The Coffee Bean & Tea Leaf(CBTL), Business strategy case study
Burger King's Struggles and Image Makeover
1. BPMN 6023
STRATEGIC MANAGEMENT
INDIVIDUAL ASSIGNMENT
MINI CASE STUDY
“BURGER KING”
PREPARED BY:
ZUHREN MD. NASIR 814848
(ATC SEREMBAN)
PREPARED FOR:
ASSOC. PROF. DR. HAIM HILMAN ABDULLAH
3. Executive Summary
For nearly 60 years, Burger King has served flame-broiled hamburgers at an affordable price. In
this sense, the fast-food chain best known for its over-sized sandwich has been nothing but
consistent. This paper will examine the image changes Burger King has undertaken in an attempt
to reverse recent profit losses. Reasons for Burger King’s struggles will be discussed, namely its
lack of vision and frequent leadership changes.
In the end, the ultimate measure of success will be whether or not these proposed new strategies
positively impact the bottom line. Financial gains will not result from a poor image, poor
franchisee relationships, and a poor product. These three factors are explicitly and irrevocably tied
to profit, so Burger King must constantly – and consistently – monitor feedback and respond to
concerns if they want to close the gap with their number one competitor cum market leader,
McDonald’s.
The history of Burger King marked approximately 20 changes in management. The changes in
short term span affected organisation focus over goals and objectives, affected brand image
adversely and lacked consistency in operation. This paper examined how a lack of vision and
constant leadership changes factored into the need for Burger King’s recent image and marketing
makeover.
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4. Chapter 1.
Company Background
Burger King was originally known as Insta-Burge King. It was founded in Florida in 1953 by
Keith Kramer and Matthew Burns before they had financial difficulties and sold the company to
its Miami based franchisee, James McLamore and David Edgerton in 1955. The new owner
renamed the company to Burger King. The first Whopper sandwich was introduced in 1957. The
company again was sold to the other party, Pillsbury Corporation during their expansion exercise
to 250 locations in United States.
In 1989, Pillsbury Corporation was sold to Grand Metropolitan, which in turn merged with
Guinness to form Diageo, a British spirits company. Diageo’s management neglected the Burger
King business, leading to poor operating performance. The business was damaged to the point
that major franchises went out of business and the total value of the firm declined. Diageo’s
management decided to divest the money-losing chain by selling it to a partnership private equity
firm led by TPG Capital in 2002. The company became re-energized by a series of promotional
campaign and activities created by the investment group. In May 2006, the investment group took
Burger King public by issuing an Initial Public Offering (IPO). The investment group continued
to own 31% of the outstanding common stock.
As of June 2010, the company owned or franchised 12,174 restaurants in 76 countries and U.S
territories, of which 1,387 were company-owned by franchisees. Of Burger King’s restaurant
total, 60% were located in the United States. The restaurants featured flame-broiled hamburgers,
chicken and other specialty sandwiches, french fries, soft drinks, anf other low-priced food items.
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5. Chapter 2.
Industrial Background
The fast-food hamburger category operated within the quick service restaurant (QSR) segment of
the restaurant industry. QSR sales had grown at an annual rate of 3% over the past 10 years and
were projected to continue increasing at 3% from 2010 to 2015. The fast food hamburger
restaurant (FFHR) category represented 27% of total QSR sales. FFHR sales were projected to
grow 5% annually during this same period. Burger King accounted for around 14% of total FFHR
sales in the United States.
Burger King competed against McDonald’s, Wendy’s, and Hardee’s restaurants in this category
and against regional competitors, such as Carl’s Jr., Jack in the Box, and Sonic. Indirectly, they
also competed against the QSR restaurant segment, including Taco Bell, Arby’s, and KFC.
Although the restaurant industry as a whole had few barriers to entry, marketing and operating
economies of scale made it difficult for a new entrant to challenge established U.S. chains in the
FFHR category. The QSR segment appeared to be less vulnerable to a recession than other
business as proven during the quarter ended May 2010, both QSR and FFHR sales decreased
0.5%, compared to a 3% decline at both casual dining chains and family dining chains. The U.S.
restaurant category as a whole declined 1% during the same time period.
Apart of all the above, America’s increasing concern with health and fitness was also putting
pressure on restaurants to offer healthier menu items. For example, one county in California had
attempted to ban McDonald’s from including toys in its high-calorie “Happy Meal” because
legislators believed that toys attracted children to unhealthy food.
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6. Chapter 3.
i.
Internal Environment Analysis (Critical Issues)
Limited control over franchisee
Approximately 90% of Burger King restaurants were franchised, a higher percentage than
other competitors in the fast-food hamburger category. Although such a high percentage
of franchisees meant lower capital requirements compared to competitors, it also meant
that management had limited control over franchisees and limited ability to facilitate
changes in restaurant ownership. Franchisees had also disregarded their aging restaurants.
ii.
