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

 TABLE OF CONTENT

Executive Summary ------------------------------------------------------------------------------------ 2

Chapter 1. Company Background ---------------------------------------------------------- 3
Chapter 2. Industrial Background ---------------------------------------------------------- 4
Chapter 3. Internal Environment Analysis (Critical Issues) -------------------------- 5
Chapter 4. External Environment Analysis (Critical Issues) -------------------------- 6
Chapter 5. SWOT Analysis------------------------------------------------------------------- 6
Chapter 6. Recommendations --------------------------------------------------------------- 9

Page 1 of 9
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 Kings 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,

McDonalds.

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 Kings recent image and marketing

makeover.

Page 2 of 9
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. Diageos 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. 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 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 Kings 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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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 McDonalds, Wendys, and Hardees restaurants in this category

and against regional competitors, such as Carls Jr., Jack in the Box, and Sonic. Indirectly, they

also competed against the QSR restaurant segment, including Taco Bell, Arbys, 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, Americas 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 McDonalds from including toys in its high-calorie Happy Meal because

legislators believed that toys attracted children to unhealthy food.

Page 4 of 9
Chapter 3. Internal Environment Analysis (Critical Issues)

i. 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 firms 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 Kings company-owned restaurants

The high expenses 87.8% of Burger Kings company owned restaurants in fiscal year

ending June 2010 is higher than its competitor McDonalds 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.

Page 5 of 9
Chapter 4. External Environment Analysis (Critical Issues)

i. Low entry barrier - market become saturated

Regionally, Burger King competed against market-leading McDonalds, Wendys,

Hardees, Carls 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, Arbys, 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. SWOT Analysis

i. 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.

Page 6 of 9
 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 McDonalds

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 McDonalds.

c. Failure to adapt to more suitable marketing strategy

While McDonalds 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.

Page 7 of 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 partners 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 Kings 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 Kings 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.

Page 8 of 9
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 papers introduction, Burger Kings 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 Kings 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 Kings 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.

Page 9 of 9