1.0 CASE SUMMARY
Burger King is the world´s second largest fast food hamburger restaurant (FFHR) company. The BKW system includes over 12,600 restaurants in the U.S. and more than 80 other countries worldwide, with 95% of the system s ystem currently operated under a franchised business model. Burger King Corporation was founded in 1954 in Miami, Florida, by James McLamore and David Edgerton. McLamore and Edgerton, both of whom had extensive experience in the restaurant business before starting their joint venture, believed in the simple concept of providing the customer with reasonably priced quality food served quickly in attractive, clean surroundings. The success and size of Burger King Corporation is the result of a tradition of leadership within the fast-food industry in such areas as product development, restaurant operation, decor, service, and advertising. At the end of its fiscal year 2007, Burger King reported that there are more than 11,300 outlets in 69 countries, 66% are in the United States and 90% are privately owned and operated. The company has more than 37,000 employees serving approximately 11.4 million customers daily. The company's two largest franchisees are Carrols Corporation with over 325 restaurants in United States, and Hungry Jack's, which exclusively owns, operates or sub-licenses over 300 restaurants in Australia. In 2010, 3G Capital, a global multi-million dollar investment firm focused on long term value creation, purchased Burger King Corporation, making it a privately-held company. The buyout marks the largest leveraged acquisition of a fast-food chain ever, and the second for Burger King in the last eight years. The whopper-maker’s possible new owner, 3G Capital, is backed by a number of wealthy Brazilians, including billionaire and a sport celebrity (tennis player). 3G plans to expand Burger King’s foothold internationally, especially in Latin America and Asia.
2.0 SWOT ANALYSIS
Burger King
Weaknesses • Market concentration • Scattered Marketing Campaign
Strengths Strong market position Greater franchise mix Robust financial performance
Opportunities New products development New opportunities in growing economies Positive outlook for restaurant industry in the US
Threats
Intense competition Expiry of Franchise Agreements Acrylamide in French fries
2.1 Strengths Strong market position Greater franchise mix Robust financial performance
2.2 Weakness Market concentration Scattered Marketing Campaign
2.3 Internal Strategic Factor Analysis (IFAS) Weight (Ranges from 0.0 to 1.0)
0.0
1.0
Not important
Very important Rating
1
2
3
4
Major weakness Minor weakness Minor strength Internal Strategic Factors Weight Rating Weighted Score
1 Strengths • Strong market position • Greater franchise mix • Robust financial performance
2
3
4
0.25 0.20 0.20
4 3 3
1 0.6 0.6
0.20 0.15
4 2
0.6 0.3
Weakness
• •
Market concentration Scattered Marketing Campaign
TOTAL
1.0
3.10
Major strength Comments
5
The total of 3.10 shows that the strengths and weaknesses of Burger King are only at minor strength which is quite significant for Burger King to improve their strengths and overcome their weaknesses from time to time as to strengthen the company’s profile and
to widen market shares internationally.
2.4 Opportunity • New products development • New opportunities in growing economies • Positive outlook for restaurant industry in the US 2.5 Threats Intense competition Expiry of Franchise Agreements Acrylamide in French fries
2.6 External Strategic Factor Analysis Summary (EFAS) Weight (Ranges from 0.0 to 1.0)
0.0
1.0
Not important
Very important Rating
1
2
3
4
Major weakness
Minor weakness
Minor strength
Major strength
Internal Strategic Factors
Weight
1
Opportunities • New products development • New opportunities in growing
•
economies Positive outlook for restaurant industry in the US
Threats • Intense competition • Expiry of Franchise Agreements
Acrylamide in French fries
TOTAL
Rating
2
3
Weighted Score 4
0.25 0.20
4 4
1.0 0.8
0.15
3
0.45
0.20 0.10
4 3
0.8 0.3
0.10
2
0.2
1.0
Comments
3.55
The total of 3.1 shows that the opportunities and threats of Burger King are only at minor strength which is quite significant for Burger King to use their abundance of opportunities in order to overcome threats which are coming to take control over their market shares globally.
