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- 2. The Industry • RestaurantFast Food (Limited Service Restaurants) • Researchers defined fast-food restaurants as chain restaurants that have two or more of the following characteristics: – expedited food service – takeout business – limited or no wait staff – payment tendered prior to receiving food.
- 3. External Environment ofIndustry • Spending Trends • Lifestyle Trends • Demographics Trends
- 4. Spending Trends As ofthe end of 2008 – Economic downturn, leading to lower consumer spending • 2 opinions in relation to the future growth – Fast food restaurants become alternatives to full service restaurants because they are cheaper – Senior trends manager for TRU says • "I wouldn't expect people are going to stop going to fast-food restaurants," he says. "They will curtail it to a degree, but teens and twenty-somethings are already going to fast-food restaurants quite a lot. You're going to see minimizing across the board." – Two of the four top categories young people plan to spend less on are eating out, while 51 percent plan to spend less on snacks.
- 5. Lifestyle Trends • Homecooked meals are becoming less prevalent • Changes in lifestyle such as divorce, late marriages, an increase in single-parent households, homes with two working parents, an aging population, increased hours spent working, and an increase in commuting time are driving more consumers into the restaurants.
- 6. Demographics Trends • Demographicchanges have been pushing consumers towards fewer meals, a preference for less meal preparation time, and more frequent snacking in lieu of sit-down meals. • Low income neighborhoods have a higher density of fast-food restaurants • According to a British study, lower socioecomic groups had diets with less vegetables and fruit, and more unhealthy foods (fast food) compared to higher socioeconomic groups. Percent who say they eat at a meal from a fast food restaurant at least weekly
- 7. Global Fast FoodForecasts Market Value Forecast In 2011, the global fast food market is forecast to have a value of $125.4 billion, an increase of 22.2% since 2006. Market Volume Forecast In 2011, the global fast food market is forecast to have a volume of 86.4 billion transactions, an increase of 7.6% since 2006.
- 8. Global Market ShareSegmentation United States compound annual growth rate will increase by 3.7% to $66.3 billion by 2011 European CAGRs will grow by 3.3% to $22.9 billion by 2011.
- 9. SWOT Analysis Overview BurgerKing Strengths • Strong market position • Greater franchise mix • Robust financial performance Weaknesses • Market concentration • Scattered Marketing Campaign Opportunities • New products development • New opportunities in growing economies • Positive outlook for restaurant industry in the US Threats • Intense competition • Expiry of Franchise Agreements • Acrylamide in French fries
- 10. SWOT: Strengths • StrongMarket Position – BKC is the world's second-largest FFHR chain as measured by the total number of restaurants and system-wide sales. • Greater Franchise Mix – As a result of its higher franchise mix, the company is able to grow with minimal capital expenditure and is assured of regular income in the form of fees and royalties. • Robust Financial Performance – Revenues and Income have consistently grown providing a platform for future growth.
- 11. SWOT: Weaknesses • MarketConcentration – Though the company operates in 65 countries, its operations are heavily concentrated in the US and Canada. About 65% of its restaurants are located in the US and Canada – Concentration of operations in one geographic area increases company's exposure to local factors such as adverse economic situation, labor strikes and changes in regulations that can affect its operations. • Scattered Marketing Campaign – Fail to efficiently promote products, because they are too busy trying to promote “The King” character
- 12. SWOT: Opportunities • NewProducts – BK value menu featuring six items at less than $1, breakfast sandwiches, and specialty burgers • New Opportunities in Economy – India, China, Singapore, and Malaysia • Positive Outlook for US Industry – The year 2009, would mark the 18th consecutive year of sales growth in the restaurant industry. – Well positioned companies will benefit from growing foodservice sector
- 13. SWOT: Threats • IntenseCompetition • The company's competition in the broadest perspective includes restaurants, quick service eating establishments, pizza parlors, coffee shops, street vendors, convenience food stores, delicatessens and supermarkets. • Expiry of Franchise Agreements • Of the 409 agreements that expired in fiscal 2006, only 47% were renewed and 28% were extended for similar periods. • Acrylamide in French fries • Acrylamide has been shown to cause cancer in some studies in experimental animals although further studies are underway to better understand the significance of these results in relation to human health.
- 14. Forces of Competition •Threat of entry – High cost of entry – Highly established competitors • Threat of substitutes – Growing amount of “limited service restaurant” companies – Ex: Dominos, Subway, Dairy Queen, Taco Bell, KFC • Industry Rivalry – “Copycat industry” – Large amount of competition, domestic and global
- 15. Forces of Competition •Complimentary Products • Power of Supplier – Varies from region to region – Usually large number of suppliers • Power of Buyer – Many choices in fast food industry – Demand
- 16. BK’s Image • Whatcomes to mind when you think of BK?
