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Burger King is the second largest fast food hamburger restaurant chain in the U.S. with more than 11,565 company-operated and franchised restaurants in 71 different countries.[1] The company generated $2.45 billion in revenue in 2008[2]. Like most players in the quick service restaurant market, Burger King faces several important challenges. The cost of doing business has increased due to rising foods prices while intense competition from McDonald's , Yum! Brands (YUM) and Wendy's limits Burger King's ability to pass costs on to consumers.[3] However, with the 2008 economic downturn, consumers in the United States have turned to Burger King as a low-cost alternative to more expensive dining options.[4]
Additionally, strong international sales (38% of operating income) are also a bright spot.[5] Furthermore, since 2004, Burger King has implemented several cost cutting initiatives, including smaller restaurant sizes that take advantage customers' preference for the drive-thru, a real time scheduling system to improve employee efficiency, and the closure of poorly performing restaurants. These measures resulted in an increase in net income from just $5MM in 2004 to $190MM in 2008.[6] Despite improvements, Burger King still trails its largest competitor, McDonald's (MCD) in terms of revenue per restaurant and growth. In 2008, McDonalds had a revenue of $23.5 billion and received nearly 6 times as much in franchise fees per franchised restaurant than Burger King.[7]
[edit] Business Overview
Burger King competes within the fast food hamburger restaurant (FFHR) category of the $59 billion quick service restaurant (QSR) segment of the restaurant industry. Burger King offers hamburgers, chicken and specialty sandwiches, french fries, soft drinks, breakfast foods, and a variety of other fast food choices.
In 2008, roughly 90% of the company's restaurants were franchised and only 10% were company owned,[1] although the latter produced approximately 73% of the company's revenue.[2] Burger King also operates in three geographic regions: the U.S. and Canada, EMEA/APAC (Europe, the Middle East, and Africa/ Asia Pacific), and Latin America.[8] Sales in the U.S. and Canada account for 44% of total revenue; however, Latin America is the fastest growing sector.[2]
[edit] Business Financials
In FY 2008, Burger King increased revenue by 10% to $2,455 million from $2,234 million the previous year. Revenue similarly grew by approximately 10%, or $148 million, in FY 2007 from FY 2006.[2] Increases in revenue are a direct result of Burger King's successful advertising campaigns as well as the tendency for consumers to seek lower-cost dining alternatives during stagnant economic conditions. Net income also experienced rises over the past three years, from $27 million in 2006, to $148 million in 2007 and finally$190 million in 2008.[2]
| Income Statement for FY 2006-2008 (Dollars in millions) | |||
| [2] | 2006 | 2007 | 2008 |
|---|---|---|---|
| Revenue | $2,048 | $2,234 | $2,455 |
| Total Company Restaurant Expenses | 1,296 | 1,409 | 1,538 |
| Operating Expenses | 1,878 | 1,943 | 2,101 |
| Net Income | 27 | 148 | 190 |
| Profit Margin | 1.32% | 6.62% | 7.74% |
[edit] Business Segments
Burger King operates in three geographic regions: [9]
- U.S. and Canada: The U.S. and Canada is BKC's largest sector with 7,512 restaurants generating approximately $1.1 billion in revenue.[10]
- EMEA (Europe, the Middle East, and Africa)/APAC (Asia Pacific): The EMEA/APAC sector is BKC's largest international sector. It has 3,051 restaurants in 42 countries and generated approximately $3 billion in sales (2008).[10]
- Latin America: The Latin American sector has 1,002 restaurants in 25 countries. The Latin American sector contributed approximately $1 billion in sales (2008).[10] BKC Latin America experienced a 8% sales growth from 2007 to 2008.[6]
[edit] Quarterly Business Financials
Burger King's revenue increased by 1 percent to $600 million in Q1 (ending March 31st, 2009), an increase from $594 million the previous quarter. First half net revenue increased 5 percent to $1.9 billion versus last year's $1.8 billion. Such gains were driven mainly by Burger King's ability to offer alternative dining options at lower costs. Along with these increased, Burger King's comparable sales increased by 1.6% for the quarter and 1.7% for the fiscal year, marking a slowdown from last quarter's 3.5% growth and last year's 2.6% growth. By the end of this quarter, Burger Kings acquired 113 franchise restaurants and opened 136 Company owned restaurants during the year prior to the Q1 release. [12]
[edit] Trends and Forces
[edit] Burger King's International Presence Will Play A Large Role in Upcoming Days
BKC is growing its international presence with an emphasis on underpentrated markets in developing countries, while scaling back its number of domestic franchises by closing underperforming restaurants. Latin America is one of its fastest growing regions. It opened 45 new restaurants in Mexico in 2007[13] and another 34 restaurants in Brazil from 2005-2007. franchisees)[14], [15]. In total, the number of BKC company operated and franchised restaurants in Latin America increased by 49% and 76%, respectively, from 2003-2007, while the number of BKC franchises in the U.S. and Canada has actually dropped by nearly 10% over the same time period.
