Burger King (Mini Case)

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Burger King (Mini Case)

CASE #5 Burger King (Mini Case) MGT403 Strategic Management

Prepared for Tanvir H DeWan Coordinator of College of Business IUBAT

Prepared by

Serial Number 01 02 03 04 05 06 07

Name Shahriar Rawshon (Group Leader) Md. Zakiruzzaman Suchona Akter Swarna Shahara Akter Eva Kanij Fatama Ruksana Aktar Md. Al Amin Section: B

ID 09102095 09102151 09102163 09102156 09102165 09102130 09302012

International University of Business Agriculture and Technology

Date of Submission: 17th June, 2012

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Burger King (Mini Case)

I. Current Situation:

A. Current Performance History: The company was founded in Florida in 1953 by Keith Kramer and Matthew Burns. Their InstaBroiler oven was so successful at cooking hamburgers that they required all of their franchised restaurants to use the oven. After the chain ran into financial difficulties, it was purchased by its Miami-based franchisees, James McLamore and David Edgerton, in 1955. The new owners renamed the company Burger King. The restaurant chain introduced the first Whopper sandwich in 1957. Expanding to over 250 locations in the United States, the company was sold in 1967 to Pillsbury Corporation. The company successfully differentiated itself from McDonalds, its primary rival, when it launched the Have It Your Way advertising campaign in 1974. Unlike McDonalds, which had made it difficult and time-consuming for customers to special-order standard items (such as a plain hamburger), Burger King restaurants allowed people to change the way a food item was prepared without a long wait. Pillsbury (including Burger King) was purchased in 1989 by Grand Metropolitan, which in turn merged with Guinness to form Diageo, a British spirits company. Diageos management neglected the Burger King business, leading to poor operating performance. Burger King was damaged to the point that major franchises went out of business and the total value of the firm declined. Diageos management decided to divest the money-losing chain by selling it to a partnership private equity firm led by TPG Capital in 2002. The investment group hired a new advertising agency to create 1. 2. 3. 4. A series of new ad campaigns, A changed menu to focus on male consumers, A series of programs designed to revamp individual stores, and A new concept called the BK Whopper Bar.

These changes led to profitable quarters and re-energized the chain. 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

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Burger King (Mini Case)

The company was founded in Florida by Keith Kramer and Matthew Burns It was purchased by its Miami-based franchisees, James McLamore and David Edgerton The restaurant chain introduced the first Whopper sandwich the company was sold to Pillsbury Corporation.

1953 1955 1957 1967

The company successfully differentiated itself from McDonalds 1974 It launched the Have It Your Way advertising campaign. 1989 2002

Pillsbury (including Burger King) was purchased by Grand Metropolitan

Divest the money-losing chain by selling it to a partnership private equity firm led by TPG Capital The investment group took Burger King Public

2006

Has 12200 outlets in 73 countries; 66 percent of them are in the US and 90 percent are privately owned and operated. Burger King is the second largest chain of hamburger fast food restaurants in terms of global locations, behind industry bellwether Mcdonalds (32,400 locations) It is the fourth largest fast food restaurant chain overall after Yum Brands (37,000locations),McDonalds, and Subway (32,000 locations). 7,800 restaurants (domestic) 21.9% of fast-food market share

Mission The mission of Burger King Company was we will prepare and sell quick service food to fulfill our guest's needs more accurately, quickly, courteously, and in a cleaner environment than our competitors. We will conduct all our business affairs ethically, and with the best employees in the mid-south. We will continue to grow profitably and responsibly, and provide career advancement opportunities for every willing member of our organization." Vision The Burger King Companys vision was to serve the best burgers in the business, plus a variety of real, authentic foods all freshly prepared just the way you want it. Page 4 of 16

Burger King (Mini Case)

B. Corporate Governance

John W. Chidsey Chief Executive Officer and Executive Chairman

Brian T. S wette

Richard W. Boyce

David A. Brandon

Ronald M. Dykes

Peter R. F ormanek

Manuel G arcia

Sanjeev K . Mehra

Stephen Pagliuca

Kneeland C. Young blood

C. Top Management (Executives)

Anne Chwat General Counsel and Corporate Secretary Gladys DeClouet Senior Vice President, North America Company Operations Raj Rawal Senior Vice President and Chief Information Officer Armando Jacomi no President, Latin America Amy E. Wagner Senior Vice President, Investor Relations and Global Communications Ben K. Wells Chief Financial Officer

