#72 The King is Dead. Long live the King!
Looking at the mere numbers, Burger King does look impressive. Burger King operates close to 11,000 franchises and owns close to 1,500 restaurants globally. It is present in 76 countries where 40 % of all of its restaurants are located. Unfortunately, 40 % of the restaurants abroad only generate about 30 % of the total revenue. Plus, Burger King hasn’t been doing so well in the home market, either. Time to change gears, time to change owners. Only eight years ago, Burger King switched owners when Diageo, the spirits maker based in the UK sold the fast food chain to a consortium of investment firms made up of TPG Capital, Bain Capital, and Goldman Sachs Capital Partners. After its owners took Burger King public in 2006, it will now sell itself to private equity group 3G Capital. What is interesting besides the 3.3 bn US$ price tag which presents a hefty 46 % premium, is the fact that 3G capital is backed by Brazilian interests including Brazilian billionaire, Harvard graduate, Wimbledon tennis player, and resident of Switzerland, Jorge Paulo Lemann. It therefore doesn’t come as a big surprise that plans have already been announced to expand foreign operations into Latin America, with a focus on Brazil. It’ll be interesting to see if the mastermind behind some of the most publicized deals in the beer market can work his magic for Burger King. In the past, Burger King hasn’t been doing so well in a number of foreign markets, including Europe. Burger King has been in Finland for a short period of time in the 1980s before leaving again, it has briefly been in Greece in the 1990s, it pulled out of France in 1998, then left the Ukraine in 2006, and closed operations in Iceland in 2008. They left and re-entered countries such as Austria and Japan. It seems that in many markets they have been up against first movers such as McDonald’s or KFC. But that alone would be nothing but a bad excuse that no executive should get away with. Ill advised product programming, price strategies gone haywire, restaurant design that falls way behind that of McDonald’s restaurants, and a less than ideal use of technology that allows to track trends in sales in real time have all contributed to its poor performance abroad. It seems as if global market potential is there, but Burger King has never been able to fully tap into it. Brazil seems to be different. Burger King has entered the country in 2004 and expanded impressively since then. With its GDP per capita steadily growing since 2002, the Brazilian market certainly holds a lot of promise for Burger King.
October 30, 2010 @ 9:56 pm
Beyond doing poorly in the foreign markets; there seem to be bigger problems for Burger King. The fact that nearly half of its restaurants are abroad but is only generating 30% of the market indicates that there is a gap with what they are trying to market and with what the consumers in the various countries where Burger King operations are expecting to receive. Burger King hasn’t been performing all that well and the fact that it isn’t a first mover like McDonald’s and KFC in the foreign markets means it is one step behind. To me this all points to a lack of strategy for international expansion. I can only presume that Burger King that the change in ownership and leadership has caused the lack of developing a true international strategy. It almost seems like Burger King has an identity crisis. For Burger King to succeed in markets outside of Brazil it is going to come down to market research and understanding the Political, Economic, Societal, and Technological facets of each individual market. Customizing its strategy will allow Burger King to prosper, obviously that may involve some investment.
Since Burger King has had some success in Brazil it should take a stepwise approach to entering similar markets. Burger King should really understand what has allowed it do well in Brazil, which could be any number of factors such as modifying its menu to cater to the preferred cuisine in Brazil or being first to establish a burger restaurant in Brazil. Another consideration might it include its pricing strategy within the country. These can all be high level approaches but again ties back to understanding the market, I just think Burger King had a better understanding of the Brazilian market compared to other markets it tried to enter.
January 11, 2011 @ 11:35 am
I agree that if 40 % of Burger King’s restaurants are abroad and only 30 % of Burger King’s revenues are made abroad, there has to be a mismanagement concerning international business. There might also be some strategic issues in the company, because when ownership is switched so often, then the strategy might have also been changed at every switch, became inconsistent and as a result it has not been able to follow its crucial long-term business targets, which have originally been set.
I totally go along with Glenn’s statement that there is a necessity of adaptation to foreign market specifics. Burger King’s international expansion strategy might have had a lack of customization and adoption to the individual market needs. This would be a possible explanation why Burger King had to withdraw from so many European markets (e.g. Finland, Greece, France etc.). The strategy used in Europe might have been too similar to the US strategy without enough local adoption. European markets differ very much from the US market in terms of consumer needs, behavior and cultural aspects. While power distance is very high in America, it is far lower in many European areas, the same is with individualism, or masculinity. It is obvious that differences in these cultural dimensions require different strategies customized to the countries specific culture, just like Jasmin explained.
I guess one of the biggest issues of global operating fast food chains is their approach to standardize organization, progress and marketing in order to be able to offer the lowest prices, prepare food in a minimum of time and achieve a maximum of revenue. Such companies are likely to ignore local needs of customization and experience their relevance in hindsight, when a lot of money has already been lost.
In my opinion might have 2 possible explanations why Burger King has been successful in Brazil. 1: Burger King applied the American strategy just like they did in Europe and, fortunately, unlike in the European markets, the Brazilian market is quite similar to the American market in relevant dimensions and so this strategy paid off; or 2: Burger King has been able to successfully adopt its strategy to the Brazilian market. Which one of these explanations is more correct would have to be assessed by market and strategy analyses. Either way, Burger King can learn a lot out of this experience. And maybe as the new owners of Burger King are Brazilians, the company has the understanding to gain a deep insight into the Brazilian market in order to find out what have been the main success factors in Brazil and what is different to countries in which their strategy failed.
