Magoosh GRE

Strategic Analysis of Burger King

| December 18, 2012

 

Introduction

The following report is an analysis of case study of Burger King fast food chain till date 2006. It primarily takes into considerations, significant changes over the years. And , also the strategic business decisions that led to, or formed a basis, of these changes. Moreover it helps us to identify the company’s core competencies and the competitive advantage it gained. It also highlights the issues faced by the company. A small comparison with McDonald’s helps to benchmark Burger King’s performance.

Following the critical analysis of case study, it follows necessary recommendations for the Burger King Company in UK market and lastly comparioson with ‘Schools of Strategy’ which are prominent in its history. A personal conclusion that evaluates the case – study and various comparisons throughout the report.

Background

          The company of Burger King Corporation was formed by Miami entrepreneurs James McLamore and David Edgerton in 1954. The Burger King Holdings is the parent company of Burger king, however in U.S. it operates as Burger Kings Brands title;  whereas internationally as Burger King Corporation. Today (as of year 2006, referring to case study), it is world’s 2nd largest fast food chain based on locations (behind Mcdonalds). The company has presence in more than 70 countries and runs more than 12000 restaurants. Thus, we can see that the brand rules one whopper of whole fast food chain empire.

The company is presently run by Mr. John Chidsey who acts as a CEO and chairman of the parent company. The brand has a $2.54 billion and boasts of handling more than 38000 employees successfully catering to 11.4 million customers.

Burger King – History

          Burger king is a predecessor to a company called Insta-Burger King. The Insta –Burger King was founded in 1953 in Jacksonville, Florida by owners named Keith.J .Cramer and Matthew Burns. The found the company after inspired by McDonald’s efficiency, in food preparation, delivery and architectural layout. The company Insta-Burger King was launched on the basis on an equipment known as the Insta – Broiler. The device proved as a very successful oven for cooking burgers.

Changes in Leadership – Burger King History

          The Burger King Company saw changes in management from the first year over more than 50 years since its establishment. The names (CEO) and significant decisions of them over the years are as follows:

Year

Name

Former position

Significant change in Burger King

1954-1970 James W. McLamore, David Edgerton President and chairman – Burger King
  • Founders, bought Insta-Burger King from Keith G.Cramer (owner of Keith’s Drive-In restaurant)
  • Introduced an improved version of ‘Insta-Broiler’(which had a capacity of 400 burgers an hour) called ‘flame broiler’
  • Launched ‘Whopper’ sandwich – the company’s signature product
  • By 1961, had 45 restaurants in Florida and South-east US; which they increased to 274 restaurants all over the world mainly through franchising.

 

Year

Name

Former position

Significant change in Burger King

1970-1976 Rosewall W. Leslie Not known Faced problems in company such as

  • unhealthy relationship with the franchises
  • confused advertising
  • stale menus
  • shabby restaurants
  • competition to change in customer preferences
1976-1977 Pazat W. Leslie Not known Continued problem facing
1977-1980 Donald Smith McDonald’s executive
  • Increased problems between franchises and the management
  • Introduced a new corporate structure and developed a new management attitude
  • Solved the inconsistency problem in both food by providing widespread menu and services were managed by greater control over the franchises.

Year

Name

Former position

Significant change in Burger King

1980-1982 Lou P. Neeb Not known Followed former Smith’s directions, the company moved from the third position to the second in the fast food industry by 1982.
1982-1983 Norman Brinker Bennigan’s ( part of Pillsbury) Company struggled to re-establish brand image
1983-1985 Jaffery J. Campbell Corporate Executive of Burger king Hired different agencies to promote brand but failed and send confused messages about the products.
1989-1989 Jerry W. Levin Haagen – Dazs Completed a deal of Pillsbury to Grand Metropolitan PLC (Grand Met) – a British alcoholic beverage manufacturer and distributor
1989-1993 Barry J. Gibbons Not known
  • Concentrated on improving menu and the brand image.
  • Introduced the BK broiler – a broiler chicken sandwich.
  • Successfully increased company profits by $75 million during tenure at Burger King.

