Burger King Profile
Burger King appeals to a broad spectrum of consumers because it offers customers quick service of fast food at affordable prices. Burger King’s slogan is “Have it your way”, which means allowing consumers to make better tasting hamburgers according to their preference. What’s more, one of Burger King’s business strategies is focusing on BK® brand equities and optimizing its menu, which reflected the company’s core value of “customer focus, operational perfection and care for the highest quality services and dishes”.
Other strategies applied by Burger King include expanding worldwide development, driving corporate-level G&A efficiencies, and focusing on cash flow generation and debt paydown by tying a portion of management’s incentive compensation to profitability and free cash flow generation. Revenue Recognition Burger King’s revenues and their recognition methods are as follows: (1)Retail sales at Company restaurants are recognized at the point of sale and royalties from franchisees are based on a percentage of retail sales reported by franchisees.
Royalties are recognized when collectability is reasonably assured. (2) Franchise revenues. Initial franchise fees are recognized when the related restaurant begins operations. Renewal franchise fees are recognized upon receipt of the non-refundable fee and execution of a new franchise agreement. (3) Property revenues, including rental income from operating lease rentals and earned income on direct financing leases on property leased or subleased to franchisees, are recognized when collectability is reasonably assured. Franchise Restaurant Leases
Burger King typically does not own the land or the building associated with its franchise restaurants and its standard franchise agreement does not contain a lease component. For properties that it leases from third-party landlords and subleases to franchisees, leases generally provide for fixed rental payments and may provide for contingent rental payments based on a restaurant’s annual gross sales. The franchisee is obligated to pay all costs and expenses, including all real property taxes and assessments, repairs and maintenance and insurance.
Advertising and Promotion Costs Company restaurants generally make 4% to 5% of monthly gross sales to company managed advertising fund, franchisees make this contribution into a franchisee managed advertising fund. Advertising contributions are used to pay for expenses relating to marketing, advertising and promotion, including market research, production, advertising costs, sales promotions and other support functions. In addition to the required national advertising fund, U. S. ranchisees may choose to participate in certain local advertising campaigns on their own expenses
Burger King does not list their inventory in the balance sheet because of the low quantity of inventories. This indicates a high inventory turnover, which is a feature of fast food industry. On November 5, 2010, Burger King’s Board of Directors approved a change in fiscal year end from June 30 to December 31. The change became effective at the end of the quarter ended December 31, 2010.
The financials Burger King plans to improve its average restaurant sales and return on capital by applying a more efficient cost-effective remodel solution. Recently, it has implemented a global restructuring plan by reducing work force throughout its organization. In the United States, approximately 375 corporate and field positions were eliminated. In addition, approximately 250 corporate and field positions were eliminated in Canada, Latin America, and Asia Pacific area.
At the same time, Burger King is seeking geographical expansion of its restaurant network. Its development strategy centers on ensuring that franchisees in each of its markets have the resources and incentives to grow. In addition, it has invested in joint ventures with franchisees to drive development in Taiwan and Northern China, and it expects to continue to use this investment vehicle as one of the strategies to increase its global presence.