Tuesday, March 10, 2020
Strategic Analysis of Burger King The WritePass Journal
Strategic Analysis of Burger King Introduction Strategic Analysis of Burger King IntroductionBackgroundBurger King History Changes in Leadership – Burger King HistorySignificant Strategic Business decisions in Burger King HistorySignificance in history1)  OFFENSIVE STRATEGY2)  DEFENSIVE STRATEGY3)  GUERILLA/ NICHE STRATEGYCONCLUSIONBIBLIOGRAPHYRelated 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. McDonalds predominantly sells hamburgers, various types of chicken sandwiches and products, French fries, soft drinks, breakfast items, and desserts. In most markets, McDonalds 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 †¦Ã¢â‚¬  – 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: mcdonalds.com/us/en/our_story/our_history.html. Last accessed 11th Nov.2010 Available: 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: threesigma.com/competitive_model.htm. Last accessed 10th Noveber
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