| August 2012 | By Jordan Melnick

Long Live the King

After years of struggling, Burger King seems to finally have turned things around.

Steve Wiborg, president of Burger King North America, is heading the turnaround.
Steve Wiborg, president of Burger King North America, is heading the turnaround.

Having kicked the Burger King (the mascot) to the curb, Burger King (the chain) has enlisted several A-list celebrities, from the very beautiful (Salma Hayek, David Beckham, Sofia Vergara) to the very Steven Tyler, to push a new message in its commercials in the hopes of bringing about a brighter future for the embattled burger chain.

Showcasing Burger King’s various new menu items, which include smoothies, salads, and specialty coffee drinks, the commercials strike a humorous tone, more silly and fun than the odd irreverence—creepiness, some might say—of its previous advertising campaign starring its former mascot.

In contrast to the levity of the star-studded campaign is Burger King’s new tag line, which is not a silly joke but an upbeat declaration: “Exciting things are happening at Burger King.” It comes after several years during which exciting things were not happening at Burger King. In fact, quite the opposite.

Formerly McDonald’s strongest competitor, Burger King has lost a lot of ground over the last decade. According to Advertising Age, McDonald’s was 101 percent ahead of Burger King in average domestic revenue per unit in 2010, more than double its lead from 10 years earlier.

While McDonald’s is far ahead of the entire quick-service pack—at more than $34 billion, the chain’s

domestic system-wide sales were triple its closest competitor, Subway, in 2011—its recent triumphs stand in sharp contrast to Burger King’s struggles.

Burger King’s downturn started in the early 2000s, when major franchisees publicly aired grievances with the company. Since then, the chain has passed into different ownership several times and jumped on and off the public markets every few years. (The company recently announced plans to list its shares on the New York Stock Exchange through a merger with a London-based investment company.)

During that period, McDonald’s expanded its menu through the McCafé—an extensive line of specialty drinks, including various coffee drinks, fruit smoothies, and ice cream shakes—and a line of salads and wraps designed to attract health-conscious consumers. Burger King, on the other hand, doubled down on its core customer (young males with an appetite for burgers) and effectively forfeited a lucrative new consumer base to McDonald’s.

The mistake in this strategy became painfully apparent when the Great Recession hit in 2008, says Steve Wiborg, president of the corporation’s North America branch. As other quick serves managed to mitigate their losses by drawing in consumers accustomed to eating at pricier restaurants, Burger King struggled to capitalize on the “trade-down” phenomenon.

“I don’t think Burger King got its fair share of trade down when that all happened because we were speaking to a very focused individual,” Wiborg says.

To make matters worse for Burger King, the field of burger-centric chains was growing ever more crowded, with new concepts like Five Guys and Smashburger coming on strong and growing fast.

“Everyone is scrambling to keep their distinction in the [burger] market,” says Kathy Hayden, a foodservice analyst with market research firm Mintel. “Every day there’s some sort of new element of competition.”

All of these developments led Burger King to a crucial moment in the Miami-based chain’s nearly 60-year history. So, following its acquisition by 3G Capital at the end of 2010, Burger King brought in a new management team, including Wiborg, and got to work crafting a strategy to jumpstart the brand.

“We needed to take a hard look at [ourselves],” Wiborg says, “because over the last 10 years, we had definitely fallen behind our competition.”

The intensive brainstorming sessions (roughly nine months worth, Wiborg says) yielded a four-pillar, $750 million strategy that Burger King announced in April. The first pillar of the strategy is the menu expansion. From mango and strawberry-banana smoothies, “Garden Fresh” salads, chicken wraps, and crispy chicken strips to mocha and caramel frappes, the expanded menu takes cues from both McDonald’s and Starbucks in an attempt to broaden Burger King’s consumer base beyond young males to include women, families, and the health-conscious.

“I think it is important to make sure you have a menu that applies to not just one segment of consumers,” Wiborg says. “Especially when you consider that half the population is female and half is male, and then when you really dial that into a 18–34-year-old target, you’re now really limiting yourself. So [the menu expansion] is really about opening the target and making sure the menu is there.”

After Burger King announced its new menu items, some analysts jumped on the chain for merely copying its competitors.

“They should be focusing on themselves,” says Jeff Davis, president of Sandelman & Associates, a foodservice consumer research firm. “People don’t need another McDonald’s.”

As a counter, Wiborg says: “It wasn’t about doing things first for us, it was about doing things right.”