Natalia Franco Global Chief Marketing Officer

President

Charles M. Fallo n President, North America

Kevin Higgins President, EMEA

Peter Tan President, Asia Pacific

Julio A. Ramirez Executive Vice President, Global Operations

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II. External Environment

A. General Environment Americas increasing concern with health and fitness was putting pressure on restaurants to offer healthier menu items. Given its emphasis on fried food and saturated fat, the quick service restaurant market segment was an obvious target for likely legislation. For example, Burger Kings recently introduced Pizza Burger was a 2,530-calorie item that included four hamburger patties, pepperoni, mozzarella, and Tuscan sauce on a sesame seed bun. Although the Pizza Burger may be the largest hamburger produced by a fast-food chain, the foot-long cheeseburgers of Hardees and Carls Jr. were similar entries. A health reform bill passed by the U.S. Congress in 2010 required restaurant chains with 20 or more outlets to list the calorie content of menu items. A study by the National Bureau of Economic Research found that a similar posting law in New York City caused the average calorie count per transaction to fall 6%, and revenue increased 3% at Starbucks stores where a Dunkin Donuts outlet was nearby. One county in California attempted to ban McDonalds from including toys in its high-calorie Happy Meal because legislators believed that toys attracted children to unhealthy food.

B. Industrial Environment 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 time period. Burger King accounted for around 14% of total FFHR sales in the United States. The company competed against market-leading McDonalds, Wendys, and Hardees restaurants in this category and against regional competitors, such as Carls Jr., Jack in the Box, and Sonic. It also competed indirectly against a multitude of competitors in the QSR restaurant segment, including Taco Bell, Arbys, and KFC, among others. As the North American market became saturated, mergers occurred. For example, Taco Bell, KFC, and Pizza Hut were now part of Yum! Brands. Wendys and Arbys merged in 2008. 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 quick service restaurant market segment appeared to be less vulnerable to a recession than other businesses. For example, 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. C. Competitive Landscape Porters 5 Forces analysis of the Burger King Page 6 of 16

Burger King (Mini Case)

Threat of New Entrants Economies of Scale: The firms in the limited-service restaurant class do see some advantages to economies of scale, but these advantages are undermined by the ease of creating a quick service restaurant. The saturation of the industry is also a huge limiter of how much an advantage can be attained by economies of scale.

Product Differentiation: While differentiation is a large and necessary expense for the large fast food chains in the industry, it is not difficult for private startups to overcome and thus not a significant barrier to market entry.

Capital Requirements: Capital requirements will quell the formation of new, national competitors, but is not a significant barrier to private startups.

Cost Disadvantages: These disadvantages stem form the fact that established companies already have product technology, access to raw materials, favorable sites, advantages in the form of government subsidies, and experience (referenceforbusiness.com). The extreme saturation and similarity in product offering make convenient locations essential for quick service restaurants large and small. This is a significant barrier to entry.

Distribution Channels: Speedy and reliable channels are essential among all firms in the industry, they are not necessarily difficult for new comers to attain, however. Also the economies of scale enjoyed by large firms are not so great as to shut out smaller competitors.

Government Regulation: Government regulation is more intense for the larger firms which have to deal with franchising regulations. Smaller establishments are subject to the standard array of government regulations including: zoning, health, safety, sanitation, and building. These are standard for almost any new business and thus do not pose large threat to new comers.

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Burger King (Mini Case)

Due to the lack of any of the barriers to entry being so significant as to thwart the majority of private startups, we feel the threat of new entrants is high.

Bargaining Power of Customers Even though customer switching costs are nearly zero, the fast food industry does not worry about loyalty because On average, one-fifth of the population of the USA eats in a fast-food restaurant each day (Oxford University Press). It is this volume that keeps customer bargaining power low by diluting the effect of a few picky customers. Bargaining Power of Suppliers Large fast food chains thousands of suppliers to choose from and select theirs through a competitive bid process. They can switch suppliers easily and tend to make up a large portion of the suppliers revenue. This severely limits the bargaining power of suppliers. Threat of Substitutes With so many firms in the quick service/burger industry, low switching costs, similar products, and healthier options, the threat of substitutes is very high. Rivalry among Existing Firms The limited-service industry defines a red ocean industry. Firms compete for market share in a saturated market. Growth, particularly in hamburger chains, is very slow so the customer base is not growing as fast as the industry. This leads to high rivalry among firms Area Opportunities/ Threats Rate High