Poor sales pricing strategy
Some analysts felt that Burger King may have cannibalized its existing sales by putting
too much emphasis on value meals (where there will be one price for a mix of foods
offering such as cheeseburger, fries and a glass of coke). in 2009, Burger King was sued
by its franchisees over the firm’s double-cheeseburger promotion, claiming that it was
unfair for them to be required to sell these cheeseburger for only $1 when the cost $1.10.
iii.
High expenses cost of Burger King’s company-owned restaurants
The high expenses 87.8% of Burger King’s company owned restaurants in fiscal year
ending June 2010 is higher than its competitor McDonald’s 81.8% for the fiscal year
ending Dec 2009. The high expenses contribute to the drop in net income, from $200.1m
in 2009 to $186.8m in 2010.
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7. Chapter 4.
i.
External Environment Analysis (Critical Issues)
Low entry barrier - market become saturated
Regionally, Burger King competed against market-leading McDonald’s, Wendy’s,
Hardee’s, Carl’s Jr., Jack in the Box, and Sonic. Internationally, Burger King also has to
compete with small fast food restaurants who offered similar menus but with local taste.
Other than that, they also are indirectly competing with other restaurant in the same QSR
segment but with different menus (substitute product), namely Taco Bell, Arby’s, KFC
and Pizza Hut.
ii.
Growing health consciousness
Concerns about personal and family health fuel the trend toward healthier living,
contribute to the declination of the sales of some menus such as Steakhouse XT burger.
This issue has putting pressure on restaurants to offer healthier menu items.
iii.
Slow industry growth rate
The Quick Service Restaurant (QSR) segment had grown at annual rate of only 3% over
the past 10 years and was projected to continue increasing at the same rate of 3% from the
year 2010 to 2015.
Chapter 5.
i.
SWOT Analysis
Strength
a. Strong market position
Burger King is the 2nd largest fast food hamburger restaurant chain in the world as
measured by the total number of restaurants and system-wide sales.
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8. b.
Lower capital requirements as compared to competitors
High percentage of franchise restaurants provides Burger King with a strategic
advantage because the capital required to grow and maintain the Burger King
system is funded primarily by franchisees.
c.
Exclusive partnership with Coca Cola
Burger King had a long term exclusive contracts with Coca Cola and with
Dr.Pepper/Seven-Up to purchase soft drinks for its restaurants.
ii.
Weaknesses
a. Too dependent on franchisees as revenue sources
Burger King generate revenues from three sources: (1) retail sales at company
restaurants; and (2) franchise revenues, consisting primarily of royalties based on a
percentage of sales reported by franchise restaurants; and (3) property income
derive from leased properties to franchisees. 90% of its restaurants were
franchised.
b. Small presence internationally as compared to McDonald’s
60% of Burger King restaurants located in US soils only. Their presence in certain
part of the world ie Asia and Middle East is considered very weak as compared to
their main competitor McDonald’s.
c. Failure to adapt to more suitable marketing strategy
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.
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9. iii.
Opportunities
a. International market expansion
Burger King planned to focus its expansion strategy on (1) countries with growth
potential where they have already established; and (2) countries with potential
where the company had a small presence; and (3) attractive new markets ie Asia
and Middle East
b. Growing health conscious community
Burger King should take advantage of the current situation where people are more
concern on their health by offering and introducing products with healthy
elements.
c. Joint promotion with more establish partner’s ie Coca Cola
As the exclusive long-term partner with Coca Cola, Burger King could leverage on
Coca Cola stronger brand image internationally by organizing joint marketing
programmes and promotion.
iv.
Threat
a. Relentless leadership changes
Burger King’s ever-changing leadership undermined its ability to establish and
communicate a consistent and motivational vision to its franchisees. This lack of
direction and mission bled into the public sphere, causing consumers to be
confused about Burger King’s image. These failures may result in declining
profits.
b. Low entry barrier
The industry has low entry barrier, making it saturated with numbers of fast food
restaurants with similar products offering.
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10. Chapter 6.
Recommendations
i. New marketing campaign for healthier products
What Burger King needs is probably a new marketing campaign that focus on the
demands of the current market. The new marketing campaign must also be supported with
products that clearly provide a mix of healthy ingredients. The marketing campaign must
be able to reach certain target group for certain products. 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.
ii. Leadership Stability
As stated in this paper’s introduction, Burger King’s financial struggles begin with its
failure to establish a clear vision. Through its constant ownership changes, any chance of
these powerful teams being established was negated. Burger King’s ever-changing
leadership undermined its ability to establish and communicate a consistent and
motivational vision to its franchisees. This lack of direction and mission bled into the
public sphere, causing consumers to be confused about Burger King’s image. What
Burger King needs is a stability in leadership, who can articulate clear vision of the
company and compelling picture of a future condition that the staff and franchisees feel
committed to achieve.
iii. Expansion into high potential countries
In order to strengthen its presence internationally, Burger King must be ready to venture
into the other part of the world that has high potential such as Asia, Middle East and
Eastern Europe. US market is almost saturated and the competition is quite stiff.
Successfulness of th is strategy will surely be marked by increase in profits.
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