Year

Name

Former position

Significant change in Burger King

1993-1995 James B. Adamson Chairman of Denny’s
  • Attempted to increase the quality of food by introducing ‘value menus’ which consisted of extensive combination from menu under a dollar.
  • Simplified menu and focussed on burgers and other products
1995-1995 David Nash Not known Increased sales by 6.6% by combination of the right product with the right marketing message.
1995-1997 Robert C. Lowes Chief Executive – European foods The company launched a $70 million French Fry Advertising campaign.
1997-1999 Dennis N. Malmatinnas Not known
  • Decrease in market share.
  • Grand Metropolitan merges with Guinness to form Diageo PLC
2001-2002 John H. Dasburg CEO – Northwest Airlines Planned to revitalise and reorganise the company, mainly through forming a new corporate structure.
2002-2004 Bradley Blum Headed Olive Garden unit of Darden restaurants The company faced stiff competition and sales dropped by $0.6 million.

Year

Name

Former position

Significant change in Burger King
2004-2006 Gregory Brenneman Presidant and COO of Continental Airlines
  • Created ‘a turnaround’ plan named as ‘Go Forward Plan’ which included –

1)    Grow profitably,

2)    Fire up the customer,

3)    Fund the future, and

4)    Work together.

  • Focussed on cutting costs as ‘Drive-thrus’ generated 70% of company’s business.
  • Secondly, introduced a new set of products to push sales.
2006 till date John Chidsey Chairman and CEO of Cendant Corporation The company faced a situation of state recession in US economy.

Significant Strategic Business decisions in Burger King History

Considering the growth of company over more than 50 years, its significant strategic decisions and success or failure of the same is listed below:

Years

Significance

Business strategy

Measure of strategy

1954

To

 1967

  • Launch of signature product ‘Whopper’ and created brand image as ‘Home of the Whopper’
  • Growth of company through minimum investment
    • Expansion
    • Franchising

Successful

Company had moved from 45 restaurants within US in 1961 to 274 restaurants across the world, by the end of 1967.

1967

To

1977

  • Company sold to prepared foods giant ‘Pillsbury’
  • Expansion
  • Franchising

Failure

Inconsistency in food and service among the franchises

1977

To

 1980

  • New leadership by hiring McDonald’s executive Donald Smith
  • Company enters UK market
  • Restructuring
  • New team management
  • Control over franchises

Successful

Increase in customer traffic by 15% and increase in ownership by 8 % showing effective and greater control over franchises.

Years

Significance

Business strategy

Measure of strategy

1980

 To

 1990

  • 1983 – Successful increase in competitive breakfast market
  • 1985 – $100 million to restructure company
  • 1988 – Company plans to market as independent entity and in consequent year 1989 bought by Grand Metropolitan
  • Hard sell approach
  • Trade –off  or spin –off  proposal in late 80’s as an independent entity

Success

Sales up by 19% by $9 million and pre-tax profits up by 9 %

 

Failure

Inconsistency in operations and downfall in sales

1990

 To

 2000

  • 1990 – Reorganisation plan and launch of BURGER KING Kids Club program
  • 1991 to 1995 – Expansion  in international countries
  • 1997- Infamous change of their fry recipe
  • Targeting kids segment
  • Expansion

Success

Sales up by $6 million in kids program

 

Failure

Inconsistency in operations and downfall in sales

Year

Significance

Business Strategy

Measure of strategy

2001 till

 date

  • 2001- Forced sell of Burger King by franchises
  • 2002 – Texas Pacific Group takes over
  • 2002 – Revamped broiler, introducing ‘Chicken Whopper’
  • 2004 – Turnaround plan called as ‘Go Forward Plan’
  • Expansion
  • Effective advertising and marketing campaign

Failure

  • $0.4 billion fall in sales revenue from 2002 to 2003.
  • Customer traffic decreased by 22 % from 1998-2004.

Success

  • Increased store sale in 2004 by 7.5 %.