Threat of New Always new entrants Economies of Threats Entrants Scale, Product Differentiation, Capital Requirements, Cost Disadvantages, Distribution Channels:, Government Regulation Bargaining Power Customers Bargaining Power Suppliers customer switching costs are nearly Opportunity of zero, the fast food industry does not worry about loyalty Large fast food chains thousands of Opportunity of suppliers to choose from and select theirs through a competitive bid process

Low

Low

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Threat Substitutes of With so many firms in the quick Neither High service/burger industry, low switching Opportunities nor costs, similar products, and healthier Threats options, the threat of substitutes is very high High

Rivalry Firms

Among Firms compete for market share in a Threats saturated market

III.

Internal Environment

A. Corporate Culture Corporate Culture is an important part of being a competitive employer. How the workplace feels has a major impact on reaching business goals. To properly set the tone, there must be excellent communication. Whether your culture is professional or feels more like being on vacation, we can help you communicate it. The fast-food industry in the United States is very competitive. McDonalds is the industry leader while Wendys and Burger King are in constant struggle for the second place. The consumer food-service market is typically broken down into eight categories according to the type of food and restaurant operations. The categories are sandwich, pizza, chicken, grill-buffet, dinner house, contract and hotel. The fierce competition in the fast food industry is evident with the pace in which strategies are changed. Fast food restaurants are always on the look out for new strategies that will enable them to gain customers and market share. The two main domestic competitors of Burger King are McDonalds and Wendys. B. Organizational Activities Analysis Marketing: MAJOR PRODUCTS Burger King produces, hamburgers, cheeseburgers as well as Fries, Salads, Hash browns, Onion rings, Coffee, Juice, Shakes, cookies and pies. Sets itself apart from competition with its have it your way theme which allows individualize each orders with many options including fries or onion rings, cheese, bacon, mustard, ketchup.

PRICE: Burger King recently joined McDonalds in offering a $1 double cheese burger. Some of its franchises claimed the price reductions cut into profits. Burger King has Page 9 of 16

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reportedly ended its unpopular (among franchise owners) $1 double cheeseburger promotion. Burger King plans to sell slushy drinks for $1 leading into the summer in order to offer an alternative to McDonalds $1 summer drink.

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PLACE:

Burger King operates its business via franchises, under a franchise arrangement, the franchisees invest in the equipment, signage, seating and decor, while the company owns or leases the land and building. The company generates revenues from three sources: sales at company restaurants, royalties and franchise fees and property income from those franchises that lease or sub lease property from the company.

PROMOTION: Burger Kings Big Value Menu $1 Talent Show invites customers to display their talent via videos they submit with the goal of winning a menu item. Burger King is backing its biggest product launch of the year, the Tender crisp Premium Chicken burger, with a promotion theme encouraging consumers to cheat on beef'. The campaign began in March of 2010 using creative ads

MARKETING STRATEGY Burger King continued to market to young men by (according to one analyst) offering highcalorie burgers and ads featuring dancing chickens and a creepy-looking king. These young men were the very group who had been hit especially hard by the recession. According to Steve Lewis, who operated 36 Burger King Franchises in the Philadelphia area, overall menu development has been horrible. We disregarded kids, we disregarded families, we disregarded moms. For example, sales of new, premium-priced menu items like the Steakhouse XT burger declined once they were no longer being advertised. One analyst stated that the company had put a lot of energy into gimmicky advertising at the expense of products and service. In addition, analysts commented that franchisees had also disregarded their aging restaurants. Finance: The Burger King financial performance BK was sold to consortium of private equity companies -TPG, LP, Goldman Sachs capital- for 1.5 billion in 2003. In late 2010 3G Capital of Brazil acquired a majority stake in BK in a deal valued at $3.26 billion (USD). Burger King- sales were 2.55 billion, income was 186 million, sales growth was up 9.9%, and income growth was down 10.2%. Page 10 of 16

Burger King (Mini Case)

