The Industry

Restaurant Fast 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.

External Environment of Industry

Spending Trends Lifestyle Trends Demographics Trends

Spending Trends
As of the 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.

Lifestyle Trends
Home cooked 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.

Demographics 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 Percent who say they eat at a meal from a fast food restaurants
restaurant at least weekly

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.

Global Fast Food Forecasts

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. 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.

Global Market Share Segmentation

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.

SWOT Analysis Overview

Burger King
Strengths Strong market position Greater franchise mix Robust financial performance
Opportunities New products development New opportunities in growing economies Positive outlook for restaurant industry in the US

Weaknesses Market concentration Scattered Marketing Campaign

Threats Intense competition Expiry of Franchise Agreements Acrylamide in French fries

SWOT: Strengths
Strong Market 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.

SWOT: Weaknesses
Market Concentration
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

SWOT: Opportunities
New Products
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

SWOT: Threats
Intense Competition 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.

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

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

BKs Image
What comes to mind when you think of BK?

Competitive Advantage:

Brand Names
Burger King
Its 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

Competitive Advantage:

Highest Franchise Rate

90% of BK locations are franchised Leads the Industry

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

Competitive Advantage:

Marketing
Commercials Innovative and Edgy Rated best new restaurant ad by Neilsens (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.

Problems with Marketing

What would you say is the message of BKs advertising? Ads for Texican burger controversial
Stereotyped Mexicans

Muffled message
Targets SuperFan

Provides no clear differentiation for brand

BKs Recent Performance

Burger King
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

McDonalds
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

BKs 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

Recent Cost-Leading Initiatives

Real-time Scheduling System Increased employee efficiency Closed Underperforming Restaurants Smaller Locations Customers drive-thru preference 62% of sales Lower costs by 25%

Business Model
Burger King Holdings Inc.
Franchises (90%) CorporateOwned (10%)

$50,000 initial payment

4.5% gross sales monthly

25% of revenue

Burger King Scalable and cost-efficient quick service hamburger restaurant model that offers customers fast food at modest prices.

2006 Public Offering

Competitors Advantages
McDonalds Advantages: Appeal to ages 3-12 Americas fast food company 3 times larger than BK Wendys Advantages: Dollar menu
Beginning to change

Cost-leader
Becoming harder

Growth Opportunities
Differentiation Strategy Green and Modern Image
First-mover advantage

Capitalize off increased corporate-owned profitability

Differentiation for BK

How can Burger King differentiate themselves from their main competitors?

Key Resources
Flame broiled Creative advertising Hippest of the big 3 Experienced management

Risk Factors
Restaurant business 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)

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

Franchising - Disadvantages
Limited control of daily operations (cleanliness, culture, etc.) Generally less profitable
32% of profit came from company owned restaurants as profitable

Break Even Analysis of Conversion Process

Cost of Repurchase
Revenue of Franchise (yr) Revenue of Company owned Difference in cash flows Break Even (years)

650,000
52,621.26 220,480.2 167,858.9 3.8723

Global Presence
11,565 restaurants in 71 countries 38% located abroad Differences in dining preferences Fattier foods served domestically More dine-in customers

Orange = Former Locations

Red=Locations of Burger King

Yellow=Operates under different name

Health Concerns
Disclosure of 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

Industry Leaders Ratios

Stock Trend

Cash Flow Analysis

Operating Activities
2008 2007 2006

Investing Activities

Financing Activities

Dividends

NET CASH FLOWS

243,000

(199,000)

(62,000)

(34,000)

($4,000)

117,000

(84,000)

(127,000)

(17,000)

($89,000)

74,000

(74,000)

(173,000)

(367,000)

($173,000)

*Effect Of Exchange Rate Changes 14,000 in 2008 and 5,000 in 2007*

DuPont Formula
Margin
2008 2007 2006 7.74% 6.62% 1.32%

Asset T/O
.978 .990 .870

Leverage
3.18 3.52 4.50

ROE
24.08% 23.07% 5.17%

Current Ownership Strategy

We believe 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.

Current Strategy
Drive further sales growth
Enhance Guest Experience Reduce hours

Enhance Restaurant Profitability Expand International Platform Employ Innovative Marketing Strategies Accelerate New Restaurant Development and Expansion

Global Growth
Enter new 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

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

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

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

Burger King vs. McDonalds 2008 McDonalds Burger King

11,565 restaurants in 71 countries. 31,967 restaurants in 118 countries .
6,502 Company Restaurants (20.3%) 25,465 Franchise Restaurants. (79.6%)

1,360 Company Restaurants (11.75%) 10,205 Franchise Restaurants (88.24%)

What Fast Food Restaurant has the best Hamburger?

McDonalds Burger King Wendys 21% 37% 37%

McDonald's

Burger King

Wendy's

Which FFHR has the best atmosphere?

McDonalds Burger King Wendys 34% 11% 31%

McDonald's

Burger King

Wendy's

Which FFHR do you go to the most?

McDonalds Burger King Wendys 16% 11% 57%

McDonald's Burger King Wendy's

How would you change FFHRs?

53% Better quality, cleanliness, healthier. 22% Sought out more menu options 17% Requested lower prices. 6% Wanted better customer service.

Analysis of Results
BK tied Wendys for the best burger. Quality, Cleanliness, and Health are Important
There is a potential demand for quality positions FFHR

McDonalds had the best atmosphere.

We need to differentiate our atmosphere, imitation is unsuccessful

Wendys was most frequented.

Better proximity and late night availability BK should focus on lunch-time, evening segment

Strategic Objective:
Increase Market Share 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.

Differentiation Strategy:
Green Team 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.

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

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

Global
Focus advertising efforts on new target market Promote healthy BK Kids meals Implement US Standards for emerging global franchises.

Objectives: 6 Month
Start Conversion of Company/ Franchise Ownership from 11.75% to 15%
For every 100 BKs, 15 will be Company Owned.

Launch Green Team Campaign in new restaurants. Launch Conversion of existing restaurants.

Objectives: 12 Month
Completion of Old Restaurant Conversion
5% Franchisees renegotiated

Increase Average Gross Sales per store by 10% 500 New Franchise Restaurants WorldWide.
Maintain Company/Franchise Ratio Goal. (15%)

Strategic Goal for the Future

Big Hairy Audacious Goal
To become largest Fast-Food Hamburger Restaurant in the world. (Currently second to McDonalds)

As measured by:
Total number of restaurants System-wide sales.