- 17. Competitive Advantage: Brand Names •Burger King • “It’s all in the name” • Established since 1954 • Loyal following of patrons • Whopper -Known for quality -One of best known brands in fast-food -50th anniversary
- 18. Competitive Advantage: Highest FranchiseRate • Pros: – Low capital expenditure – Allows for high cash flow/ reinvestment – Quicker expansion into new markets • Cons: – Limited control – Inability to influence changes in ownership – Only 75% of revenue •90% of BK locations are franchised •Leads the Industry
- 19. Competitive Advantage: Marketing • Commercials –Innovative and Edgy – Rated “best new restaurant ad” by Neilsen’s (2008) – Also ranked among top 5 “best recalled ads” (2008) • Product Placement – BK appearances in Iron Man, The Simpsons Movie, Indiana Jones, etc. – Video game alliances: Halo 3, Fight Night, Gears of War, etc.
- 20. Problems with Marketing •What would you say is the message of BK’s advertising? • Ads for “Texican” burger controversial – Stereotyped Mexicans • Muffled message – Targets “SuperFan” • Provides no clear differentiation for brand
- 21. BK’s Recent Performance BurgerKing • 2nd largest FFHR in US • $2.3 billion (2007 revenue) • 11,565 locations worldwide – 71 countries • 90% franchised • 14% market share • $1.19 million avg. sales per location McDonald’s • 1st largest FFHR in US • $22.8 billion (2007 revenue) • 35,000 locations worldwide – 100 countries • 70% franchised • 45% market share • $2.4 million avg. sales per location
- 22. BK’s Recent Performance •Average restaurant sales increased 6% (2007) – Closed 184 restaurants since 2006 • Recently entered “financially attractive” Japanese and Indonesian markets • Strength of foreign currency affects foreign profits – If dollar appreciates, revenues decrease
- 23. Recent Cost-Leading Initiatives •Real-time Scheduling System – Increased employee efficiency • Closed Underperforming Restaurants • Smaller Locations – Customer’s drive-thru preference – 62% of sales – Lower costs by 25%
- 24. Business Model Burger King Scalableand cost-efficient quick service hamburger restaurant model that offers customers fast food at modest prices. 2006 Public Offering
- 25. Competitors’ Advantages • McDonald’sAdvantages: – Appeal to ages 3-12 – “America’s fast food company” – 3 times larger than BK • Wendy’s Advantages: – Dollar menu • Beginning to change – Cost-leader • Becoming harder
- 26. Growth Opportunities • DifferentiationStrategy • “Green” and “Modern” Image – First-mover advantage • Capitalize off increased corporate-owned profitability
- 27. Differentiation for BK Howcan Burger King differentiate themselves from their main competitors?
- 28. Key Resources • Flamebroiled • Creative advertising • “Hippest” of the big 3 • Experienced management
- 29. Risk Factors • Restaurantbusiness has few barriers to entry • Availability of bank credit • Government regulation of nutrition • Food Costs – 19% and 13% of food costs from beef and chicken – Increased ethanol production has cut remaining availability of corn (used in animal feed)
- 30. Franchising - Advantages •Provides predictable cash flows without much risk or capital investment • One time fee: $50,000 • Advertising fee: 4% of sales • Royalties: 3.5% - 4% of sales
- 31. Franchising - Disadvantages •Limited control of daily operations (cleanliness, culture, etc.) • Generally less profitable – 32% of profit came from company owned restaurants – ¼ as profitable
- 32. Break Even Analysisof Conversion Process Cost of Repurchase 650,000 Revenue of Franchise (yr) 52,621.26 Revenue of Company owned 220,480.2 Difference in cash flows 167,858.9 Break Even (years) 3.8723
- 33. Global Presence • 11,565restaurants in 71 countries • 38% located abroad • Differences in dining preferences – Fattier foods served domestically – More dine-in customers Red=Locations of Burger King Orange = Former Locations Yellow=Operates under different name
- 34. Health Concerns • Disclosureof caloric content • Widespread requirements for restaurants and other food service establishments to phase out artificial trans-fat in the near future • Customers trending towards healthier food choices
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- 37. Cash Flow Analysis Operating Activities Investing Activities Financing ActivitiesDividends NET CASH FLOWS 2008 243,000 (199,000) (62,000) (34,000) ($4,000) 2007 117,000 (84,000) (127,000) (17,000) ($89,000) 2006 74,000 (74,000) (173,000) (367,000) ($173,000) *Effect Of Exchange Rate Changes 14,000 in 2008 and 5,000 in 2007*
- 38. DuPont Formula MarginAsset T/O Leverage ROE 2008 7.74% .978 3.18 24.08% 2007 6.62% .990 3.52 23.07% 2006 1.32% .870 4.50 5.17%
- 39. Current Ownership Strategy “Webelieve that our restaurant ownership mix provides us with a strategic advantage because the capital required to grow and maintain the Burger King» system is funded primarily by franchisees, while still giving us a sizeable base of Company restaurants to demonstrate credibility with franchisees in launching new initiatives.”
