CASE SUMMARY Burger King previously known as insta-burger king, currently was the second largest hamburger franchise chain in the world after Mc Donald. This fast food chain was established by Keith Kramer and Matthew burns on 1953. In 1955, after facing financial difficulty franchised and being
this company was sold to Miami based
renamed Burger King by its new owner called James
Mclamore and David Edgerton. In 1989, this company bought by diego a British Spirit company. Under Diego management BK has fall off in the business because of poor performance. To avoid from further loses, Diego has sell it to a partnership private equity firm led by TPG capital in 2002. As per June 2010, it is recorded that Burger king has 12 174 outlets in 76 countries, which is 66 percent of them are in the US and 90 percent are privately owned and operated worldwide. Burger King is the second largest chain of hamburger fast food restaurants in terms of global locations, behind industry bellwether McDonald’s. Based on resourced, company income was generated mainly from three sources that is retail sales at company owned restaurant, royalty payment from sales and fee from franchises and also property income from restaurant leases to franchisees. Management has used a business strategy that can help boost sales and production performance and investing on promoting the brand. The company also specifically plan on growing its chain and focus on international expansions. Expansions are done only at selected market for example countries that has potential on positive growth and attractive new market for instants the middle east or Asia markets. According to industry analysis, burger king’s share price had fallen by half from 2008 to 2010, this is according to them burger king is having significant
management problem. In this study case we will recommend several strategic management in other to solve its problem.
SWOT ANALYSIS STRENGTHS: COMPANY INTERNAL a. Burger King is known for its strong brand. Burger King, formerly known as Insta-Burger King was founded in 1953. Throughout the years it has survived in the industry and has built a strong brand in the US and worldwide. b. Burger king has a strong market position, being the second largest fastfood hamburger restaurant chain in the world as measured by the total number of restaurant and systemwide sales. c. Has lower capital requirements compared to competitors causing Burger King to have a high percentage of franchise restaurants (90%). This provides Burger King with a strategic advantage as the capital required to grow and maintain the Burger King system is funded primarily by franchisees. d. Has its own distribution cooperative which is, Restaurant Services Inc. (RSI), that manage and act as the purchasing agent for the Burger King system in the U.S.. This ensures items move smoothly and efficiently from suppliers through regional distribution centers and each restaurant across the country. e. Has a long term exclusive contracts with other strong brand names which was Coco Cola and with Dr. Pepper/Seven-Up, to purchase soft drinks for its restaurant.
f.
Reduce its costs and boost efficiency by installing point-of-sale cash register system and flexible batch broiler to maximize cooking flexibility and facilitate a broader menu selection while reducing energy cost.
WEAKNESSES: COMPANY INTERNAL a. Too dependent and heavily relying on franchisees as revenue sources, which accounted for two from its three sources of revenue. b. The continuous leadership changes over the years may undermined its ability to establish and communicate a consistent and motivational vision to its franchisees. For example, when Diageo’s management took over Burger King business, the performance was poor to the point that major franchises went out of business and the total value of the firm declined. c. Its high percentage of franchisees also cause Burger King to have limited management control. d. Its restaurant mostly concentrated in the United States (60%). And has a small or less presence internationally as compared to McDonald’s. e. Failure to adapt to more suitable marketing strategy during the fiscal years and marketing to the wrong target market. For example, While McDonald’s strategy is to put more emphasis on women and older group by offering healthier salads and upgraded its already good coffee, Burger King continued to market to young men offering high calorie burgers and advertisement featuring dancing chickens and a “creepy looking” king. This marketing concept not only promotes an unhealthy diet but also targeting the wrong target market, which was the men, that having difficulties and was hit hard on employment and such during the fiscal year.
f.
Cannibalized its existing sales by putting too much emphasis on value meals, which they sell it in lower price compared to its production cost.
Thus, causing them to lose money. g. Some food items, for example Pizza Burger, contains 2530-calorie. This served as a concern as Americans opt for a more healthy living.
OPPORTUNITIES: EXTERNAL ENVIROMENT a. The potential growth and new market of other countries led to Burger King to focus on exploring new grounds and international expansion. b. Burger King should also take advantage of the growing health conscious community where people are more concern on their health by offering and introducing more healthy items on the menu. c. The fast-food hamburger restaurant (FFHR) category in the quick service restaurant (QSR) segment of the restaurant industry were projected to grow
5%
annually
during
2010-2015.
This
positive
remarks
is
advantageous to Burger King and a good time to market Burger King products according to consumer’s needs. d. Marketing and operating economies of scale made it difficult for new entrant to challenge established U.S. chains in the FFHR category. With this, Burger King have the competitive advantage to further increase its market share in the industry. THREATS: EXTERNAL ENVIRONMENT a. The economic recession (2008-2010) has caused the declining margins in Burger King. b. Legislation for unhealthy fast food threatens not only Burger King but the quick service restaurant as a whole.
