, Jeff.

Yes.

Look, despite our recent performance, relationships with our owners continue to improve in Canada, and we're communicating with them more than ever.

And as I mentioned, just last week, I finished traveling the country.

I was in Vancouver, Calgary, Toronto, London, Ottawa, Montréal and I went all the way east to Halifax, and we shared our plan with over 1,000 owners at these town hall meetings that we hosted.

Our Tims owners, they're super passionate about their amazing Tims brand.

And not surprisingly, they have -- and as they should, they have high expectations of us as leaders of the Tims brand and business.

And that's what I love about our owners.

The community engagement, op simplification, fewer, more impactful new products; sharper brand communications and of course, restaurant profitability.

These are top of mind in our priorities for our owners in Canada.

I'll tell you they voiced support for the plan to refocus our efforts on the core and to reconnect Tims with its roots with what made Tims famous.

And they also share our sense of urgency, and we look forward to working closely with them throughout the year as we implement our plan in 2020.

We have confidence that if we -- as I said earlier in response to Nicole's question, if we focus on these core elements of the business, the basics, the things that made Tim Hortons famous and made it the brand it is today, we're confident that our owners are going to be successful, and our guests are going to be happy, and we're going to continue to grow this great brand in Canada.

As it relates to renovations or remodels in Canada, we've made some progress with the evolution of our Welcome Image.

We had a -- we were in 2018, 2019 versions of it.

And now we've evolved to a 2020 image -- Welcome Image package, which takes forward some of the ideas and innovations that we saw at the innovation café.

It has -- it's got a sharper image and really a modern look and feel.

We've opened the first one in the West Coast of Canada, and we've seen some good results and some encouraging feedback from our owners.

We feel good about the potential of this image package, and there's engagement and support from the owners around continued investment in remodels.

So we don't expect any shifts or changes in the progress we're making on renovating the fleet.

Thanks so much.

The next question comes from Patricia Baker with Scotiabank.

Not surprisingly, I'm also going to ask a question on Tims, and you may have partially answered it, but I'm still going to ask it.

I really appreciate all the color you provided on what your plan is for 2020, try and close the gaps on Tims' current performance and where you think it will go to.

In 2018, you launched the Winning Together plan.

I'm just curious, looking back, it would be obvious I think that where Tims is performing now is not where you thought it would be when you launched the Winning Together plan.

So can you talk about the Winning Together plan?

What worked, what didn't work?

And when you kind of take a look backwards, should you have included more that focused on the core when you did the Winning Together plan?

Thanks, Patricia.

Yes.

I think I touched on our strategy and our game plan going forward and some of the reflection after a few months of assessment of our current performance and kind of our history over the last several years.

I think I've touched on the things that we kind of identified as opportunities and how we're going to move forward.

I think the key for us is that we're famous, an incredibly well-penetrated brand in Canada.

People love this brand.

They love the experiences they have there and consider it a second home in many cases.

And I think what we didn't do well in the past -- in the recent past is that we spent too much time trying to create initiatives on the fringes that were not initiatives or limited time offers or innovations that supported the core of our business around coffee, the -- kind of the expanding definition of what coffee is around breakfast and around baked goods.

And so we feel that the initiatives and the plan that we have around elevating our core, focusing on innovating for growth in our core and modernizing the brand with Loyalty 2.0 as well as enhancing the drive-through experience, which is a big and growing part of our business, which really hasn't been touched in decades.

We think the initiatives that we have in our sites and that we're focused on and removing everything else from the periphery is going to allow us to drive growth in this great brand for years to come.

Thank you.

The next question comes from David Palmer with Evercore ISI.

Thanks for that commentary on Tims.

Question on that brand.

As you reposition the loyalty program, how confident are you in the testing of that Phase 2 loyalty?

And how are you doing that differently than the previous version?

And relatedly, I would assume the loyalty shift will help franchisees regain some lost margin from Phase 1. But is it also fair to say there will be some sales sacrifices initially as you push consumers to a mobile relationship?

Just some of these consumers will be less keen to make the leap to the phone.

