Restaurant Brands International (TSE:QSR) (NYSE:QSR), the parent company of Tim Horton’s, just made a deal that will likely see the donut chain end with a stronger presence in China. Oddly, this move isn’t sitting well with investors, who sent shares down modestly in Tuesday morning’s trading.
The move, which will reportedly set Restaurant Brands International and its partner Cartesian Capital back as much as $65 million, will see them spend $15 million to buy Popeyes China from Tims China, the organization that operates Tim Horton’s franchises already in China. Given that Popeyes China has already opened 14 restaurants in Shanghai alone since it started back in August 2023, that’s a reasonably aggressive strategy.
Restaurant Brands and Cartesian Capital also plan to put as much as $50 million more into Tims China using a series of convertible notes with three-year durations, which equates to a total investment of $65 million. All of this is being done to pursue the Chinese market, which Restaurant Brands considers “…one of the most compelling long-term market opportunities…” it has right now.
Timing Issue?
However, there’s a downside to this plan that needs to be considered. China isn’t exactly running on all cylinders economically right now. Thinking long-term here might be rewarded, but it’s not likely to be in the near term. Why? There’s a growing popularity in Chinese dining toward the “poor man’s deal.” Young people in China—typically a big market for Tim Horton’s—are actively pursuing the biggest discounts on food they can find.
The most widely known of these deals is a three RMB breakfast buffet—about C$0.56—from Beijing fast food brand Nanchengxiang. Other popular deals include:
- A C$3.75 chicken special at KFC
- A C$1.88 noodle set from 7-Eleven
- Discounted food items at Hema Fresh
It remains to be seen how well a C$5.69 Smoky Honey Bacon Farmer’s Wrap will perform in such a market.
Is Restaurant Brands International a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on QSR stock based on nine Buys, six Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 3.72% loss in its share price over the past year, the average QSR price target of C$116.54 per share implies 22.39% upside potential.