For example, a health reform bill
passed by the U.S. Congress in 2010 required restaurant chains to list the calorie content of the menu.
c. Aside from its main competitor, which is McDonald, and indirect competitors such as Taco Bell, KFC, and Pizza Hut etc. Burger King may face other small growing competitors as the barrier for entry is low.
EFE MATRIX Rating indicates how effective the firm’s current strategies respond to the factor. Rating of 1 indicates the response is poor, 2 indicates the response is below average, 3 meanwhile indicates its above average and rating of 4 means company is superior in responding to the factors. Weights are industry-specific while ratings are company-specific. Total weighted scores well below 2.5 point to internally weak business. Scores significantly above 2.5 indicate a strong internal position. The total weighted score of 2.40 indicates that the business has slightly less than average ability to respond to external factors. No
Opportunities
Weight
Rating
Weighted
1 2
International expansion Growing health conscious population
0.20 0.20
3 3
Score 0.60 0.60
3
FFHR potential growth in QSR segment
0.10
2
0.20
4 No
Increase market share Threats
0.10 Weight
2 Rating
0.20 Weighted
1
Economic recession (2008-2010)
0.20
2
Score 0.40
2
Legislation for unhealthy fast food
0.10
2
0.20
3
Competition from well-established fast
0.10
2
0.20
food companies Total
1.0
2.40
IFE MATRIX Rating captures whether the factor represents something major or minor. A rating of 1 represent a major weakness while a rating of 2 represents a minor weakness. A minor strength will represent a rating of 3 while a major strength will be rated as 4. Since we are using the rating scale 1 to 4, then strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Total weighted scores well below 2.5 indicate to internally weak business. Scores significantly above 2.5 indicate a strong internal position. Burger King company score of 2.60 shows that the company has an internally strong business. No
Strengths
Weight
Rating
Weighted
1
Strong brand name
0.13
4
Score 0.52
2
Strong market position
0.10
3
0.30
3
Lower Capital requirements
0.08
3
0.24
4
Has its own distribution cooperative (RSI)
0.07
3
0.21
5
Exclusive partnership
0.06
3
0.18
6
Cost
0.03
3
0.09
No
operation Weaknesses
Weight
Rating
Weighted
1
Reliance
0.13
2
Score 0.26
2
revenue Continuous leadership changes
0.09
2
0.18
3
Limited management control
0.07
2
0.14
4
Concentrated in US only, less presence in
0.08
2
0.16
5
certain country Wrong marketing strategy
0.10
2
0.20
6
Too much emphasis on value meals
0.03
2
0.06
efficient
of
kitchen
franchisee
and
as
registry
source
of
7
High calorie food items/menu
0.03
Total
1.0
2
0.06 2.60
CPM MATRIX The overall competitiveness of a firm can be evaluated on the basis of its overall strength rating. If the difference between a firm’s overall rating and the scores of lower-rated rivals is higher then the firm has greater net competitive advantage. Whereas, if the difference between a firms’s overall rating and the scores of higher-rated rivals is bigger then the firm has greater net competitive disadvantage. The competitive profile matrix shows that the total weighted score of McDonald’s is higher than Yum Brands and Burger King which means that it has the strongest competitive position. While Burger King has the net competitive disadvantage compared to the other two brands.
