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Burger King is the world's #2 hamburger chain after McDonalds, but years of under-investment had left it struggling in its rival's shadow by the early 2000s. Many consumers argued that Burger King tasted better than McDonalds, but lacked the latter's polish, administrative strength and marketing muscle. A deal was finally agreed late in 2002 to free the chain from the corporate portfolio of then-owner, the drinks giant Diageo. Independent again for the first time since the 1960s, the #2 finally had the chance to give Big M a run for its money. Performance improved slowly but steadily between 2002 and 2010, enhanced by offbeat and unusual marketing aimed at Burger King's core young male market in North America. In 2010, the business was acquired by investment fund 3G Capital, which vowed to ramp up the chain's previously uneven international presence. The group floated part of its equity again in 2012 and two years later agreed to acquire Canadian rival Tim Hortons for around $11bn. The enlarged group adopted the new corporate name of Restaurant Brands International. It added a third string to its bow in 2017 with the purchase of US chain Popeye's.
Click here for agency account assignments for Burger King from Adbrands.net. The group does not declare gross advertising expense (most of which is paid for out of franchisee contributions), but maintains a fund of approximately 4% of gross systemwide sales. RBI's own contribution to the fund was just $5.5m in 2016. In the US, Kantar (in Advertising Age) reported measured expenditure of $519m for 2016, including Popeyes (acquired the following year), out of an estimated total of $522m. Biggest spending brands were Burger King (measured spend $375m), Popeyes ($130m) and Tim Hortons ($12m).
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Burger King made a steady recovery an an independent, aided by a lack of direction during the 2000s at rival burger chain Wendy's. The company fixed long-running friction with some of its franchisees in North America and its marketing generated considerable attention as a result of "Super Fan" campaigns orchestrated by CP&B. This led to a significant improvement in customer perceptions of the brand. After such a long period of stagnation, Burger King was certainly moving in the right direction. That process was expected to speed up following the group's purchase by investment fund 3G Capital, whose founders are the three Brazilian entrepreneurs responsible for the rapid global expansion of what is now Anheuser-Busch InBev. They agreed to pay $3.3bn to take Burger King private at the end of 2010. However, if anything, Burger King initially suffered something of a reverse in its fortunes, with sales slumping significantly during 2011. There were signs of improvement in 2012 as 3G began a full overhaul of the business.
In 2014, the group announced plans to merge with Canadian cafe competitor Tim Hortons, and transfer its tax base to Canada. Completion of the deal took place in December 2014 leading to the creation of new parent entity Restaurant Brands International.
Quickserve burger specialist Burger King is best-known for its signature sandwich, the Whopper. By the end of 2017, the Burger King system (or network) extended to 16,767 outlets in over 100 countries worldwide. All of these are now operated by franchisees since 3G began the process of selling off company-operated outlets. By the end of 2015, only 76 company-owned outlets were left in the portfolio, from almost 600 three years earlier. These were used for testing new products and systems which might then be rolled out to the global network. More or less all have now been re-franchised. Almost half of system outlets, or around 7,500 restaurants, are located in the US and Canada.
According to researcher Technomic, Burger King's share of the US burger market had fallen from a high of 14.2% in 2008 to just 12.2% in 2011, falling marginally behind Wendy's for the first time (at 12.3%). Burger King's US systemwide revenues were estimated to have slipped to $8.4bn, compared to $8.5bn for Wendy's. A year later there was a modest recovery but still not enough to pass Wendy's. BK finally edged back above its closest rival in 2014. For 2015, NRN estimated US system sales of $9.1bn for BK, to $9.0bn for Wendy's. (Both figures are around a quarter of the equivalent figure of almost $36bn for McDonald's).
A key problem for Burger King in the past was a traditionally fractious relationship with some of its licensees. Ameriking, once its biggest franchise holder, went bust in 2003 and was broken up. Three other franchise holders filed for bankruptcy during 2004. Then in 2005, the BK National Franchise Association issued a belated and ill-advised lawsuit against McDonald's relating to the long-dead Monopoly McScandal. Partly for this reason, BK terminated its working relationship with the NFA's leadership, citing non co-operation in the company's attempts to rebuild sales. It has since worked hard to improve its relationship with its less activist franchisees, and set up a financial fund in 2003 to assist several of them to restructure debts.