Significance in history

          Consider the above span of Burger king’s history of more than 50 years some of the prominent features can be well justified by ‘three sigma’ Competitive strategy model. The model is explained, considering Burger King’s strategies as follows:

1)  OFFENSIVE STRATEGY

The strategy formulates overcoming the barriers to goal achievement by changing the systemic relationships creating them.  This strategy often requires significant capital investment and includes the following options –

  • Changing or altering the competitive structure or environment in your industry (forward or backward integration, acquiring competitors, etc.).

EXAMPLE – In the span of 1954 to 1967, Burger King History marks a significant approach of increasing its number of branches from 45 outlets in US to 274 outlets across the world. This was achieved through maximum approach towards franchising and expansion with limited investment, thus creating a forward integration.

  • Anticipating industry competitive structural change and positioning your organization to exploit this change before others recognizes it (developing substitute products, changing the mode of sale or distribution, etc.).

EXAMPLE – The span of years from 1977-1980 and since 2000, Burger King company adapted new structure with new corporate aptitude in order to control the franchises and improve products.

  • Diversifying into more attractive markets

EXAMPLE – Launch of Burger King Kids Club program marked its focus into an attractive children market. The results produced were significant in boosting sales and creating a loyalty and brand image in the new market segment.

2)  DEFENSIVE STRATEGY

The strategy is about accepting the industry competitive forces as a given and positioning your organization to best defend against them.

This could include harvesting and selling the business before competitive conditions cause its value to drop.

EXAMPLE – The history also identifies two major deals of the company respectively –

  • Sold to ‘Pillsbury – prepared food giants’ in late 60’s
  • Takeover by Grand Metropolitan PLC in early 1990’s

The main reasons accounted were increase in credit burden on the franchises and unhealthy as well as inconsistent relation with franchises.

3)  GUERILLA/ NICHE STRATEGY

The strategy involves minimizing or neutralizing barriers by reducing the size of the playing field and taking an offensive or defensive position in a smaller, more attractive market segment.

EXAMPLE – The Company decided to trade-off as an individual business entity as it failed and showed a remarkable downfall re-building the brand image in 1983 to 1993.

The key factor that consistently affected strategy formulation is the continuous changes in leadership/management affecting relationship with franchises and loyal customer.

Burger King CORE COMPETENCIES

                   Core competencies are points of leverage for gaining competitive advantage. They are organizational competencies that are unique to your organization or are performed better than your competitors and make a significant contribution to customer perceived value or create a significant cost advantage.

Core competency is best explained as the competitiveness of a range of products or services. It can also be explained as the co-ordination of diverse production skills and integration of multiple streams of technologies. Considering Burger King, a global renowned brand and chain of fast food, the core competencies can be generalised as follows:

Operational Difference – Major company stake is owned by franchises

As I went through the historical span of Burger King History, the franchises of Burger King played a major part in expansion of the parent company from the early 1960’s till date. The relation of franchises and management has always been influential and significant in success and failures of Burger King History. Primarily, the company operated with major investment from franchises and minimal from the company, so the decisions and relationship with franchises was crucial.

Flame broiler a unique device that improved with decades in Burger King history

The company was set-up on the basis of the oven called ‘Insta-broiler’ for cooking burgers. The purpose had been inspired from McDonald’s speedy service. It was further mechanised into a gas grill without changing patties and self functional by means of a conveyor belt. Further, the device was also customised and technologically advanced to produce Chicken sandwich, Chicken Whopper, Veggie burger, etc.

Drive –thru service

The company though was working hard on franchises and unique device to meet operational needs; it was mainly oriented to meet demand of production at ‘Drive-thru’ restaurants. This was because the company had major part of its sales revenue i.e. 70 % from ‘Drive-thru’ operations.

Later this competence was adapted by McDonald and other competitors as well. However the effectiveness and efficiency of Burger King’s ‘Drive-thru’ was easily highlighted. 

Competitive methods of Burger King

            The purpose of its competitive strategy is to build a sustainable competitive advantage over the organization’s rivals.  It defines the fundamental decisions that guide the organization’s marketing, financial management and operating strategies.

As there were many significant changes in the history of Burger King, eventually there were different competitive methods used in different span in history. Some of the significant competitive methods are listed as follows:

1} Initial decade in Burger king’s history, ‘Insta-broiler’ a device competitive in making burgers and technological advancements in the same gave it a competitive advantage.

