Burger King

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Burger King

History

Main article: History of Burger King

The predecessor to what is now the international fast food restaurant chain Burger King was founded in 1953 in Jacksonville, Florida as Insta-Burger King. The original founders and owners, Kieth J. Kramer and his wife’s uncle Matthew Burns, opened their first stores around a piece of equipment known as the Insta-Broiler. The Insta-Broiler oven proved so successful at cooking burgers, they required all of their franchises to carry the device. After the original company began to falter in 1959, it was purchased by the Miami, Florida franchisees James McLamore and David R. Edgerton who renamed the company Burger King. The duo ran the company as an independent entity for eight years, eventually expanding to over 250 location in the United States, when they sold it to the Pillsbury Company in 1967.

Under

Pillsbury, the company underwent several attempts at reorganization or restructuring in the late 1970s and early 1980s. While these efforts were effective in the short term, many of them were eventually discarded resulting in Burger King falling into a fiscal slump that damaged financial performance of both Burger King and its parent. Poor operating performance and ineffectual leadership continued to bog the company down for many years, even after it was acquired in 1989 by the British alcoholic conglomerate Grand Metropolitan and its successor Diageo. Eventually, the institutional neglect of the brand by Diageo damaged the company to the point where major franchises were driven out of business and its total value was significantly decreased. Diageo eventually decided to divest itself of the money loosing chain and put the company up for sale in 2000.

In 2002, a troika

of private equity firms led by TPG Capital, L.P with associates Bain Capital and Goldman Sachs Capital Partners agreed to purchase BK from Diageo for .5 billion (USD), with the sale becoming complete in December of that year. The new owners, through several new CEOs, have since moved to revitalize and reorganize the company, the first major move was to re-name the BK parent as Burger King Brands. The investment group initially planned to take BK public within the two years of the acquisition, however this action was delayed until 2006 due to several reasons. On 1 February 2006, it was announced that TPG planned to take Burger King public by issuing an Initial Public Offering (IPO). Between March 2004 and March 2009, the company experienced a score of consecutive profitable quarters that were credited with successfully re-energizing the company, however with the slowing of

the economy during the financial crisis of 2007-2010 the company’s business has declined while its immediate competitions, McDonald’s, has grown.

Franchises

Main article: Burger King franchises

When Burger King Corporation began franchising in 1959, it relied on a regional franchising model where franchisees would purchase the right to open stores within a defined geographic region. These franchise agreements granted BKC very little oversight control over its franchisees and resulted in issues of product quality control, store image and design and operations procedures.

This model remained in place until 1978 when the company hired McDonald’s executive Donald N. Smith to help revamp the company. Smith initiated a restructuring of all future franchising agreements, disallowing new owners from living more than one hour from their restaurants, preventing

corporations from owning franchises and prohibiting franchisees from operating other chains. This new policy effectively limited the size of franchisees and prevented larger franchises from challenging Burger King Corporation as Chart House had. Smith also sought to have BKC be the primary owner of new locations and rent or lease the restaurants to its franchises. This policy would allow the company to take over the operations of failing stores or evict those owners who would not conform to the company guidelines and policies. However, by 1988 BKC parent Pillsbury had relaxed many of Smith’s changes, scaled back on construction of new locations and stalling growth. Neglect of Burger King by new owner Grand Met, and its successor Diageo, further hurt the standing of the brand, causing yet more financial damage to BK franchises.

By 2001 and nearly eighteen years of

stagnant growth, many of its franchises were in some sort of financial distress. The lack of growth severely impacted BKC’s largest franchise, the nearly 400 store AmeriKing; by 2001 the company, which until this point had been struggling under a nearly 0 million debt load and been shedding store across the US, was forced to enter Chapter 11 bankruptcy. The failure of AmeriKing deeply affected the value of the BKC, and put negotiations between Diaego and the TPC Capital-lead group on hold. The developments eventually forced Diaego to lower the total selling price of BKC by almost three quarters of a billion dollars. After the sale, newly appointed CEO Bradley Blum initiated a program to help the roughly 20% of its franchises, including its four largest, who were in financial distress, bankruptcy or had ceased operations altogether. Partnering with the California-based

Trinity Capital, LLC, the company established the Franchisee Financial Restructuring Initiative, a program to address the financial issues facing BK’s financially distressed franchisees. The initiative was designed to assist franchisees in restructuring their businesses in order to meet financial obligations, focus on restaurant operational excellence, reinvest in their operations and return to profitability.