In crafting the new menu, Wiborg says the new management team looked at the fine details. “It wasn’t OK to get the lettuce and tomatoes pre-cut from a commissary,” he says. “We wanted that done in house because freshness” was a big focus. The goal, ultimately, is to differentiate Burger King’s food from a wide spectrum of perceived competitors.

“Anyone that sells food, even a grocery store, is a competitor to us,” Wiborg says. “Even though you might look at our new products and say, ‘Hey, those aren’t new … I can get those somewhere else,’ we believe that they are differentiating, that they’re best in class.”

The second pillar of the strategy is Burger King’s new marketing campaign. The previous campaign, featuring the now-retired King, was in some ways a fitting symbol of the chain’s recent history: Aggressively geared toward young males, the mascot wore the forced smile of a restaurant owner who is watching another dissatisfied customer leave his restaurant in favor of a competitor.

The new marketing campaign couldn’t be more different. The masked mascot is gone, replaced by a slate of celebrities with instantly recognizable faces (in addition to the aforementioned celebs, Mary J. Blige and Jay Leno are also now on the Burger King payroll). Gone, too, is the odd humor, replaced by a brand of comedy with much broader appeal.

“In our consumer research, we learned that people are very passionate about this brand, but [for some of them] it had been a while since they’d been back and Burger King was not talking to them,” Wiborg says. “That was the case with a lot of the females we talked to. The past advertising didn’t click.”

Still, if the new commercials do a better job of communicating with women by focusing on the chain’s new, healthier menu items, they don’t altogether forget about its core customers—young males who probably don’t mind seeing Colombian beauty Vergara seductively feed her coworker by hand.

The third pillar, improving operations at Burger King restaurants, is the most important part of the overall strategy, Wiborg says. One common complaint over the last several years has been inconsistency from one Burger King to another, an issue that can spell disaster for a quick-service chain. To address the problem, Wiborg says, Burger King had to “change how we did things as a franchisor.”

First off, that meant settling a long-standing legal dispute between Burger King and the National Franchise Association (NFA), which filed a lawsuit on behalf of Burger King franchisees after the chain priced its double cheeseburger at $1 on its Value Menu.

“[The franchisees and Burger King] were almost like two brands, and it was really important to me and this management team that we move together as one brand,” Wiborg says. The NFA ultimately dropped the lawsuit after Burger King promised franchisees more input on Value Menu pricing and the length of limited-time offers.

Another major change in the way Burger King “did things” as a franchisor came in personnel: Burger King added 110 franchisor-franchisee liaisons to its roster, going from 50 people in the field to 160. The new management team also went on a 58-city tour of Burger King locations across the country to introduce themselves and their new vision for the chain to franchisees. Furthermore, Burger King created three committees—a restaurant council, a marketing council, and a people council—that are made up of franchisees and Burger King corporate employees to facilitate cooperation between the two camps.

After years of being on rocky terms with its franchisees, the new approach is the result of hard-earned wisdom.

“It’s a lot easier to sell something to our system if you have the franchisees as part of the plan,” Wiborg says. “That’s something we believe in whole-heartedly in running this brand. In a 90-plus-percent franchise system, it’s about execution. We can have the best plans in the world … and if it’s not being executed well and our franchisees don’t believe in it and they’re not living it, it has no chance of winning.”

The last pillar of the four-part strategy is location renovations. Again, Burger King is following in the category leader’s footsteps (McDonald’s is in the middle of a billion-dollar makeover of the majority of its stores) but the adage “better late than never” nonetheless applies to Burger King.

So does “now or never,” says one analyst.

“It has less to do with following McDonald’s and trying to compete and more to do with, ‘If we don’t do it, we’re not going to be around in five years,’” says Darren Tristano, executive vice president at Chicago-based consulting firm Technomic, about Burger King’s overall strategy.

Perhaps with that in mind, Burger King is promising an improved restaurant experience with enhancements at every one of its more than 7,200 locations, including digital menuboards to replace the traditional slat-and-slide boards, new employee uniforms, and new packaging. As for the pace of the updates, Wiborg says more than 1,400 locations are already signed up for reimaging and that 40 percent of all stores will have undergone the limited renovation within three years.

Burger King only had 300 franchisees coming up for mandatory remodeling, so it offered royalty reductions and discounts on fees to encourage franchisees to renovate their stores early. The chain also created a $250 million lending facility to give those franchisees easy access to funding for the reimaging and to pay for the $31,000 worth of equipment needed to prepare the new menu items.