5
2.7 Competitive Profile Matrix (CPM) Weight (Ranges from 0.0 to 1.0) 0 Not important
1 Very important Rating
1 Major weakness Critical Success Factor
2 Minor weakness Burger King Weight Weighted Rating Score
3 Minor strength Wendy
4 Major strength McDonald
Rating
Weighted Score
Rating
Weighted Score
Strong Market Position
0.1
4
0.4
4
0.4
4
0.4
Market Concentration
0.2
4
0.8
3
0.6
3
0.6
New Products development Intense Competition
0.1 0.15
3 4
0.3 0.6
3 3
0.3 0.45
3 4
0.3 0.6
Financial Position
0.2
2
0.4
3
0.6
3
0.6
Product Quality
0.25 1.00
2
0.5 3.00
3
0.75 3.10
3
0.75 3.25
TOTAL
The total of 3.00 shows that Burger King is rated in minor strength position. They are competing in a competitive environment particularly with Wendy and McDonald. Proper strategies which will be discussed in later page will be able to improve the net competitive advantage for Burger King.
3.0 PROBLEM STATEMENT
The case study indicates the main problem on the concerned of the new management of Burger King’s ability to continue to capitalize on the Burger King Brand by
growing globally and reimagining Burger King Brand in the market. Following are the list of problems:a) Heavily concentrated in the US. b) Confusing advertisement campaigns. c) Inconsistent management and strategy. Changing Executives. 1. Heavily concentrated in the US.
Though the company operates in 65 countries, its operations are heavily concentrated in the US and Canada. About 65% of its restaurants are located in the US and Canada. Concentration of operations in one geographic area increases company's exposure to local factors such as adverse economic situation, labor strikes and changes in regulations that can affect its operations. Concentration of operations in one geographic area increases company’s exposure to local factors such as adverse economic situation, labor
strikes and changes in regulations that can affect its operations. 2. Confusing advertisement campaigns
Ineffective ad campaigns were one of the problems facing BK. Burger king lost its core product-flame broiled burgers, made the way the customer wanted them. Many in store promotion also failed. They fail to efficiently promote products, because they are too busy trying to promote “The King” character. The Burger King "I like square butts"
commercial. I found that offensive because it was promoting a Sponge Bob kid's meal. I just didn't think that was appropriate for little kids, especially when you know the real lyrics to the real song. In the commercial, the Burger King icon was measuring the square butts of other girls. A lot of people were offended over this commercial. 3. Inconsistent management and strategy
Management lacked focus and direction and has struggled with marketing mix decisions. Franchises became confused and angered, service was slow and food preparation wasn't consistent. Burger King lost its core product-flame broiled burgers, made the way the customer wanted them. Burger King Corp. was founded in Miami in 1954 by James
McLamore and David Edgerton, a year before Ray Kroc opened his first McDonald's in suburban Chicago. The Whopper was introduced in 1957. In 1967, Burger King was acquired by the food conglomerate Pillsbury. In 1988, Pillsbury was bought by Grand Metropolitan PLC, a British conglomerate. In 1997, Grand Metropolitan merged with Guinness to create Diageo. With each merger, even as Burger King grew, it became a smaller piece of the overall company. Ultimately, it became an afterthought. Soon after the merger, Diageo decided that Burger King no longer belonged. In 2000, Diageo officially placed Burger King on the auction block. The company was finally sold in 2002 to a consortium of private equity investors, Texas Pacific Group (TPG), Bain Capital, and Goldman Sachs Capital Partners for $1.5 billion.
