Burger King Case Study

1 January 2017

Founded 1954, Burger King (BK), a fast food restaurant business, grew from only 5 restaurants in Miami, Florida to 12,000 restaurants world-wide currently. Their outlets are located in 73 countries around the globe where 66% of them are in the US alone. Their flagship product, Whopper – a big sized burger, went into the market 3 years after the company was founded. The rapid growth in the number of BK restaurants was due to the implementation of the following expansion strategies.

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Franchise Business and 2. Selling of territorial rights to investors At the same time during the years, BK also experienced several ownership changes resulting from selling and merger of companies. However, 48 years after that, in 2002, they found themselves burdened with financial problems which were caused by those strategies and ownership changes. Burger King (BK) is a restaurant and bar industry, specializing in fast food outlets. The company was founded in 1954 by James Mc Lamore and David Edgerton in Miami, Florida.

Brands Inc. The company was listed in NYSE on May 18, 2006. Currently, it shares were traded at US$18. 72 2 Burger King Holdings’ financial statement for financial year ended June 30, 2009 reported total revenue of US$2,537 Million, generating a net income before tax of US$285 Million , a net profit margin of 11. 23%. Five years results for 2005 until 2009 are tabulated as follows.

This affected the sales performance of the respective outlets. As a result of independent ownership and management, lack of strategic planning in terms of marketing initiatives, decision making, budgeting and forecast, financial planning by the owners of BK (due to no the absent of check and control) causes some outlet to go into high financing in order to run the business. Due to poor sales performance resulting from poor strategic planning, franchisee with high financing suffered as they cannot meet their financial obligations.

This was what happened when Ameriking, one of BK largest franchisee when they could not meet their financial obligation and then forced to go into bankruptcy proceeding. As a result of that, payments to BK had to be stopped. Sale of territorial rights – another contributing factor to BK financial problem is when they sold territorial rights to investors whom then sell part of the territorial right to other investors. BK owners authority over the business became smaller and smaller as the territorial rights changes hands.

On top of that, the new investors diversified the business offerings in their restaurants – again another issue of standardization and branding. The company grew at one end but on the other hand strategic directions of the company are being left out just because the act of giving full control to the franchisee. Change of ownership – BK experienced changes in ownership starting 1967 when the founder sold the company to Pillsbury, a home baking food giant.

Again in 1989, major change in ownership occurred when Pillsbury was bought by Grand Metropolitan PLC (Grand Met. ) – a company dealing in worldwide food and retailing business. It does not stopped there as Grand Met. merged with Guiness in 1997 and created Diageo PLC. These sequences of ownership change had taken a toll to BK. Under Grand Met. , BK became a subsidiary and the creation of Diageo PLC resulting from the merger of two big company, BK grew smaller and is only one of a division under the Diageo umbrella.

Many franchisees were experiencing financial difficulties–including bankruptcy–and had long since complained that Diageo had neglected Burger King in favor of its premium liquor business6. Finally in late 2002, Texas Pacific Group (TPG), Bain Capital Partners and Goldman Sachs Capital, a management buy-out team bought BK from Diageo PLC. This acquisition saw BK back in business again even though they are already deep in financial problem. The new owner of BK, took action to revive it from the current financial situation. They invested US$100 million to turn around the company.

Effective marketing and communication campaign o emphasized on quality rather than discounts / promotions o branding campaign It took about 2 years for BK to start showing signs of recovery. In 2004, increasing trends on sales could be seen. BK had also listed new plans to boost its performance including several new menus, new restaurants, redesign, improvement to cooking facilities and also adoption of pro-active portfolio.  Business could be expanded via various known expansion strategies such as franchising, opening of new location, mergers and take-over.

However, strategic planning on financing, marketing, branding, market research, identifying of core business, product and authority should be managed accordingly to avoid lost of control and direction of the business. Burger King expanded to become the 2nd largest fast food company. It nearly lost its direction due to the absence of control over its outlets from the very beginning stage of growth. Any strategic plan could not be disseminated or communicated in the absence of control by the owners.

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