October 27, 2011 @ 4:57 pm
The fact that half of Burger King restaurants are abroad and generate 30% of revenue is due to a lack of strategy for international expansion. Burger King, with 11,000 franchises, 1,500 stores globally, should be operating at a much higher level. It could be very well be a gap between what Burger King is trying to market. The fact that Burger King has been to Finland, Greece, France, Ukraine, and Iceland with very little success indicates they are not paying close attention to the markets. Investors and shareholders must look at strategic management involved in making decision in expansion efforts. Obviously, they have had many unsuccessful efforts and have invested much capital to pursue these efforts. Yet, were still unsuccessful. Investors should look to replace and hire management with extensive years in global expansion. Or investors can bring in strategic consultants in helping developing global strategies in emerging markets. These are several steps Burger King investors can make especially if they are still looking into further expansion. Burger King had success in entering the Brazilian market and looking to tap into even further into Latin America. Therefore, it is critical for Burger King to look into the critical success factors that made tapping the Brazilian market so successful.
However, I do believe there are other factors that contributed to their shortcomings in global expansion. It very well could be they never researched the characteristics of these respective cultures. I do believe in order to have success in other regions, a company must learn other cultures before venturing off into global expansion efforts. In researching Hofstede’s and Trompenaar’s culture models, a company must find out if a country exhibits high or low power distance, is uncertainty avoidance high or low, or is masculinity high. These are critical elements to Hofstede’s model describing characteristics of different cultures. Once an organization understands these personality traits, they can better make informed decisions in their marketing and global expansion efforts. For example, a country that possesses high power distance, luxury car models should be promoted heavily to company executives and not to low income individuals.
I believe Burger King should incorporate research using Hofstede or Trompenaar’s culture models to help assist in the global expansion efforts. Perhaps with better management personnel exhibiting proper expansion experience can help Burger King make better-informed decisions.
December 14, 2021 @ 5:05 am
Although this post was made in 2010, a lot of it still holds true. When I am driving here in the U.S. I am almost surprised when I see a Burger King. Other fast food chains have taken over, including Chick-fil-a, McDonalds, In-n-Out (here in California), and other sit down burger places like 5 Guys and Habit Burger. A few years ago (before the pandemic), I studied abroad in Florence, Italy and found a few American comfort foods in the form of fast food including McDonalds and Burger King. I personally did not go to Burger King during my 5 month stay-which I think says a lot about how much I missed it (not at all). Every once in a while I craved some McDonalds, but their menu had changed from the American one I was used to at home. Items like Chicken Parmesan and spaghetti were on the menu, and their McCafe collection was much more extensive in the bakery department. I did stop into a Burger King one day, and the menu was exactly the same from what I was used to. Not knowing the knowledge that I know now, I just thought they were aiming to bring American food into Italy, but I can now see that they did not truly do the research like McDonalds did to stay relevant in a foreign country. If they were to try to break into that market again, I would suggest putting in the work to see what consumers really want and do market research on what items would be4 successful int hat country.
January 8, 2022 @ 7:25 am
As of 2010 3G Capital of Brazil acquired the majority stake of Burger King and quickly initiated a restructuring and combined restaurant business with a well-known Canadian restaurant Tim Hortons and focus on an international expansion. Since 2010 Burger King under the helm of 3G Capital has grown primarily internationally with 17,800 restaurants globally in 2018 a 45% increase from 2010 of 12,250 restaurants. Some of the success of Burger King in foreign markets is that it has tailored its menu for regional tastes as well as 3G Capital decision to move to privately owned and operated franchisees. Since a worldwide revenue peak of $2.5B in 2009 revenue has decreased 56% to $1.6B in 2020, primarily attributed to that Burger King seems to be falling out of favor with consumers and attracting fewer new customers each year and losing customer loyalty to other brands. Other issues are unsuccessful campaigns, general lack of consistency in communication and coordination among corporate and franchisees and failure to offer a wide variety of healthier menu options.
The biggest market that Burger King has been struggling in is the U.S. with slumping sales, restaurant closures and slow to increase in number of locations with a 1% increase from 2010 to 2018 from 7,550 to 7,617 restaurant locations. In the U.S. Burger King continues to lose market share to McDonald’s, Starbucks, Chick-fil-A, Taco Bell and most recently to Wendy’s who took over the number 5 spot as leading quick service restaurant chain. Burger King’s struggles in the U.S. can be attributed to their lack to respond to trends, for instance slow reaction to technology since in order to stay competitive you must move at or surpass the pace that competitors are adopting technology others wise you are seen as “old news”. Another thing that has hurt Burger King is its focus on gimmicks versus focusing on adding new menu items that would in turn translate to returning long term customers. Also, unsuccessful campaigns, promotions and products that have tarnished its brand & image.
The lesson here is that Burger King might be struggling in the U.S., but globally, they’re doing alright. But if Burger King wants to stay competitive in the quick service restaurant business in the U.S and abroad, then they will need to do a major overhaul and focus on bringing up their locations to the latest technology and most importantly improving their menu items – and get out of the gimmick game.