“It’s been a real partnership,” Wiborg says.

Having set its $750 million reinvestment into motion, Burger King now must carry out all four pillars of its new strategy to maintain its place in the increasingly competitive burger market, let alone to start climbing the ranks in the quick-service sector. Much of the onus, Wiborg says, is on the chain’s franchisees.

“Without them executing our plan, we don’t have a chance,” he says.

But after leading what amounted to a corporate soul search, Wiborg is confident in Burger King’s future, even if he understands that the path ahead will not be easy.

“We have some catch-up to play,” he says. “The industry changes and what consumers want from your brand [changes], and your brand has to change with the times. And Burger King didn’t, in my view, for a number of years.”

Eager to make up for that lost time, Wiborg is quick to make it clear that, despite all the exciting things happening at Burger King, some things will never change.

“How we communicate and our menu may be a little different from what it’s been over the last 10 years as business has changed,” Wiborg says, but “we’re the home of the Whopper.”

Somewhere in his retirement, the Burger King must be smiling.


Glad to see people with vision and common sense heading up companies.

This article is truly misleading as to what is actually going on here. If there was going to be balanced reporting, why were no franchisees contacted for this? It is out of date, since the brand went public over a month ago, but again, there is a lot more here than meets the eye.Having been in the system for 30 years, I have seen regimes come and go, and ideas come and go, but it seems this one has truly missed the ball when it comes to understanding the brand. Take the photo in the article...if you see the logo on the back wall, it says "the king grills here". For 40 years, BK has defined itself as the home of flame-broiling, having successfully hit McDonald's and other competitors with that fact. Yet since the Brazilian group came in, their marketing agencies were given free rein over the culture, and removing that key market advantage is indicative of their lack of understanding about how to run this brand. Most of the new regime that came in had no restuarant experience of any kind, and had the false impression that what worked in their previous positions directly translated into a restaurant chain. It did not. And this same mistake has been made by other groups over the years.When the Brazilians came in, they fired 3/4 of the staff in both the field and at the corproate office, removing primarily older, experienced (read expensive) people uncerimoniously. To change an executive team in a operation that is in trouble is natural, but losing the people in the field who truly know the brand and franchisees is not smart. Literally hundreds of years of experience were lost (the numbers in the article as to field employees are completely inaccurate) in an effort to save cost, and younger, inexperienced peopel were brought in who were basically given a computer with a set of rules, and sent out to the field. If you were to really do an investigation, you would find that training resources were eliminated; product development teams were eliminated; internal marketing resources were eliminated, and any kind of support needed is virtually non-existent.There is a simple reason for this. The Brazilians bought the chain, as they had bought other businesses, to cut costs, make the bottom line look good, and then monetize the changes into new growth...the real prize being international development opportunities. BK is underpenetrated worldwide, and the ability to build thousands of new units across the world (the first major deal was in Brazil....) is what has driven the speculative buying and selling over the past few years. Remaining resources are being funneled into that development, which from a stockholders view is great, and bodes well for the value of the stock over time. Yum brands derives the majority if their profits now from non-US operations, and BKC has noted this and wants to emulate that strategy.US Company stores are being sold off by the bucket load to large franchise groups like Carrols, whereby BKC is able to dump millions of dollars of needed upgrades - and as a bonus removes thousands of employees who will need health care in another year or so - from their bottom line. Smart for them, bad for the system. If you study past history, a previous regime tried this in the late 1990's - Bain Capital was brought in to analyze ways of cutting costs and maximizing BKC revenues. Plans were made to spin off company stores; forceably transfer underperforming stores and give them to a group of large franchisee to run, and move tradtional corporate duties (training, development, operations supervision) to these large groups. Look back at companies like Heartland Foods and Sydran Services, who were at the top of the list to become national franchisees...they, along with several others, went bankrupt with this strategy, resulting in close to 1000 stores closing during the 2000's in the US.McDonald's has always had it right...don't let any franchisee grow too large, as overhead and royalty issues will cause them to make bad decisions. Ray Krock wanted franchisees in their stores running them, taking care of customers. Big franchisees don't work well in this industry, and not just at BK. Now, the old playbook has been dusted off and they are trying it again, only the field is filled with quality competitors beyond McD's and Wendy's as noted....and the economy is in worse shape than at that time, so the long term prospects do not bode well for a nearly 100% franchised system.With unit sales as noted in the article, the system is in the same place it was in the mid-1990's, yet costs are much higher across the board, with healthcare reform right around the corner. The ability for franchsiees that are in a breakeven, or at a functional loss level, to get financing for major needed remodels is tough at best. How can they take on $300,000 in debt for the major remodels, with a hope that sales will grow, when they can't pay their exisitng bills? The $250M number sounds good, but when there are 6,000 stores needing upgrades, that number is a little light. And with BKC not inspiring them, it takes away their incentive to take on such a large risk even if they can get financed.The despair in the franchise community is palpable. Franchisees who have been around for decades truly don't know where they will be in 12 months. And the leadership at BKC does not inspire confidence...they are following a playbook which does not address their needs, and is being implemented by people who are not capable of truly improving the existing system. The franchisees have put their lives on the line for the brand, more than any other QSR I have ever seen, and many are facing financial ruin. BKC's big worldwide plans don't include them and they know it. So long as top line sales are there, BKC gets their royalties...and by keeping field costs down, they make enough money to fuel their development objectives.If the franchsiee community begins to close stores and royalties drop, BKC will be able to replace those lost fees with revenue from new operations overseas, so this contraction does't really affect them much. But it does affect thousands of hard working employees who rely on these jobs to live. It is estimated that 30,000 people lost jobs in the 2000's closures, how many will occur this time around?Is there an easy answer here ... no, there is not. Will there be a lot of Burger Kings closing in the next 12-24 months in the US... absolutely. What will it take to turn this around? It isn't a management team that is putting spatulas as handles on the front doors of the stores now (enhancing the flat grill idea once again), and are rolling out LTO's with minimal research and queationable supply chains...and letting vendors decide the menu, as has heen happening.It will take a strong team backed by a board of directors that realize that a healthy US system is as good for them as a fast growing international presence. We are seeing a worldwide slowdown, from China to Europe, that has finally affected Yum and McDonald's bottom lines. If the US system were to be fiancially supported as it should, and the hard working franchisees are given hope, they can turn the system around and generate long term revenues that BKC can count on day in and day out.Those who do not learn from past mistakes are doomed to repeat them....let's hope that changes at BKC before the lives of thousands of people are affected in a negative way.....Shareholders, are you listening?