[edit] The Rising Costs of Agricultural Commodities are Pressuring Margins
Burger King is heavily dependent on a wide array of agricultural commodities such as beef, corn, cheese and poultry. Over the past few years, the prices of these commodities have increased drastically; on the other hand, intense competition in the QSR industry limits the company's ability to pass these costs onto customers[16].
[edit] Burger King Capitalizes on Economic Downturn by Providing Lower Cost Dining Options and Riding Out Innovative Advertising Campaigns
The 2008 economic downturn produced a class of consumer demanding a cheaper alternative dining option. Burger King's cheaply priced menu options satisfied those needs and shares rose by over 20% between February and April 2008. Also, BKC's management has reinvigorated its marketing strategy by pursuing partnerships with the NFL, Nascar and multiple product placements in movies such as Spiderman3. In July 2007, Burger King was ranked in the top position for the "most-liked" television advertisements for all national advertisers[17]. Towards the end of the same year, the company launched a new ad campaign. The campaign which featured real customers and hidden cameras, was credited by management for leading to double digit sales growth during the December quarter. [18].
[edit] Burger King Has Streamlined Its Operations, Closing Gaps and Re-tailoring Service
Additionally, Burger King has reduced the average size of new restaurants. Since approximately 62% of sales can be attributed to drive-thru purchases[22], management has announced that larger restaurants aren't necessary. Since adopting a smaller restaurant design, Burger King has reduced its building costs by 25% [23] and has begun using new appliances and systems to increase efficiency and further cut costs.
[edit] Competition
Burger King competes with:
- McDonald's (MCD): McDonald's is one of the world's largest companies and by far the worlds largest fast food hamburger chain with $23.5 billion in revenue (2008) and a 27.4% operating margin.[7]
- Wendy's International (WEN): Wendy's is the third largest FFHR restaurant. Wendy's is sensitive to rising beef and oil prices because of their low margins.[24]
- Yum! Brands (YUM): With more restaurants than McDonald's and revenues near $11 billion in 2008, Yum! is one of the largest restaurant companies in the world.[25] Yum! operates KFC, Taco Bell, Pizza Hut, Long John Silver's, and A&W All-American Food Restaurants. Although Yum! doesn't compete in the FFHR category, BKC competes with it in the QSR segment.
| Company | Restaurants | Revenues | Operating Income | Operating Margin |
| Burger King | 11,565 | $2.5 B | $354 M | 14.42% |
| McDonald's (MCD)[7] | 31,967 | $23.5 B | $6.4 B | 27.39% |
| Wendy's International (WEN)[24] | 6,338 | $1.8 B | $(410) M | (22.5)% |
| Yum! Brands (YUM)[25] | 36,000 | $11.3 B | $1.5 B | 13.45% |
Data from BKC 2008 Google Finance Profile Page, MCD 2008 Google Finance Profile Page, MCD 2008 Annual Report, WEN 2008 Google Finance Profile Page, and YUM 2008 Google Finance Profile Page
[edit] Market Share
The FFHR is a $67 billion segment. Burger King has a 4% share of the segment and is second behind McDonald's 90% share. The QSR segment and FFHR category are extremely competitive because each FFHR restaurant offers similar menus and prices.
[edit] References
- ↑ 1.0 1.1 Burger King Holdings 2008 10-K Report; Part 1: Business, p. 3
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 2.6 Burger King Holdings 2008 10-K Report; Part 1: Selected Financial Data, p. 38
- ↑ McDonald's absorbs some costs to keep customers
- ↑ Burger King Profiting in the Downturn
- ↑ Burger King Holdings 2008 10-K Report; Part 1: Selected Financial Data, p. 39
- ↑ 6.0 6.1 2008 Burger King 10-K; Selected Financial Data, p. 39
- ↑ 7.0 7.1 7.2 McDonalds Google Finance Profile
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3-8
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3-8
- ↑ 10.0 10.1 10.2 2008 Burger King 10-K Report; Selected Financial Data: p.42
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3-8
- ↑ Burger King Quarterly Release for 05/05/09
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 8
- ↑ Burger King Holdings 2007 Annual Report, "Management's Discussion and Analysis...", p. 4
- ↑ Burger King Holdings 2007 Annual Report, "Management's Discussion and Analysis...", p. 4
- ↑ McDonald's absorbs some costs to keep customers
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 2
- ↑ Wall Street Journal, Media and Marketing, pg. B3, "Hey, No Whopper on the Menu?" February 08, 2008
- ↑ Bruger King Company Report 10-05-2007
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3
- ↑ Burger King Holdings 2007 Annual Report, "Business", p. 3
- ↑ 24.0 24.1 Wendy's International Google Finance Profile Page
- ↑ 25.0 25.1 Yum! Google Finance Profile Page
- ↑ Burger King Company Report
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