Burger King is betting on local franchisees to fuel its U.S. comeback

When Jeremy Kline was 15, he started as a crew member at Taco Bell. In the decades since then, he worked his way up the restaurant industry to director of franchising for Burger King North America.

These days, he is on the other side of the aisle as one of the burger chain's newest franchisees, after buying 16 locations in the Salt Lake City area in February.

Kline is one of the new operators betting on Burger King as it embarks on a U.S. comeback. The burger chain is on track to sell about 200 company-operated restaurants to franchisees by the end of the year as part of a broader refranchising initiative, and buyers like Kline will be critical to the plan.

Since late 2022, Burger King has embarked on a turnaround strategy focused on revamping its marketing, improving food quality and renovating restaurants. The comeback has already started to pay off; Burger King recently overtook Wendy's as the number two burger chain in the U.S., based on system sales.

To accelerate the modernization of Burger King restaurants, its parent company Restaurant Brands International bought the chain's largest U.S. franchisee, Carrols Restaurant Group, in 2024 for roughly $1 billion. The Carrols deal added 1,023 company-owned locations to the 175 that Restaurant Brands already held at the time, largely acquired during franchisee bankruptcy sales as Burger King struggled before its turnaround.

Restaurant Brands always planned to sell most of those restaurants back to smaller, local franchisees. Ultimately, Burger King wants to end up with about 300 company-operated restaurants; franchisees will run the rest of its more than 6,000 locations in the U.S.

In other words, the future of Burger King rests on the shoulders of its franchisees at a time when slow traffic, elevated inflation and high interest rates make running a restaurant a challenging proposition.

"A franchising contract is 20 years. The average marriage in the U.S. is 8.2. So you got to get it right," Burger King U.S. President Tom Curtis told CNBC.

Over the last year, shares of Restaurant Brands have risen about 6%, lifted by strong international growth and green shoots for Burger King's U.S. comeback. For comparison, shares of rival McDonald's have tumbled 23% over the same period, although its market cap is still more than six times larger than Restaurant Brands'. In its latest quarter, Burger King reported domestic same-store sales growth of 8.5%, while McDonald's U.S. same-store sales rose just 0.8%.

Refranchising the Burger King restaurants could help send Restaurant Brands' shares even higher.

Selling off locations generates cash for the company. It also results in an asset-light model that typically means higher earnings for the chain and its parent company. And most importantly, franchisee-operated locations usually report better results than those run by a company because franchisees are personally invested in their success.

"Getting these stores in the hands of better operators is a key part of the turnaround," TD Cowen analyst Andrew Charles said.