Critical
Weight
Success
McDonald’s Ratin Weighted
Yum! Brands Ratin Weighted
Burger King Ratin Weighte
g
Score
g
Score
g
d Score
Factors Brand Name Product
0.15 0.09
4 2
0.60 0.18
3 3
0.45 0.21
2 3
0.30 0.21
Quality Public Image Market Share Price
0.07 0.10 0.05
2 4 3
0.14 0.40 0.15
3 3 2
0.24 0.30 0.10
2 3 3
0.14 0.30 0.15
Competitive Innovation Advertising Market
0.04 0.06 0.08
3 4 4
0.12 0.24 0.32
2 3 4
0.08 0.18 0.32
2 2 4
0.08 0.12 0.32
Expansion Financial
0.06
4
0.24
3
0.18
2
0.12
Position Sales
0.08
3
0.24
3
0.24
3
0.24
Distribution Strategic
0.04
3
0.12
3
0.12
2
0.08
Partnership and Aliances
Number Locations Geographic
of
0.10
3
0.30
4
0.40
3
0.30
0.08
3
0.24
4
0.32
2
0.16
coverage 1.0
3.29
3.14
2.52
PROBLEM STATEMENT LIST OF PROBLEMS 1. Poor management by its previous predecessor Burger King has gone through different management style and companies since it was founded in 1953 by Keith Kramer and Matthew Burns. Even though Burger King has established itself as a well known brand over the years, its history of poor management has put a toll on its brand name. Even suffering declining in revenues along the way. 2. Weak marketing strategies and wrong target market
Certainly the changes of its strategies do led to a profitable quarters and re-energized Burger King after the take-over of TPG Capital in 2002, but when the advertisements and campaigns stopped, the sales of its items also declines. Furthermore, Burger King led by TPG Capital invested too much on acquiring male consumers as their target market. During the 2008-2010 recession in the U.S., Burger King showed the lack of flexibility in changes of its market strategies. Male consumers was not a really suitable target market at that time as they were the ones having difficulties and was hit hard on employment and such during the fiscal year. 3. Lack of product Innovations The “barbell” menu strategies that was introduced at both the premium and low-priced ends of the product continuum did not really help much in the growth of Burger King. Since fast food often associated with low price. Furthermore, the premium items need to be constantly advertised. Moreover, its menu development was deemed as horrible and too much emphasis was given on value meals which causes dissatisfaction among the franchisees. The growing concern of health and fitness in the U.S. as well as the passing of the health reformed bill in 2010 by the U.S. Congress is one of the most important issues to be taken into consideration for the quick service restaurant (QSR) including Burger King. Burger King should be flexible in its approach of product offerings but failed to do so by promoting and creating high calorie and unhealthy food items on the menu. 4. Limited management control Approximately 90% of Burger King restaurants were franchised. This means a lower capital requirements but it also meant Burger King had
limited control over franchisees. The limited control by Burger King management can cause distortion in relaying the right management style as well as adhering its vision and mission of the company to the franchisees. For example, mismanagement by franchisees was they disregard their aging restaurant. And this will led to the downgrade of its brand name. 5. Reliance of franchisees as revenue source According to management, the company generated revenues from three sources. Two of them are from the franchisees. This posed as a threat to the company as revenue will be lost if there are declines in franchisees. Based on the listed problems above, we can conclude that the main problem is poor leadership and management and loss of brand vision that leads to weak
marketing
strategies,
wrong
target
market
and
lack
of
innovations.
ALTERNATIVE STRATEGIES 1. Rebranding A firm's brand is its most valuable asset. When your firm has a confident, well-positioned brand, opportunity grows: you are perceived as more credible, get more unsolicited leads, close a higher percentage of business and can charge more for your services. Rebranding is a marketing strategy in which a new name, term, symbol, design, or combination thereof is created for an established brand with the intention of developing a new,
differentiated
identity in the
minds
of
consumers,
investors,
and
competitors. Often, this involves radical changes to a brand's logo, name, image, marketing
strategy,
and advertising themes.
Such
changes
typically aim to reposition the brand/company, occasionally to distance itself from negative connotations of the previous branding, or to move the brand upmarket, furthermore they may also communicate a new message a new board of directors’ wishes to communicate. 2. Setting new product and marketing strategies Burger King has successfully differentiated from its competitors when it launced the Have It Your Way advertising campaign in 1974. But the constant take-over of the company has caused it to loose direction of its market segments and targets. The inflexibility of its marketing strategies has led to unnecessary menu development and targeting the wrong market. The product development should take into account the current demand of the market. At times like this where the community are more concerns on their health, they will think more of their family and protection against having high calories food. In short, Burger King must be able to create a product that caters the community concerns and needs. Which include more healthy food items on the menu as well as targeting a wider market segments and consumers. The marketing campaign that will be used must be able to reach certain target group for certain products 3. Market Expansion For the organic growth (slow and steady growth) of the company, Burger King must expand its market to potential countries like to Kuwait, Bahrain, Qatar and United Arab Emirates and South Africa while the existing market should be concentrated more to compete with the rivals. Modernization and the vast cultural impact of western culture to the other parts of the world can be an advantage for BK to expand its market in other market
outside Europe. Guerrilla style tactic can be used to open outlets in international major airports. This is easier for BK to reach worldwide market. BK must have an outlet at every airport in every capital around the world for the worldwide market expansion.