4.0 ALTERNATIVE STRATEGIES
1. Increase average unit sales 2. Accelerate Net Restaurant Growth (NRG) and continued sales growth 3. Global Refranchising
1. Increase average unit sales
An increased average unit sale per transaction is the result of completing every sale where the customer makes an informed purchase. If a customer leaves your store following an incomplete sale then who suffers? First, the store suffers because of the lost opportunity to increase the value of the sales transaction. And secondly, the customer suffers because he or she may not have been well-served with the purchase that was made. In Burger King, we would like to emphasize on four key areas which are menu, image, marketing communication and operations . The strength of our menu has
been built upon our signature flame-grilled cooking process, which we believe results in better tasting burgers. We believe that with the introduction of new image will drive store sales, higher profits and strong return on invested capital. We have established a data driven marketing process which is focused on driving restaurant sales and traffic, while targeting a broader consumer base with more inclusive messaging. By restructuring the current field teams, it will significantly increase our field presence and restaurant visits by reducing the span of control of our field teams.
2. Accelerate Net Restaurant Growth (NRG) and continued sales growth
Net Restaurant Growth or NRG is defined as the change in system restaurants as of the end of a given period compared to the end of the prior period. This change is composed of new restaurants opened, less restaurants closed during the period. In Burger King, it accelerates NRG by creating Master Franchise JVs and Development Agreements. Master franchising is a method that has been employed by most franchise systems. The operational efficiency of these systems, with their distinctly complex organizational form, benefits from increased growth rates of the sub franchises.
3. Global Refranchising
Taking a franchise brand international is, in a sense, the final frontier for growth. It's where many franchise brands that have begun - and been successful - in the U.S turn when they seek expansion. It's a strategy that often occurs in part because of growth that has saturated domestic markets and territories. Typically, larger more established franchise brands begin looking across borders for untapped markets and potential growth. In Burger King, we believe the refranchising strategy will continue to enhance our cash flow, accelerate the re-imaging initiative and strengthen relationships with key franchisees
5.0 EVALUATION OF ALTERNATIVE STRATEGIES
1. Increase average unit sales Positive Outcome
With the implementation of Increase average unit sales will eventually build the confidence and strengthen the brand image of Burger King. The strategies will also drive store sales, higher profits and strong return on invested capital. As for operation, it will be more focus and strategic, in return will be able to increase the staff productivity and reducing the span of control of field teams.
Negative Outcome
The drawback of this strategy would be the acceptance of the consumer on the implementation of the action plan. It will also jeopardize the implementation of restructuring in the operation field team which without evaluating the numbers of experience staff to lead the implementation of the restructuring strategy.
2. Accelerate Net Restaurant Growth (NRG) and continued sales growth Positive Outcome
This strategy will leads to the implementation of master franchisor in which a master franchisor will grant the master franchisee, or subfranchisor, the right to third-party operations within a defined territory. And then, with respect to regional issues, the subfranchisor will assume the role of the franchisor, but they typically will not own or operate the franchise. They are removed from a direct management position. This duplication of the franchisor's role forms an additional layer of control in the general franchise system, which results in some small scale inefficiencies on the small, local scale but greatly reduces the large scale inefficiencies. Additionally, a master franchise allows the company holding the franchising permit to benefit from management talent and more and more accessible capital. Combined, these two factors translate into almost instant penetration into the market and a competitive advantage, both of which increase system growth rates. Managerial levels and hierarchical framework exemplify one competitive advantage. By allowing the franchisor to specialize in recruiting, screening and training of subfranchisors, which then develop their area in a similar way, the overall growth rate of chains increases. Other benefits include faster development, a more comprehensive financial base, specific expansion plans, access to capital and a regular cash flow, proximity to the customer, some independence, and the ability to address the demands of the customers as well as address the local competition.
Negative Outcome
Although master franchising can be beneficial and advantageous, there are also setbacks, including legal problems and overly long contracts. One specific setback of master franchises is that the increase in agency costs. Franchise agreements are needed to codify the enforcement of behavior. But, because all aspects of the franchise cannot be predicted, this requirement raises the opportunity for franchise shirking while reducing the overall ability to monitor all aspects of the franchise.