Burger King was perceived by industry analysts as having significant problems. As a result, Burger Kings share price had fallen by half from 2008 to 2010. During fiscal year 2010 (ending June 30), Burger King earned $186.8 million on revenues of$2.50 billion. Although its total revenues had dropped only slightly from $2.54 billion in fiscal 2009 and increased from $2.45 billion in 2008, net income fell from $200.1 million in 2009 and $189.6 million in 2008. Even though same-store sales stayed positive for McDonalds during the recession, they dropped 2.3% for Burger King from fiscal 2009 to2010. In addition, some analysts were concerned that expenses were high at Burger Kings company-owned restaurants. Expenses as a percentage of total company-owned restaurant revenues were 87.8% in fiscal 2010 for Burger King compared to only 81.8% for McDonalds in fiscal 2009. Operation and Logistic: The concept of the strategy and the operations of delivery system are unified as is commonly true in service systems. In a very real sense, the operations strategy is the strategy. To be sure the basic strategy must reflect coordination with advertising and marketing, financial plans and budgets, and so on. But if the operation strategy fails, the concept does too it is the key to the success or failure of the entire enterprise. The implementation of the operations strategy must reflect the subtle differences that each enterprise strategy implies. Therefore, we need to ask the how the differences between the strategies of McDonalds and Burger King are implemented in their operations strategies. How do the processing systems take account of these differences? How has the technology employed been adapted to the strategy? How do the control systems reflect the differences? Later, we will also consider how Benihanas operations strategy is designed to achieve the seemingly anomalous objectives of fast standardized food, large average check, exotic surroundings, and a show. Burger King has more than 12,150 restaurants in all 50 states and in 76 countries and U.S. territories worldwide. They support every franchisee by offering world class support services, including training, operations, and marketing. Approximately 90 percent of BURGER KING(R) restaurants are owned andoperated by independent franchisees, many of them family-owned operations that have been in business for decades

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Positioning: The two hamburger fast food giants seemingly have similar strategies high volume; low prices; limited menu; fast, courteous service; and controlled quality. But Burger King has appealed to differing consumer preferences with its Have It your Way slogan. The customization of Burger Kings product is centered on pickles and lettuce the dressing of the burger not on a fundamentally wider menu choice.

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Process Flow and Technology: Figures provide aggregate level flows of the activities of the customers and servers and manufacture of hamburgers for McDonalds and Burger King. Of course, there are other processing activities for other sandwiches, fries, and so forth, but we have concentrated on the hamburger, since most orders involve them. Human Resources Management: Human resources means when a business has a forecast and a projection of its future staff needs. This means that the business can develop appropriate strategies for the recruitment, training and development of its staff. Within a small business, with perhaps one or two employees, responsibility for human resources will lie with the owner or with the partners while large organizations with many employees on the other hand, will have a whole section devoted to personnel. The social reformer Before Hr emerged as a specialist management activity there were those in the nineteenth century who tried to intervene in the industrial affairs of the severely under privilege factory worker. At this time they are not employed by the company but rather acted on behalf of fellow workers. The Human bureaucrats We now come to the stage where organizations were increasing in size. Specialization was emerging at management level as well as on the shop floor. This led to the growth of personnel work only involved with staffing, careful selection, training and placement it was believed that by selecting staff with particular skill of the job would ensure the business would run smoothly and staff would be happy. The Negotiator The industrial revolution led the masses of workers to rebel against their treatment and pay. Trade unions forced organization to negotiate for some of the rights of the individual. The government encouraged the appointment of personnel officers to deal with negotiator on behalf. Man power planning Recruitment and selection Training and development Motivation and performance management

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In an ideal world businesses should plan ahead when it comes to human resources. A wellorganized business will have forecasts and projections of its future staffing needs. These will then be matched to forecasts and projections about the local labor market.

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Burger King (Mini Case)

C. Capabilities/ Core Competencies: Burger King is second in the fast food hamburger restaurant segment/ market. Burger King plans to increase the number of net operating units by 3 to 4 percent per year in the near future, with most of that increase coming in international operations. Two major ways in which Burger King differentiates itself from competitors are the way it cooks hamburgers by its flame- broiled method as opposed to grills that fry and the options it offers customers as to how they want their burgers. This latter distinction has been popularized with the have it your way theme. About two- thirds of Burger Kings restaurants are in the United States, and its U. S. and Canadian operations accounted for 69 percent of its $ 2.54 billion revenue in fiscal 2009. The geographic distribution of Burger Kings restaurants is shown on Map 12.2. Although the company began in 1954 by offering just burgers, fries, milk shakes, and sodas, the menu has expanded to include breakfast as well as various chicken, fish, and salad offerings. Nevertheless, burgers remain the mainstay of the company, and 2007 marked the 50th anniversary of the Whopper sandwich, which is considered Burger Kings signature product. Burger King has also differentiated itself with some innovative advertising campaigns through the years, such as its use of a figure of a man who is the Burger King. Recently, the company ran a Whopper Virgins campaign. Burger King's core competency is their main burgers and sandwiches, and fries. These are their core, or main items of production. Other products such as their desserts or specialty drinks are not their core products. Strategy of Burger King is Have it your way.