Individual owners also took advantage of the AmeriKing failure; one of BK’s regional owners, Miami-based Al Cabrera, purchased 130 stores located primarily in the Chicago and the upper mid-west region, from the failed company for a bargain basement price of million, or approximately 88% of their original value. The new company, which started out as Core Value Partners and eventually became Heartland Foods, also purchased 120 additional stores from distressed

owners and completely revamped them. The resulting purchases made Mr. Cabrerra BKB’s largest minority franchisee and Heartland one of BKH’s top franchises. By 2006, the company was valued at over 0 million, and was sold to New Yorkased GSO Capital Partners. Other purchasers included a three way group of NFL athletes Kevin Faulk, Marcus Allen and Michael Strahan who collectively purchased 17 stores in the cities of Norfolk and Richmond, Virginia; and Cincinnati-based franchisee Dave Devoy, who purchased 32 AmeriKing stores. After investing in new decor, equipment and staff retraining, many of the formerly failing stores have shown growth upwards of 20%.

Legal issues

Main article: Burger King legal issues

The Hoots’ family Burger King restaurant in Mattoon, Illinois, one subject of major litigation by Burger King.

Burger King has been involved in

several legal disputes and cases, as both plaintiff and defendant, in the years since its founding in 1954. Situations involving these many legal topics have affected almost every aspect of the company’s operations. Depending on the ownership and executive staff at the time of these incidents, the company’s responses to these challenges have ranged from a conciliatory dialog with its critics and litigants to a more aggressive opposition with questionable tactics and negative consequences. The company’s response to these various issues has drawn praise, scorn, and accusations of political appeasement from different parties over the years.

Controversies and disputes with groups such as People for the Ethical Treatment of Animals (PETA) over the welfare of animals, governmental and social agencies over health issues and compliance with nutritional labeling laws, and unions

and trade groups over labor relations and laws. These situations have touched on legal and moral concepts such as animal rights, corporate responsibility, ethics, and social justice. While the majority of the disputes did not result in lawsuits, in many of the cases the situations raised legal questions, dealt with legal compliance, or resulted in legal remedies such as changes in contractual procedure or binding agreements between parties. The resolutions to these legal matters have often altered the way the company interacts and negotiates contracts with its suppliers and franchisees or how it does business with the public.

Further controversies have occurred during the company’s expansion in the Middle East. The opening of a Burger King location in the Israeli-occupied territories lead to a breach of contract dispute between Burger King and its Israeli franchise; the

dispute eventually erupted into a geopolitical conflagration involving Muslim and Jewish groups on multiple continents over the application of and adherence to international law. The case eventually elicited reactions from the members of the 22-nation Arab League; the Islamic countries within the League made a joint threat to the company of legal sanctions including the revocation of Burger King’s business licenses within the member states’ territories. A related issue involving members of the Islamic faith over the interpretation of the Muslim version of canon law, Shariah, regarding the promotional artwork on a dessert package in the United Kingdom raised issues of cultural sensitivity, and, with the former example, posed a larger question about the lengths that companies must go to insure the smooth operation of their businesses in the communities they serve.

A

trademark dispute involving the owners of the identically named Burger King in Mattoon, Illinois led to a federal lawsuit; the case’s outcome helped define the scope of the Lanham act and trademark law in the United States. An existing trademark held by a shop of the same name in South Australia forced the company to change its name in Australia, while another state trademark in Texas forced the company to abandon its signature product, the Whopper, in several counties around San Antonio. Legal decisions from other suits have set contractual law precedents in regards to long-arm statutes, the limitations of franchise agreements, and ethical business practices; many of these decisions have helped define general business dealings that continue to shape the entire marketplace.

Charitable contributions and services

Burger King has two of its own in-house national

charitable organizations and programs. One is the Have It Your Way Foundation, a U.S.-based non-profit, 501(c)(3) corporation with multiple focuses on hunger alleviation, disease prevention and community education through scholarship programs at colleges in the US. The other charitable organization is the McLamore Foundation, also a non-profit, 501(c)(3) corporation that provides scholarships to students in the US and its territories. Additionally, there is an optional literacy program that partners individual restaurants with community schools in the US.

In various regions across the United States, Burger King and its franchises have aligned themselves with several charitable organizations that support research and treatment of juvenile cancer. Each year these coalitions hold a fund raising drive called A Chance for Kids, in which Burger King restaurants sell

lottery-style scratch cards for . Each card produces a winning prize that is usually a food or beverage product, but includes (rarer) items such as shopping sprees or trips. In the Northeast, BK has affiliated itself with the Major League Baseball team the Boston Red Sox and its charitable foundation, the Jimmy Fund. The group runs the contest in Boston. In the New York city area it operates the contest in association with the Burger King Children’s Charities of Metro New York and the New York Yankees. Funds raised in these areas go to support the Dana-Farber Cancer Institute located in Boston. In Nebraska, the company is affiliated with the Liz’s Legacy Cancer Fund BK Beat Cancer for Kids program at the UNMC Eppley Cancer Center at the University of Nebraska Medical Center in Omaha. In the Pittsburgh region it funded the establishment of the Burger King Cancer Caring

Center, a support organization for the families and friends of cancer patients.