The relationship was strained once more in 2008 by the company's new "late hours" promotion. In support of this scheme, Burger King ordered all its restaurants to stay open until 2am on Friday and Saturday nights, instead of the standard 11pm. Several franchise operators responded with a lawsuit which opposed that order because of the increased costs of labour and security it entailed. 3G's decision to sell virtually all outlets to franchisees has to a large extent removed any remaining friction. The biggest US franchisee is Carrols, with around 310 outlets, now part-owned by Burker King with a 29% equity stake. That's followed by Cerberus Capital's Strategic Restaurant Acquisition Group. In international markets there are a number of regional master franchisees who may in turn sub-franchise to smaller local operators.
The company's biggest international territory is now Germany, with around 692 restaurants. Other important markets are Spain (561 outlets), Turkey (553 outlets), the UK (484 outlets) and Mexico (449 outlets). Burger King's presence in one key European country, France, has until recently been negligible. As recently as 2013 there were still only three outlets in the whole country. The group agreed a joint venture with local operator Groupe Olivier Bertrand at the end of the year to ramp up its presence significantly. In 2015, Bertrand announced plans to acquire local burger competitor Quick, significantly boosting BK's local presence. Following the investment by 3G there has already been rapid growth in Brazil, where the estate has more than doubled since 2011 to 317 outlets. In Australia, where the group has 370 outlets, it operates under the Hungry Jack's brand, rather than as Burger King.
The EMEA region has around 4,400 outlets in total, Latin America 1,850, and Asia Pacific (including Australia) 2,050. Among the chain's newest territories are Russia and Oman, both of which it entered in 2010. In 2001, Burger King pulled out of Japan, where it had been run under license by a division of Japan Tobacco, as a result of a price war with McDonald's and a decline in the popularity of burgers. The brand reentered the country in 2007 under license to a joint venture between Korean company Lotte and local investment and logistics company Revamp. There are now just over 80 outlets.
Since 2002, Burger King has given the bulk of its attention to turning around performance in the US. Critics pointed out that McDonalds has for many years successfully portrayed itself in its marketing as a family restaurant and has a distinct brand personality. Meanwhile Wendy's ran a series of very successful campaigns featuring the chain's owner and figurehead Dave Thomas. Burger King's marketing, by contrast, had concentrated exclusively on products and pack shots. Until comparatively recently the chain's outlets were never depicted or even mentioned. All of these errors were fixed from 2003. At the same time BK's marketing was designed to target what it considered to be its core market of so-called "Super Fans", defined as young men aged 18 to 34 who average around 9 trips a month to a fast-food burger restaurant, and also love sports, movies and gaming. According to BK management, these diners accounted for 18% of its customers but as much as 49% of in-store traffic. As a result, the group established promotional tie-ins with video games marketers and with movies including the most recent Indiana Jones film, The Simpsons Movie, Iron Man, Transformers and The Incredible Hulk, all key releases for its core audience. Its Simpsons tie-in included the website SimpsonizeMe, which allowed users to convert themselves into Simpsons-style cartoon characters.
Another key element was the reinvention of the menu beyond staples such as the Whopper. New introductions have included a burger made from Angus beef and the Tendercrisp chicken sandwich, as well as the removal of trans fats from the cooking process. In the UK, the company even launched a luxury burger in the summer of 2008, selling for £95 ($190). These improvements were supported by quirky and memorable marketing from agency Crispin Porter & Bogusky, have catered specifically for this audience. CPB's "subservient chicken" and more recent "wake up with the King" campaigns successfully generated plenty of headlines since 2004, even if they haven't succeeded in bringing back a family audience. In 2008, the "Whopper Freakout" ad, in which real customers were told the chain had stopped making the Whopper sandwich, generated a huge positive response. However, there were signs that CPB's off-beat approach had begun to tire by the end of 2010, and it was dropped at the end of the year in favour of the more straightforward McGarryBowen. There have been several further changes of agency since then.
The group continues to promote its Have It Your Way concept, which allows diners to dictate what dressing they want with their burger, as its main USP over rivals. It also licenses its brand out for a range of vending machine ready-made snacks.
In May 2006, the group's owners, investment groups Texas Pacific Group, Bain Capital and Goldman Sachs, issued an IPO of the business, although they continued to hold just under a third of the equity between them. Between 2004 and 2009, the group delivered steady positive growth, before suffering a slump as a result of economic pressures. For the year ending June 2010, company revenues slipped 1% to just over $2.5bn. Net income fell 7% to $187m. Average annual sales at each outlet slipped 2% to $1.2m. It continued to fall over the next two years, although part of that decline has been prompted by the sale of selected outlets to franchisees. For the year to June 2012, Burger King reported revenues of just under $2.30bn, although adjusted net income rebounded from a low of $30m in 2011 to $126m.