McDonalds is so far ahead of BK in most international markets that it will be difficult for BK to overcome the critical mass achieved by McDonalds in Advertising and purchasing economies and locations.Interesting that Five Guys is growing very fast with a limited menu yet BK thinks by simply expanding their menu they will increase sales. Starbucks tried this with food and it was not successful. Execution is not easy and menu additions create more difficult operations.Flame broiled is the only major competitive advantage for BK and the new management team is not going to continue with the only differentiation that matters.

People should hesitate before using Five Guys as great example of a company that is still expanding while staying focused on a few menu items. Yes, Five Guys has received lots of press coverage over the past few years as the fastest growing franchise system in the country. But that expansion, the majority paid for by the franchisees, has been taking a big bite into the profitability of the existing stores. The true measure of any restaurant's financial standing is Same Store Sales. Five Guys is still owned by the founding family, so they don't have to report this number to the public, but all franchisees know that Same Store Sales are down more than 8% from the previous year and continue to fall.Franchisees are required to follow their development schedules and open a certain number of stores per year, depending on the size of their development territory. They risk losing their development rights if they don't continue to expand. But, since their stores are becoming less profitable, franchisees need to open more stores anyways in order to make money. Corporate is all too happy to see the "over" growth since it means more royalty revenue for them. Franchisees are beginning to balk at opening more stores until they see: changes to the menu; the creation of an advertising program; and steps to decrease operations costs - all 3 things that the founding family has stubbornly refused to recognize as legitimate factors to sustaining a national restaurant chain with lots of competition.

Please get your facts strait.Your comment "Heartland Foods and Sydran Services, who were at the top of the list to become national franchisees...they, along with several others, went bankrupt with this strategy, " is completely wrong.Neither Heartland Food Corp or Sydran ever went bankrupt. On the contrary, they purchased many failed Burger King units which would have certainly closed if not for the intervention of these companies. You are obviously mistaking these companies for Ameriking and others.Additionally, both Heartland Food Corp and Sydran continue to operate successfully in their respective markets.A franchisee who has"been in the system for 30 years"should know better.

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