Burger King Is the World´S Second Largest Fast Food Hamburger Restaurant (FFHR) Company
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1. CASE BACKGROUND: Burger King is the world´s second largest fast food hamburger restaurant (FFHR) company. The BKW system includes over 12,600 restaurants in the U.S. and more than 80 other countries worldwide, with 95% of the system currently operated under a franchised business model. Burger King Corporation was founded in 1954 in Miami, Florida, by James McLamore and David Edgerton. McLamore and Edgerton, both of whom had extensive experience in the restaurant business before starting their joint venture, believed in the simple concept of providing the customer with reasonably priced quality food served quickly in attractive, clean surroundings. The success and size of Burger King Corporation is the result of a tradition of leadership within the fast-food industry in such areas as product development, restaurant operation, decor, service, and advertising. At the end of its fiscal year 2007, Burger King reported that there are more than 11,300 outlets in 69 countries, 66% are in the United States and 90% are privately owned and operated. The company has more than 37,000 employees serving approximately 11.4 million customers daily. The company's two largest franchisees are Carrols Corporation with over 325 restaurants in United States, and Hungry Jack's, which exclusively owns, operates or sub-licenses over 300 restaurants in Australia. In 2010, 3G Capital, a global multi-million dollar investment firm focused on long term value creation, purchased Burger King Corporation, making it a privately-held company. The buyout marks the largest leveraged acquisition of a fast-food chain ever, and the second for Burger King in the last eight years. The whopper-maker’s possible new owner, 3G Capital, is backed by a number of wealthy Brazilians, including billionaire and a sport celebrity (tennis player). 3G plans to expand Burger King’s foothold internationally, especially in Latin America and Asia. Burger King Holdings Ltd. is based in Florida. It operates and franchises fast food hamburger restaurants through its subsidiary, Burger King Corporation. In Philippines, it operates through PERF restaurants and has 23 locations. It has been in Philippines since last 11 years and its major offerings are Burgers, Fries and Dessert. Its unique selling propositions are its range of Whoppers. Its main differentiation point is its American flavor. Current Performance: Burger King was the second largest fast-food hamburger restaurant chain in the world as measured by the total number of restaurants and system wide sales. As of June 30, 2010, the company owned or franchised 12,174 restaurants in 76 countries and U.S. territories, of which 1,387 were company-owned and 10,787 were owned by franchisees. Of Burger King’s restaurant total, 7,258 or 60% were located in the United States. Approximately 90% of Burger King restaurants were franchised, a higher percentage than other competitors in the fast-food hamburger category. Franchisees in the United States and Canada paid an average of 3.9% of sales to the company in 2010. In addition, these franchisees contributed 4% of gross sales per month to the advertising fund. Management touted its business strategy as growing the brand, running great restaurants, investing wisely, and focusing on its people. Specifically, management planned to accelerate growth between 2010 and 2015 so that international restaurants would comprise 50% of the total number. Management was also working to update the restaurants by implementing its new 20/20 design and complementary Whopper Bar design introduced in 2008. By 2010, more than 200 Burger King restaurants had adopted the new 20/20 design that evoked the industrial look of corrugated metal, brick, wood, and concrete. The new design was to be introduced in 95 company-owned restaurants during fiscal 2011. Management continued to look for ways to reduce costs and boost efficiency. By June 30, 2010, point-of-sale cash register systems had been installed in all company-owned, and 57% of franchise-owned, restaurants. It had also installed a flexible batch broiler to maximize cooking flexibility and facilitate a broader menu selection while reducing energy costs. By June 30, 2010, the flexible broiler was in 89% of company-owned restaurants and 68% of franchise restaurants. 