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IV. Analysis Strategic Factors

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A. SOWT Analysis

Strengths Second largest fast food hamburger restaurant (FFHR) in the world Strong brand equity Growth model not capital intensive: 90% of its restaurants are owned by franchisees Strong financial performance

Weaknesses Heavily concentrated in the US: about 63% of operations Not enough corporately owned stores means it relies heavily on franchisees to execute its brand promise

Opportunities New product development, particularly around breakfast Keep building its brand through ad campaign, such as the Whopper Virgin's Expansion into emerging markets

Threats Changing consumer habits towards healthier food choices Away-from home consumption declines in the US due to tougher consumer environment Intense competition from McDonald's, other restaurants and even retailers Increasing labour costs putting pressure on bottom line margins

V.

Identification of Strategic Issues

Problem Identification Drop in Market Share and Profit in 2010 Pricing Strategy Low customer responsiveness Relation with Franchisees not good Late entry to developing International market Page 14 of 16

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No stability in ownership. Rising cost of beef, corn, cheese, poultry etc

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Challenges To juggle the health demands of consumers with their desire for tasty snacks. To change the perception of consumer that Healthy food cant be healthy.

Strategy to deal with Challenges Make the menu green and healthier. Show the calories being intake with the food items Advertise with an emotional appeal that we care for you and therefore, your health. Strategic Alternatives and Recommendations

VI.

A. STRATEGIC ALTERNATIVES Alt 1. Play it safe strategy. Make some appealing advertisement that makes fans feel important. A market follower is a firm in a strong, but not dominant position that is content to stay at that position. The rationale is that by developing strategies that are parallel to those of the market leader, they will gain much of the market from the leader while being exposed to very little risk. The advantages of this strategy are: no expensive R&D failures no risk of bad business model best practices are already established able to capitalize on the promotional activities of the market leader no risk of government anti-combines actions minimal risk of competitive attacks dont waste money in a head-on battle with the market leader

Advantages: Burger King fans will be flattered because BK management give them importance and because of that, the loyalty of the fans will be lastly. At the same time, they will attract more customers and the BK fans will be happy and feel important. Disadvantages: Costly at the same time, it will need some time to be perfect before it will appear to the media. Alt 2. Continue making innovative products.

Advantages: More customers will get into them and because of that, their profit/sales will increase. Page 15 of 16

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Disadvantages: It will be costly and it will take several time of brainstorming if the product that they will introduce will be a big boom to the customers/public. Alt 3. Try to lower their price.

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Advantages: Number of customers will increase at their sales/profit may be increase due to the volume wise buying. Disadvantages: This is partly hard to the management because this is new to them. And it will have a fear attach. B. RECOMMENDATION 1) Burger King should also target families with children because they are the large part of their customer base and not only young male customers. 2) Burger King needs to focus on their products regarding calorie content as people are becoming more health conscious and thats how McDonalds is experiencing more sales than Burger King on the same type of offerings. 3) Like McDonalds does it should also have different marketing strategies for different markets and not the same for all the markets. 4) Burger King should have different offerings for the different countries as per countrys tastes, preferences, culture and traditions. They should not offer the same menu all over the world. 5) Burger King can go for increasing more outlets in Latin America because it has experienced better sales growth of 8% from 2007-2008. VII. Evaluation and Control

Evaluation
To juggle the health demands of consumers with their desire for tasty snacks. To change the perception of consumer that Healthy food cant be healthy.

Provide customers with nutritional information (e.g. salt and fat content) on menus Daily Value Meal

Control
1. Make the menu green and healthier. 2. Show the calories being intake with the food items 3. Advertise with an emotional appeal that we care for you and therefore, your health.

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