3. Global Refranchising Positive Outcome
Through global refranchising, it will reposition Burger King as a “progressively responsible” Fast-Food Hamburger Restaurant. Subsequently increase corporate
influence and initiatives over franchise operations. With global refranchising, it will help
by streamlining Burger King Business model in return leads to a more product-centric focus.
Negative Outcome
Although going global would be able to create a positive opportunity, but it is also has its own setback. One of it would be the implementation of the franchisee commitment and cooperation toward the implementation of the required initiative. Different franchisee would have their own way in implementing it and having different strength and weaknesses. Main franchisee would need to play their role to ensure aligned to the requirement.
THE BEST STRATEGY AND JUSTIFICATION
Of all the three alternative strategies, we have concluded that increase average unit sales as the most appropriate strategy in handling Burger King competitive position and
reimagining in driving sales and traffic based on the following four key areas:
Menu
The strength of our menu has been built upon our signature flame-grilled cooking process, which we believe results in better tasting burgers. Our menu strategy seeks to optimize our menu by focusing on our core products, such as our flagship Whopper sandwich, while enhancing our menu to broaden our appeal to women, parties with kids and seniors. Our recently launched initiative to focus on our food expanded our product platforms and introduced 21 new or improved menu items in 2012. We believe that our renewed focus on our food will provide us the opportunity to meaningfully increase same store sales and margins.
Marketing & Communications
We have established a data driven marketing process which is focused on driving restaurant sales and traffic, while targeting a broader consumer base with more inclusive messaging. Through our food-centric marketing communication strategy, we believe we can refocus our consumers on our food, which is a core asset and competitive differentiator.
Image
We believe that our contemporary "20/20 design," which draws inspiration from our signature flame-grilled cooking process, will drive same store sales, higher profits and strong return on invested capital. To encourage franchisees to commit to these remodeling efforts, we developed a lower cost remodeling alternative and provided our U.S. franchisees with access to a third-party financing program.
Operations
We have restructured our field teams through our "field optimization project," to significantly increase our field presence and restaurant visits by reducing the span of control of our field teams. We believe that this reduction in the number of restaurants for which a field employee is responsible will improve all aspects of restaurant operations, including food quality, guest service, and speed of service and restaurant cleanliness. We also redefined the role of a field employee to be that of a "business coach" who is responsible for closely working with the restaurant teams and franchisees to achieve their sales, profit, and operational goals. The field employees’ variable compensation is linked to the performance of those franchise restaurants. We believe that this "business coach" approach will ensure accountability and alignment with our franchisees. We have also launched standardized operational metrics to evaluate restaurants that focus on those core competencies that we believe will maximize the guest experience. We believe that enhancing our guests’ experience increases traffic to restaurants and provides us and our franchisees the opportunity to improve sales and margins.
IMPLEMENTATION Short-Term Plans Implementing the increase average unit sales strategies, concentrating on the
four key areas (menu, image, marketing communication and operations), it will optimize the menu by focusing on the core products, such as our flagship Whopper sandwich, while enhancing new menu to broaden the appeal to women, parties with kids and seniors citizens. By introducing 21 new or improved menu items, it will renew the focus on the food menu and will provide the opportunity to significantly increase store sales and margins. Implementation of f ocused marketing message “TASTE IS KING” , which a food-centric advertisements to all demographics will strengthen the brand image. Future goal of Burger King is to have 40% of U.S. and Canada system units on a
modern image by 2015. Currently, U.S. and Canada system ended 2012 with 19%of units on a modern image, up from 11% at the end of 2011. Re-imaged restaurants continue to experience an average sales uplift of 10-15%. In the operation initiative, we will implement “Sales, Profit and Operations Coaches” who work shoulder-to-shoulder with restaurant team. Burger King also began to rank franchisees to increase transparency and promote healthy competition to improve operations system-wide.
Long-Term Plans
Accelerate Net Restaurant Growth (NRG) and continued sales growth as well as Global Refranchising will be implemented once ready and it will long term basis. Since 2011, Burger King successfully entered into international development and joint venture agreements, laying the foundation for sustainable long-term unit development