In September 2010, 3G Venture Capital agreed to take Burger King private once again for $3.3bn, or $4bn including debt. There was a change in strategy in 2012, as 3G agreed to sell a minority stake in the business to Justice Holdings, a publicly quoted investment vehicle controlled by another triumvirate of wealthy individuals led by Bill Ackman. Justice acquired a 29% stake in Burger King for $1.4bn. The two businesses subsequently merged. Following further share transactions, 3G's stake was 70% by the end of 2013, while Ackman's Pershing Square fund held 12%. 3G is also the controlling shareholder in brewery giant Anheuser-Busch InBev and, since 2013, what is now food group Kraft Heinz. Following the acquisition of Tim Hortons, 3G's stake reduced to 43%.
Because of the sale to franchisees of most of the remaining company owned outlets, revenues for calendar 2013 fell sharply to $1.15bn, comprising just $223m from company owned restaurants and $924m in franchise and property revenues. Net income virtually doubled to $234m. However, the company is managing significant debts totalling $3bn as of June 2014. Burger King system sales for 2013 were $16.30bn, up 4% on the year before. The newly created Restaurant Brands International reported revenues of $1.20bn for 2014, and a net loss of $277m as a result of the Tim Hortons merger. The group reported franchise sales for Burger King of $16.94bn, and for Tim Hortons of $6.59bn. Essentially all restaurants are now franchised.
For 2015, the first full year of the merger, group revenues almost quadrupled to $4.05bn. The prior year's net loss was replaced by a $512m profit. Net attributable profit after the payout to preferred shareholders 3G was $104m. Global systemwide sales for Burger King in 2015 rose 2% to $17.30bn. Revenues for 2016 rose 2% to $4.15bn, while net income almost doubled to $956m. Net attributable profit more than tripled to $346m.
Strong continuing growth lifted 2017 revenues to $4.58bn. Net attributable profit soared by 80% to $626m. Burger King accounted for only a quarter of revenues of RBI's revenues - almost all in the form of franchise income - and around 40% of operating profits. However, systemwide sales topped $20bn for the first time.
In the early 1950s "Insta Burger King" was one of numerous clones of the original McDonalds' hamburger restaurant in San Bernadino, California. The first Insta Burger King restaurant was founded in 1953 in Jacksonville, Florida by partners Keith Cramer and Matthew Burns, who developed a custom-built "Insta Burger" broiler to cook their burgers. A year later, James McLamore and David Edgerton acquired South Florida rights to the concept, and opened their first restaurant in Miami. Like McDonalds, they aimed to supply reasonably priced quality food, served quickly, but they quickly added a further benefit for customers by enclosing what was originally outdoor patio seating to create an internal dining room, a first for the fast-food industry. (McDonalds was at the time exclusively a drive-in service). However, after repeated faults with the Insta Burger broiler, McLamore and Edgerton designed their own more efficient version. They dropped the "Insta" tag to become Burger King and in 1957, a year before the Big Mac was invented by McDonalds, introduced their signature meal, the Whopper sandwich. Supported by local television advertising, the Whopper proved a huge success and the business was approached by several prospective franchisees. By 1961 there were 45 Burger King restaurants throughout Florida and the Southeast. That year, McLamore and Edgerton bought out Cramer and Burns and became exclusive agents for the Burger King franchise, just as Ray Kroc had done with McDonalds.
But as the chain continued to expand, it gradually slipped further into the shadow of McDonalds. Kroc paid close attention to detail with each of his McDonalds franchisees, but McLamore and Edgerton were less painstaking, and this led to inconsistencies in both quality and menu choice from one branch to another. By 1967, the chain had 274 restaurants across the US, but its reputation was patchy, with some outlets considerably better than others. By contrast McDonalds was now a public company, with every outlet identical in menu and quality, and was taking its first steps into the international market. McLamore and Edgerton realised they didn't have the experience or funds to go it alone. In 1967 they sold out to food group Pillsbury for $18m, a handsome sum at the time.