2} High amount of franchises worldwide executed major ownership stake and customised operations in the outlets. This was tightened and a new company structure was formed, followed by a new competitive aptitude. [Year 1963 -1967]

3} Push sale approach led increase in competitive breakfast market and thus improve in position in market. Burger King moved to second position in US fast food market after McDonald. [Year 1982-1985]

4} Launched a Burger King Kids Club program that help the company to increase sales and successful entry into a new market segment. [Year 1990-1995]

5} Introduction of a TURNAROUND PLAN named ‘Go Forward Plan’, which was significant to attain objectives like increasing profit, create a customer image, teamwork, etc.[Year 2000]. One more advantage Burger King introduced was ‘Revamped Chicken Whopper’, helpful to compete with other competitors.

Burger King   <   McDonald’s  (BK is simply not as big as McD)

Some of the basic company facts and objectives of both the companies, help us understand how Burger King is not as big as McDonald’s in global terms.

Facts

Burger King

McDonald

Founder 1941 by Richard and Maurice McDonald 1953 by Keith J.Cramer
Present chain 12,150 outlets in 50 states and US territories and 74 countries More than 31,000 outlets in 119 countries
Revenue $2.5 Billion
Number of employees 360,000 employees 1,500,000 employees (1.5 million)
Customers 11.8 million customers daily worldwide 58 million customers across the globe
Products offered Flame-broiled burgers including the Whopper, Burger King also offers chicken sandwiches, fish sandwiches, French fries, onion rings, salads, chicken fries and Croissanwiches for breakfast. McDonald’s predominantly sells hamburgers, various types of chicken sandwiches and products, French friessoft drinksbreakfast items, and desserts. In most markets, McDonald’s offers salads and vegetarian items,  wraps
Calorie content A Burger King Double Whopper has around 920 calories A McDonalds Big Mac consists of 540 calories

Objectives

Burger King

McDonalds

Market share 21.9 % in US fast food industry 44% in US fast food industry
Value for money More bigger product for reasonable price Product size is smaller with inexpensive price
Franchising More than 90 % of the outlets are franchised A little less than 30 %
Suppliers The suppliers vary with various franchise in different locations worldwide. McDonald chooses best suppliers and type and quality of meat varies with country culture.
Advertising The BK adverts were quite confusing and sending wrong messages in potential market which affected cultural values and also brand image at times. McDonalds often had appropriate ways of advertising and were supportive to increase sales and popularity of the brand.

Issues relating to Burger King

           The case study is very critical in understanding the issues related with Burger King’s history. Some of the prominent issues from past to present can be listed as follows:

  • Franchise management – The company found it difficult to manage more than 90% franchise in the business of Burger King products and services. Crucial reason was also the percentage of stake ownership , which was initially 38% and was improved to 42% by Donald Smith, former McDonald executive.
  • Changes in leadership – The history of Burger King marked approximately 20 changes in management. The changes in short term span affected oragnisation focus over goals and objectives, affected brand image adversely and lacked consistency in operation.
  • Unhealthy food – The Company came prominently in highlight during the era from 2003 as potential customers had responded to be health conscious. The period marked spread of mad-cow disease and obesity levels among children was a rising concern.
  • Market recession – The US economy faced economic recession from 2006 and needs brand to take effective measures to sustain and avoid losing loyal customers to competitors.

Recommendations for future development in UK

 The Burger King opened its first branch/outlet in UK in 1977 on Coventry Street in London. Since then till date Burger King has 654 restaurants in UK ( out of which 73 are owned) whereas it has 139 ‘drive-through’ restaurants. Considering the present fast food environment in UK, following recommendations come in lime-light:

HEALTHY FOOD – Burger King UK has currently many problems within the environment in company and surrounding, however one of the prime concern is healthy food. The company needs to produce fast food with less saturated fats and salt content. The problem of obesity in UK is high as well and addressing to this concern is the need of demand to survive over the competitors.