And then lastly, as you think about that 3 point drag from Phase 1 rewards, do you think that could become a tailwind by the second half of the year, maybe making positive comps more likely in that second half?

Hey, Dave, it's Josh.

Thanks for the questions.

So as we noted a little bit earlier, we think that loyalty is contributing right now about negative 3% to our overall comp.

And as we think about what's going to happen with the next phase of loyalty, the goal is really about driving the -- about 2 things, as I said earlier, right?

One is being able to open up the menu and give more options.

And the other thing is about moving more into a digital form of a program.

So we have done a lot of research, I mentioned earlier, we've done research both with our guests and worked a lot with experts in the industry.

So we think we've done kind of as much research as we can do, trying to make sure that we have the right form of the program going forward that our guests are going to respond well to and that we have a pretty good understanding of how our guests are likely to respond to the program.

There's always uncertainty with these programs about how exactly they'll respond.

I'd say we don't expect to see a material change, as I mentioned earlier, in terms of our overall investment in rewards as we move forward into the next phase of the program.

That's not the intent and that's not our expectation.

But as you think about how the impact of the program is likely to evolve as you move through the rest of the year, obviously, in Q1 of the year, nothing will have changed too much.

But as we move into Q2, you'll be lapping the prior year when we had the existing version of the program in place, but we had a bit of a traffic benefit due to the initial excitement in Q2 of 2019.

So I'd say it was more sales-neutral.

And we think that as you get into the second half of 2019, as we're lapping that, as we got farther into the second half of 2019, we think some of that incremental traffic have -- it faded away as some of the excitement came off.

So as we get into the second half of 2020, we think that some of the year-on-year investment could -- farther into the second half of 2020 start to become somewhat less of a headwind.

And we hope that some of our initiatives around personalization and trying to make the program more incremental could start to become just more of a benefit.

So hopefully, that helps to think through of how we think about the program and how it could evolve as we move through 2020.

The next question comes from Sara Senatore with Bernstein.

This is actually Elijah for Sara.

So I just had a quick one on BK.

I think you mentioned that the Impossible Whopper stayed strong, but also that you saw strength across the core menu, but the comps were still soft.

So it seems like that lift from the Impossible has quickly dissipated.

Can you just talk about that?

And then also the competitive environment in general?

Yes.

Thanks, Elijah.

Our sales levels in Q4 at Burger King in the U.S. were very healthy and in line with what we saw in Q3.

We continue to do well in the premium segment.

However, we were lapping -- as I mentioned in my prepared remarks, we were lapping strong traffic in the same period in 2018, driven by dollar nuggets, King Box and also $0.89 pancake promotion.

We feel really good about our plan at Burger King in the U.S. long term.

We have a strong core offering.

I think the addition of Impossible Whopper to the 2 for $6 platform gives us an opportunity to address one of the points of feedback we received from many guests, which is the price point was a little high for the QSR consumer.

So having it available in the 2 for $6 platform gives folks more access to it, which is really exciting, and we're seeing that to be an important point for consumers long term.

We also have initiatives around breakfast.

We have initiatives around value long term.

So we feel good about the business plan for BK in the U.S. We look forward to keeping you posted on our progress in the coming quarters.

The Next question comes from Brian Bittner with Oppenheimer.

For Popeyes, I think this is the first time ever that Popeyes has opened over 100 units in a single quarter.

And you talked in your prepared remarks that the backlog is really going to start unlocking maybe this year, next year and the year after.

How do you want us thinking about Popeyes unit growth in 2020?

And what portion of your new openings is going to come from the U.S. versus international over the next couple of years?

Thanks, Brian.

We don't break out on a go-forward basis where the development is going to come from.

But obviously, the performance in the U.S. of the Popeyes business, and as we shared for Q4 for the full year has created a lot of excitement with our existing franchise partners here in the U.S., as well as with new prospective investors that are very interested in being part of this system, which is quickly becoming one of the more exciting franchise business models in all QSR in the U.S. So we think long term, there is a lot of room for growth for Popeyes in the U.S. Obviously, internationally, we think there's a tremendous opportunity for growth.