- 40. Current Strategy • Drivefurther sales growth – Enhance Guest Experience – Reduce hours • Enhance Restaurant Profitability • Expand International Platform • Employ Innovative Marketing Strategies • Accelerate New Restaurant Development and Expansion
- 41. Global Growth • Enternew territories 71 • Latin America 1000 count (#1 FFHC 16/25 countries) • Eastern Europe (Middle East, Mediterranean) • Asia Pacific – project brand presence via airport locations • Target bold, edgy, young • 2009 – open 3-4% net new units world wide annually
- 42. Re-imaging • Whopper Bar– designed to reach new guests, college students • Invest money in fresh looks for company owned restaurants • 25% savings in real estate development costs • Greener Environment – Energy Efficient – guest notice the re- imaged restaurants with avg. sales rise 16% and rebuilt = 36% increase
- 43. Adventures in Dining– Differentiation • Differentiation in Products – Apple Fries – Nutritional Kraft Macaroni & Cheese – Burger Shots – Mega Angus Burger • BK Positive Steps: eliminating cooking with trans fat oils in U.S. and Canada
- 44. Adventures in Marketing •“Have it Your Way” • Flexible Broiler – new products • Bluetooth Headsets – improved communication and speed of service – superior guest experience • Pricing Tool – examine competitive data and make market driven changes in menu pricing • Trendy Advertising: Simpsons, Whopper Freak Out, Indiana Jones, Transformers, Iron Man, ipod downloads, etc. – always comes down to great food
- 45. Burger King vs.McDonald’s 2008 • 11,565 restaurants in 71 countries. • 1,360 Company Restaurants (11.75%) • 10,205 Franchise Restaurants (88.24%) • 31,967 restaurants in 118 countries . • 6,502 Company Restaurants (20.3%) • 25,465 Franchise Restaurants. (79.6%) Burger King McDonald’s
- 46. What Fast FoodRestaurant has the best Hamburger? – McDonald’s 21% – Burger King 37% – Wendy’s 37%
- 47. Which FFHR hasthe best atmosphere? – McDonald’s 34% – Burger King 11% – Wendy’s 31%
- 48. Which FFHR doyou go to the most? – McDonald’s 16% – Burger King 11% – Wendy’s 57%
- 49. How would youchange FFHR’s? • 53% Better quality, cleanliness, healthier. • 22% Sought out more menu options • 17% Requested lower prices. • 6% Wanted better customer service.
- 50. Analysis of Results •BK tied Wendy’s for the best burger. • Quality, Cleanliness, and Health are Important – There is a potential demand for quality positions FFHR • McDonald’s had the best atmosphere. – We need to differentiate our atmosphere, imitation is unsuccessful • Wendy’s was most frequented. – Better proximity and late night availability – BK should focus on lunch-time, evening segment
- 51. Strategic Objective: Increase MarketShare by: • Re-positioning BK as a “progressively responsible” Fast-Food Hamburger Restaurant. • Increase corporate influence and initiatives over franchise operations. • Streamlining business model to achieve a more product-centric focus. • Expanding Globally through promotion of brand name.
- 52. Differentiation Strategy: • GreenTeam Campaign – Recyclable paper products • Quality, Sustainability, Responsibility. • Contemporary counter-front and open view into kitchen from anywhere in restaurant. • Restaurant Interior/Exteriors gives “Organic Feel” • Focus on Freshness and Quality of Beef, Produce, Beverage.
- 53. Burger King Lounge •Free Wi-Fi will appeal to business people. • Segmented table layout adds privacy and relaxed atmosphere. • Plants and foliage support sustainable position. • Earth-tone color-scheme aligns with message. • First Mover Advantage
- 54. Easy-Order Touch Screens(POS) • Self-Order touch screens at counter. • Increases order accuracy • Provides screen by screen option interface and comparable value information • Reduces unorganized menu cluster • Reduces labor costs
- 55. Global • Focus advertisingefforts on new target market • Promote healthy BK Kids meals • Implement US Standards for emerging global franchises.
- 56. Objectives: 6 Month •Start Conversion of Company/ Franchise Ownership from 11.75% to 15% – For every 100 BK’s, 15 will be Company Owned. • Launch “Green Team” Campaign in new restaurants. • Launch Conversion of existing restaurants.
- 57. Objectives: 12 Month •Completion of Old Restaurant Conversion – 5% Franchisees renegotiated • Increase Average Gross Sales per store by 10% • 500 New Franchise Restaurants World- Wide. – Maintain Company/Franchise Ratio Goal. (15%)
- 58. Strategic Goal forthe Future • BigBig Hairy Audacious Goal – To become largest Fast-Food Hamburger Restaurant in the world. (Currently second to McDonald’s) • As measured by: – Total number of restaurants – System-wide sales.