A year later, BBDO was appointed to launch Burger King's first national ad campaign, promising "The Bigger The Burger The Better The Burger". The company continued to expand, but at a noticeably slower rate than McDonalds, as Pillsbury struggled to bring its various Burger King franchisees in line. In 1975 Burger King opened its first truly international outlet, in Madrid, Spain, and further countries followed. That year the company also established its hamburger USP for the first time, offering customers the opportunity to "Have It Your Way", rather than accept the standard menu offered by McDonalds. ("Hold the pickles, hold the lettuce / Special orders won't upset us / All we ask is that you let us... / Serve it your way!" went BBDO's jingle). Also in 1975, founder James McLamore retired as chairman, although he continued to tour outlets as chairman emeritus until his death in 1996.
By the end of 1986, a year in which the company opened a record 546 new restaurants worldwide, Burger King operated 4,743 restaurants, including 402 in 25 countries around the globe. In 1988, Pillsbury was the target of a hostile takeover by British food and restaurant group Grand Metropolitan. The following year Grand Met also acquired the UK's languishing chain of Wimpy Restaurants, which until the arrival of McDonalds in 1974 had been the closest thing in the UK to American-style hamburger joints (and that wasn't very close at all really!). Almost 100 Wimpy outlets were rebranded as Burger King the same year, making the UK at a single stroke the brand's biggest non-US outpost. International expansion was stepped up dramatically at the end of the decade, and in 1992 the group agreed an unprecedented (at the time) five-year promotional partnership with the newly rejuvenated Walt Disney Company, which had just scored its first animated hit in years with The Little Mermaid. In fact the 1990s were to prove perhaps the most successful period in the company's history, as the Burger King brand swept around the globe. By 1997 the system had expanded to almost 9,500 restaurants. However the company was unable to resolve management problems as a string of CEOs came and went, and this led to continuing problems of consistency, as well as slowly worsening relations with the chain's franchisees.
From 1997, the momentum began to fail. That year, the promotional deal with Disney came up for renewal and Burger King was outbid by McDonalds. The same year Grand Met agreed to merge with rival drinks giant Guinness to form Diageo. The deal gave a new direction to the merged company, with drinks as the main priority. Pillsbury's food products came second in the new hierarchy with Burger King's restaurants taking lowly third place. It was to become increasingly apparent that BK no longer made a comfortable fit within the enlarged portfolio. The year was marked by a massive $70m marketing campaign to launch Burger King's hotter, crispier, and tastier French fries, but from that point onwards investment began to dwindle. Between 1996 and 2001 customer visits to US Burger King outlets dropped by more than 20%, and more than 10 franchisees filed for bankruptcy protection. Several also went public about their dissatisfaction with Diageo's lack of understanding, underinvestment, and inadequate marketing. Meanwhile a legal row between Burger King management and African-American franchisee Urban City Foods led to calls from radical black community leaders in New York to boycott the "racist" chain's outlets.
Despite strong growth in the fast-food market as a whole, BK's overall market share declined steadily between 1998 and 2004. According to consulting firm Technomic, Burger King's share of the burger sector peaked in 1998 at 20.4%, but fell steadily over the next six years, slipping to 14.2% by 2004, level pegging with Wendy’s which had steadily increased its penetration over the same period.
Finally in 2000 Diageo confirmed plans to spin out Burger King, announcing it would float a small stake in 2001 with the intention of selling the remainder in 2003. But that plan was abandoned after the chain suffered a further dip in sales. Instead the group recruited new chairman John Dasburg to lead a buyout. After soliciting bids for the business, a consortium headed by investment group Texas Pacific and Bain Capital (which also owns Domino's Pizza) won the prize in July 2002 with an offer of $2.26bn. However, following a further downturn in business over the next few months, the consortium asked to renegotiate the deal. These negotiations were further hampered by the declaration of Chapter 11 by one of BK's main franchise operators, AmeriKing. The deal was finally completed in December 2002 for a reduced price of $1.5bn.
Brad Blum, CEO of Burger King at the time of its buyout, set out to change impressions of that job as the hottest seat in town - in its 50-year history, Burger King had already notched up 19 different CEOs, including 8 in just the previous 15 years. But history has a habit of repeating itself, and Blum made way for a 20th incumbent, Greg Brenneman, when he resigned in July 2004, blaming "strategic differences" with the board. The company's president, Robert Nilsen, had already resigned abruptly a few months earlier after just over a year in the job. Brenneman too stepped down less than two years later in April 2006.
Last full revision 19th August 2016
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