PRIME LOCATIONS and EVENTS – Burger King needs to increase its influence and market share in UK, by serving at prime hot spots as well as at travel destinations. The presence of Burger King on high streets and at various national rail stations and airport is reasonable, however it needs to be accessible at hot tourist spots and business oriented commercial areas.

SPEED – Burger King needs to increase its speed of delivering products and services to customers, as it has been competing with McDonalds over more than 50 years and still lacks speed during peak periods. Speed in operations helps to generate revenue in coping zone.

Schools of strategy – Burger King’s evolution (analyse critically)

          Strategy formation is judgmental designing, intuitive visioning, and emergent learning; it is about transformation as well as perpetuation; it has to include analyzing before and programming after as well as negotiating during …” – Henry Mintzberg

However there is a difference in perspective leading to strategy arguments. Mintzberg identified this and tried to debate and answer different perspectives through his 10 Schools of Strategy/Thinking. The burger King History prominently highlights two of them, explained as follows:

1] The Power School – Strategy Systems as Processes of Negotiation

According to the power school, strategy systems are described to be mainly shaped by power and politics, whether as a process inside the enterprise itself or as the behaviour of the enterprise as a whole within its external environment. Strategies that may result from such processes tend to be emergent in nature, and take the forms of positions and actions more than perspectives. On the one hand parts of the power school (‘micro power’) see strategy making as the interplay, through persuasion, bargaining, and sometimes through direct confrontation, among narrow scope interests and shifting coalitions, with none dominant for any significant period. On the other hand other parts of power school (‘macro power’) see the enterprise as promoting its own welfare by controlling or cooperating with other enterprise (such as Franchises), through the use of strategic manipulation as well as collective strategies in various kinds of networks and alliances.

EXAMPLE – Burger King at different period in history, tried to take control over franchises by executing greater control over their operations and direct confrontation with various industry giants/ suppliers. These various processes implemented to achieve power through strategy highlights ‘THE POWER SCHOOL’.

2] The Configuration School – Strategy Systems as Process of Transformation

          The school follows a formation approach wherein the organisation is transforming into one type of decision making structure into another. The school interrupts the period of stability by some process of transformation.       It has configuration of strategy formation from other nine schools which are –

  • Design school – Strategy formation as an  architecture process
  • Planning school – Strategy formation as a formal process
  • Positioning school – Strategy formation as an  analytical process
  • Entrepreneurial school – Strategy formation as a visionary process
  • Cognitive school – Strategy formation as a mental process
  • Learning (or Emergent) school – Strategy formation as an emergent process
  • Power school – Strategy formation as a process of negotiation
  • Cultural school – Strategy formation as a collective process
  • Environmental school – Strategy formation as a reactive process

The school recognises a appropriate combination of any one or more of them taking into context a particular type.

EXAMPLE – Burger King history marks use of Positioning school in year 1980 -1983 to create a brand image and achieve second position in US fast food market.

 

CONCLUSION

Considering the massive history of Burger King and number of changes in leadership, the main highlight of the case study is instability in management. The factor was highly influential in changes and differences in relation of parent company with franchises and staff.

Also a prominent feature that needs a remarkable control is franchises management. The company has highest percentage of franchises ( more than 90 %) but less control by only 42% ownership in most of the outlets.

The company has a signature product as ‘WHOPPER’ which needs to be promoted all the time and offered with variations, to keep attracting new as well as loyal customers.

 

BIBLIOGRAPHY

Available: http://www.mcdonalds.com/us/en/our_story/our_history.html. Last accessed 11th Nov.2010

Available: http://www.bk.com/en/us/company-info/index.html. Last accessed 11th Nov.2010.

Henry Mintzberg, Bruce Ahlstrand and Joseph Lampel (1987). Strategy Safari: A Guided Tour Through the Wilds of Strategic Management. 15th ed. New York: Prentice Hall.

Oscar Suris. (1988). Burger King seen as takeover target after its spin-off. Miami News. 8th Nov, page – 11.

Unknown. (2003). A competitive strategy model. Available: http://www.threesigma.com/competitive_model.htm. Last accessed 10th Noveber

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