EVALUATION OF ALTERNATIVE STRATEGIES 1. Rebranding Burger King has lost direction with the constant changes of management and leadership style. With rebranding, a new and fresh image of Burger King will be introduced with the new takeover. With rebranding it can help in understanding more of the brand itself. A more defined purpose and value of the brand which will be of help in hiring more suitable staff and target the right sort of clients. Furthermore, with rebranding, the franchisees will also be involved in the process. This is a great way to boost morale and make them ambitious to take on a new level. The cons for this are to rebrand, we must took into account the resources and the high costs for rebranding. 2. Setting new product and marketing strategies Burger King put all its energy into targeting 18-35 year old males, but they only represent only 17% of the fast food market. Wider range of consumers can be achieved with new marketing strategies that target the whole gender and age group. With the new product development aiming
to promote more healthy food items, it does not only fit to the current trend of health and fitness but also in line with the passing of the health reform bill in U.S. Customers who are frequent to Burger King will always have newer needs, they often wish that new product or services could be more than what is has today. Therefore, the introduction of the new product development that focuses on the need of the customers and change in the company’s image and services could establish the company as industry leader. The company could rely on the existing customers to provide input to determine the effective way to enhance loyalty and to attract new customers and ultimately, increase profitability. However, this strategy requires the company to have a well define road map and commitments to raise their service standard to customers. In terms of new marketing campaign, it will involve a lot of capital and spending too much into marketing is quite a gamble, as it is never literally proven that high marketing cost helps to increase sales. 3. Market expansion Market expansion would raise customers’ awareness to the existence of the company. Market expansion strategy at new geographical locations such as Eastern European countries, some parts of the African countries and Middle Eastern countries would enable the company to bring in previously untapped customers markets and allow the company to spread the costs of doing business across more markets and customers. This makes the cost of doing business less on per-customer basis, which improves the potential to profit by adding new customers. However, the company needs to assess the limitations of entering into the new geographical locations particularly on the government regulations and the social climate or trend of the people in those countries.
THE BEST STRATEGY AND JUSTIFICATION The best strategy for Burger King is to combine the two alternatives which are re-branding and setting new product and marketing strategies. The poor management and constant leadership change in Burger King has hurt the brand name. Furthermore, it also provide a thin line and limited control over the franchisees and their uptake on their restaurant. With rebranding, it can strengthen its management policy along the way as rebranding takes time and effort from all parties in Burger King including the franchisees. This can further strengthen the connection to its franchisees and expand its control. Rebranding can also reintroduce Burger King to the masses and shows a conviction to the consumer that they are ready for change and further position and strengthen its place in the market. For the second strategy, Burger King has to change their marketing and promotion strategies in order to survive in the fast food industry. Focusing on its marketing strategies, Burger King need to develop new marketing plan such as creating more family oriented menu for the restaurant, deliver new marketing campaign through different medium such as loyalty customer programs, limited-time offers menu strategy, kids’ menu package and slightly change the concept from a high calorie menu to healthier or low calorie menu. Apart from that, changes on the Burger King infrastructure will gain positive respond from customer because basically new trend attract more new customer. Burger King need to change the target market from younger people to family
segmentation in order to increases their market share. Targeting on the children and working parents helps Burger King to define its target market not only for younger people but also for the family-oriented population. Thus, every new marketing trends evolve by Burger King will promise the company a good return in terms of increase in market share, customer loyalty, brand popularity and competitive advantage.
IMPLEMENTATION SHORT TERM 1
Rebranding
Burger King need to rebrand its image, to have a more focus and specific and goal directed kind of image, currently consumer may confused on what Burger King May offers. With rebranding, a new and fresh image of Burger King will be introduced with the new takeover. Burger king also may merge with another fast food operator for example DOMINO Pizza, service skills or fast operation knowledge able to transfer between both operators, as Domino Pizza is one of the top major quick service restaurants in US. Furthermore, with this move Burger King can gain more market share in the quick service restaurant industry. Last but not least, HRM department will need to restructure its staff and employee into a more organize group and this will involve extra cost through the upgrading of certain system.
2
Advertising/ marketing campaign
Burger king may establish new marketing strategy. Burger king may opt to invest in its commercial advertising by getting a healthy celebrity who enjoys burger king new healthier food. Burger king need to showcase its various new menu items, which include smoothies, salads, and specialty coffee drinks. The commercials video must strike a humorous tone and should be more fun than the old one. To attract more children consumer burger king may introduce a mascot. To attract the busy and always on the move consumer they may promote a video that showcase the food is ready to eat and prepared in just a minute.
LONG TERM 1
Introducing healthier food & drink
People nowadays are more concern on health, thus Burger king can take a chance to promote and introducing a healthier food and drinks. For example include a fresh fruit or fresh vegetable salad to its menu. Not only that, to promote healthier foods which also include the current food ingredient for example reduce or remove all usage of msg in food, or reject on preparing burger that have pickles. For its drink, they can introduce organic fresh drink and cut off the use of sugar in its drink.
2
A Firmed and consistence company leadership/ ownership
Based on history of this company, the ownership is changed on regular basis, this may bring to a negative consumer perception on its company. Its only show how weak Burger king in its management and its unstable top
management position. Burger King needs a leader who can specifically direct its company to a clearer direction or vision. A leader that can articulate clear vision of the company and compelling picture of a future condition that the staff and franchisees feel committed to achieve. A strong formation in top management is very important so that can bring a positive aura to the franchises or the worker its self.
