Carrols Restaurant Group (TAST): America’s Biggest Burger King Franchisee Comes with “Rights of First Refusal”
Guest write-up by Vetle Forsland
Carrols Restaurant Group (TAST) is the largest Burger King franchisee in the US. They are currently operating 753 Burger King restaurants on the east coast of North America, in 16 different states. That accounts for about 10.2 % of all Burger King locations in the USA.
Carrols was founded in 1960. At the time, they were operating an independent burger chain. In 1976, they started converting those stores to Burger King locations, and they became a franchisee. In the 1990s they were already one of the nation’s largest Burger King franchisees. Later, Carrols bought the Pollo Tropical and Taco Cabana brands, which accounted for about 50 % of the company’s revenue in the 2000s. In 2012, Carrols spun off the two latter businesses to Fiesta Restaurant Group, and Fiesta’s market cap is currently around $520 million vs Carrols’ $450 million. The spin-off took place shortly after 3G capital took control of Burger King’s owner, Restaurant Brands International (QSR). A part of 3G’s plan was to give more power to franchisees, as these businesses in the past were capped to a certain amount of Burger King locations, leaving BK restaurants fragmented and underperforming, as a result of little to no economies of scale.
Since the spin-off, Carrols has put significantly more focus on expanding their business and acquiring other Burger King locations. Most notably, they acquired 278 restaurants from QSR in 2012. Sales have increased 23 % annually on average since the spin-off, versus a 1 % decrease a year from 2000-2011. Additionally, the number of restaurants has increased around 24 % since 2012, compared to a 1.4 % decrease in locations in the 11-year period before the spin-off (Carrols had an IPO in 2004, so store counts before 2000 are non-existent/very difficult to find).
The 2012 acquisition of nearly 300 restaurants from QSR was financed through debt and preferred stock issued to QSR. So, Burger King’s owner basically bought a 21 % equity stake in Carrols. Executive officers and directors also own 5 % of the company, so 26 % of Carrols is owned by insiders. The 2012 deal included a preapproval by Burger King for Carrols to expand to 1,000 restaurants in “Rights of First Refusal” states, and the ability to expand beyond this region with Burger King’s approval. Carrols therefore has Rights of First Refusal in 20 states on the East Coast, paving the way for more acquisitions in the near future. 21 % of Carrols’ restaurants today are in North Carolina, 17 % of them are in New York, and 31 % are in Indiana, Ohio and Michigan. So, 69 % of their restaurants are in 5 states, diversifying their revenue but at the same time making the company vulnerable to potential economic downtrends on the east coast.
Restaurants have been around for hundreds of years, and serves as an important part of modern culture and our society today. There is no need to analyze …Read more