Clearly, Asia is a place where fried chicken and chicken in general does quite well, and we think we can be a really compelling second offer in the region.

We have a huge size gap or penetration gap versus the market leader in Asia, and we think we have a really compelling offer from a product standpoint to do some important growth there in years to come.

And -- but it's not just Asia and the U.S., we think Europe is an exciting and growing market.

We've opened in Spain.

We have other markets as well in Europe that have potential for growth.

Latin America is a market where fried chicken does quite well, and we've opened in Brazil and had a really exciting growth rate in 2019.

I think it's just the beginning of growth for the Popeyes brand in Latin America, in Europe and Asia and especially in the U.S. as well.

So we're excited about the prospects, and we're working hard to build our team's capabilities from a development standpoint and working with our partners to ramp up growth over time.

Thank you so much.

The next question comes from Peter Sklar with BMO Capital Markets.

You're late this year in terms of calendar, the Roll Up To Win promotion at Tim Hortons.

You indicated in your commentary that you will be proceeding with it.

Just wondering why you're late?

And especially in the context of your principal competitors, at least started with their dollar coffee promotion today.

So the concern would be that you're going to lose some momentum this quarter because you are late with the program.

Hey, Peter, it's Josh.

Thank you for the question.

So the phasing of Roll Up is mostly due to making sure that we have the right timing with respect to the next phase of Tims Rewards and then bringing in Roll Up after that.

So we'll have news on Roll Up to come, I think, in the quite near future.

And we just want to make sure that we give time for our guests to have things in a proper order and kind of understand each of those new pieces of news.

The next question comes from David Tarantino with Baird.

My question is on Popeyes.

And I was just wondering if you could help us understand the very impressive comps performance that you had in the fourth quarter?

And how much of that was maybe trial around the relaunch of the Chicken Sandwich versus maybe a sustainable improvement in traffic or customer counts?

And I'm just asking in the nature of sort of level setting what we should be assuming going forward in terms of the sustainability of the trend you saw in the fourth quarter?

Thanks, David.

As they say, a rising tide lifts all boats.

Well, in Q4, we saw the tide rise at Popeyes quite a bit.

And the traffic driven by the demand of the Popeyes Chicken Sandwich helped drive growth in our entire menu in the quarter.

Just to give you an idea about that, following the launch of the Chicken Sandwich in November, only about 50% of total tickets of Popeyes in Q4 contained a purchase of the Chicken Sandwich, which means a lot of the growth came from growth in other categories in our menu, which is quite exciting.

We're also encouraged by the fact that on a significant majority of the tickets with -- that included Chicken Sandwich.

Guests spent more on non-sandwich items than on the Chicken Sandwich itself, which led, obviously, to very healthy ticket levels and growth across the menu.

We're super excited and super encouraged with the levels we saw from the growth -- the growth sales and levels of volumes that we saw from the Chicken Sandwich in Q4 and throughout the quarter.

We think, long term, this is obviously a platform that's going to give us an opportunity to engage more guests with Popeyes.

We've mentioned several times in past calls and other sessions that when people try -- when guests try the Popeyes product, whether it's bone-in chicken or boneless or even the sandwich, that -- our ranking shoot up in terms of preference amongst all players in the chicken QSR space.

And the Chicken Sandwich launch, or relaunch in Q4 gave us an opportunity to engage more guests, and we saw the reaction was very positive.

It's just the beginning.

We think this is a great opportunity for us to continue to introduce the brand to many consumers in the U.S. and across the globe and look forward to continue to share with you our progress on the brand.

Thanks so much for the question.

And thanks, everyone.

Overall, as mentioned, we had a strong 2019 with more than 8% system-wide sales growth and adjusted EBITDA growth of about 6.5%.

While we have a lot of work to do at Tims, we saw the benefit of our diversified global business model, with strong performance from BK and an amazing Q4 and 2019 from Popeyes.

We're excited for 2020 and look forward to sharing the progress of each of our iconic brands, over the coming quarters.

Thanks, again, to all of you for joining us this morning, and thank you, again, for your support.

Have a great day.

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