2. ENVIRONMENTAL ANALYSIS A. General Environment: OPPURTUNITIES: SOCIO-CULTURAL ENVIRONMENT Spending Trends As of the end of 2008 the economic downturn, leads to lower consumer spending. Fast food restaurants become alternatives to full service restaurants because they are cheaper Lifestyle Trends Home cooked meals are becoming less prevalent Changes in lifestyle such as 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. Demographic Trends Demographic changes 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. ECONOMIC ENVIRONMENT 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. (Datamonitor) 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. (Datamonitor) POLITICAL/LEGAL ENVIRONMENT The Government was proposing a policy that was business and investor friendly by opening Philippine economy Allowing 100% foreign ownership in all the sectors of the economy Investor-Friendly Policies In recent years, business prospects in the Philippines have improved at an encouraging pace. The nation has opened its markets by allowing 100% foreign ownership in almost all sectors of the economy. It has braced its capital markets and deregulated the banking, insurance, as well as the shipping and telecommunication sectors, removing most, if not all, the monopoly structures. Attractive incentive packages are on hand to qualified business enterprises in the country’s numerous Special Economic Zones and Industrial Estates. The Special Economic Zones are being fostered to develop into balanced agricultural, industrial, commercial and recreational centers of activity. This would entail more investment in the retail food sector like the increase in the number of franchises TECHNOLOGICAL Environment People are getting more on social media in communications and more reliable on technology like WIFI and surfing the world wide website. Treats: 1. Increase in Health consciousness 2. Competition in Fast Food chain has been increased B.INDUSTRY ENVIRONMENT: Five Forces Analysis Competition within the Existing Players: Jollibee, Wendy’s, and McDonalds are the main competitors of this fast food industry. McDonald's is their largest competitor in fast food hamburger restaurants in terms of number of locations. BK is the second largest competitor in fast food restaurants. Wendy's is the third largest competitor in fast food hamburger restaurants in terms of number of locations. Jollibee is the leading fast food chain in the Philippines. Potential New Entrants: The threat of new entrants is low. There are high capital requirements for doing business in fast food industry since franchises are high fixed cost investments that require economies of scale in order to be profitable. These existing competitors are also more likely to have stronger supplier relations, which allow them to enjoy cost advantages that new entrants cannot. Additionally the entrants are unlikely to have the same access to financial intermediaries. Substitutes: The substitute in this sector is high. It is because of innovation of foods today and variation of food available in the market like hotdogs, pizza, and/or pasta. And in the Philippines where rice as the country’s traditional staple. Buyer’s power: Brand choice is typically a no compensatory process, which means that consumers focus on whether a brand has one or more attributes that are important to them, rather than a compensatory process where all attributes are traded off against each other. Here customers are the buyers and the business depends on their evaluation of taste and price. Suppliers: As a global brand Burger King Corporation is committed to maintaining a diverse portfolio of suppliers. Restaurant Services, Inc. (RSI), is the exclusive purchasing agent for the vast majority of products and services used by Burger King restaurant owners in the United States and is manager of the system's supply chain. Founded in 1991, as an independent, member-owned cooperative, RSI acts on behalf of BK to achieve the best commercial terms for food, packaging, premiums, promotion products, supplies, equipment, distribution, and related services on behalf of its members. RSI works closely with restaurant owners, Burger King Corporation, food and packaging suppliers, marketing agencies, equipment vendors, distributors, and information systems providers to streamline and improve the supply-chain efficiency of the system, ensuring a continuous and reliable supply of products and services to restaurants at the best cost and at established performance standards. C. INTERNAL ENVIRONMENT ANALYSIS Strengths: a. BRAND NAME. Burger King is known for its strong brand. Throughout the years it has survived in the industry and has built a strong brand in the US and worldwide. b. GOOD QULAITY PRODUCTS. It has its authentic American taste and Innovative side orders, giving high quality product. c. EXCELLENT SUPPLY CHAIN d. EXCELLENT AMBIANCE and Tech-savvy outlets e. Burger King’s new owner, 3G Capital, is backed by a number of wealthy Brazilians, including billionaire and a sport celebrity (tennis player). 3G plans to expand Burger King’s foothold internationally, especially in Latin America and Asia. Weakness: a. LOW BRAND AWARENESS. Jollibee had the highest brand recall amongst fast food brands and McDonald’s as the second, with other smaller niche fast food chains like KFC, Chowking and Greenwich. b. HIGH PRICE. Larger variety and cheaper prices where what people wanted from Burger King.