Products

Main article: Burger King products

The Whopper sandwich, Burger King’s signature product

When the company began, its menu consisted predominantly of hamburgers, French fries, soft drinks, and desserts. In 1957, BK added its signature item, the Whopper. This quarter pound hamburger was created by Burger King founders James McLamore and David Edgerton as a way to differentiate BK from other burger outlets at the time. The sandwich became famous enough that BK eventually adopted the motto “Home of the Whopper”.

One of Donald N. Smith’s first changes to the menu was the addition of the Burger King Specialty sandwich line in 1979, which significantly expanded the breadth of the BK menu with many non-hamburger sandwiches including new chicken and fish offerings.

The new specialty sandwich line was one of the first attempts to target a specific demographic, in this case adults 18-34, members of which would be willing to spend more on a higher quality product. One of Smith’s other significant contribution to the menu was the addition of a breakfast product line, which until this time was not a market Burger King had entered. Besides the addition of the Croissan’Wich in 1983, the breakfast menu remained almost identical to the McDonald’s offerings until a menu revamp in 1985. This expansion introduced BK’s Am Express product line which added new products such as French toast sticks and Mini-muffins.

As the company expanded both inside and outside the US, it introduced localized versions of its products that conform to regional tastes and cultural or religious beliefs. International variations add ingredients such as teriyaki or

beetroot and fried egg to the Whopper, beer in Germany, Italy and Spain, and halal or kosher products in the middle East and Israel. To generate additional sales, BK will occasionally introduce limited time offers (LTOs) that are versions of its core products or new products intended for either long or short term sales. Items such as the Texas Double Whopper and various sandwiches made with mushrooms and Swiss cheese have been rotated in and out of its menu for several years while products such as its 1993 offering, a Meatloaf Specialty Sandwich and limited table service along with special dinner platters, failed to generate interest and were discontinued.

A meal including small french fries, a Whopper, Jr., a drink, and packets of Heinz ketchup

In order to appeal to as many demographic groups as possible and better compete with its fast food restaurant competitor

Wendy’s, Burger King added a multi-tiered value menu in 1993 with items priced at 99, .99 and .99 (USD). The project, called Operation Phoenix, was an attempt to add not only a value menu but a line of value meals. The tiered menu was replaced with a more standard value menu in 1998, while the value meals were separated into their own menu segment. This value menu featured seven products: Whopper Jr., 5 piece Chicken Tenders, a bacon cheeseburger, medium sized french fries, medium soft drink, medium onion rings and small shake. In 2002 and 2006, BK revamped its value menu adding and removing several different products such as chili and its Rodeo Cheeseburger. Many of these items have since been discontinued, modified or relegated to a regional menu option. To better appeal to a more adult palate and demographic, BK introduced several new products to its menu in 2003,

including several new or revamped chicken products, a new salad line and its BK Joe brand of coffee. Some of the new products, including its Enormous Omelet Sandwich line and the BK Stacker line, brought negative attention due the large portion size, amounts of unhealthy fats and trans-fats. Many of these products feature higher quality ingredients like whole chicken breast, Angus beef, natural cheeses such as Cheddar and pepper jack. Again, not all these products, such as the BK Baguette line, have met corporate sales expectations.

Advertising

Main article: Burger King advertising

A Burger King advertisement on a bus stop in Seoul, South Korea.

Burger King has employed varied advertising programs, both successful and unsuccessful, since its foundation in 1954. During the 1970s, output included a memorable jingle, the inspiration for its current mascot

the Burger King and several well known and parodied slogans such as Have it your way and It takes two hands to handle a Whopper. Burger King introduced the first attack ad in the fast food industry with the help of then unknown Sarah Michelle Gellar in 1981. The television spot, which claimed BK burgers were larger than competitor McDonald’s, so enraged executives at McDonald’s parent company, they sued all parties involved. Starting in the early 1980s and running through approximately 2001, BK engaged a series of ad agencies that produced many unsuccessful slogans and programs, including its biggest advertising flop Where’s Herb?.

Burger King was a pioneer in the advertising practice known as the product tie-in with a successful partnering with George Lucas’ Lucasfilm, Ltd. to promote the 1977 film Star Wars in which BK sold a set of glasses featuring the main

characters from the film. This promotion was one of the first in the fast food industry and set the pattern that continues to the present. BK’s early success in the field was overshadowed by a 1982 deal between McDonald’s and the Walt Disney Company to promote Disney’s animated films beginning in the mid 1980s and running through the early 1990s. In 1994 Disney switched from McDonald’s to Burger King, signing a ten film promotional contract which would include such top ten films as Aladdin (1992), Beauty and the Beast (1991), The Lion King (1994) and Toy Story (1995). A partnership in association with the Pokmon franchise at the height of its popularity in 1999 was one of the most successful in the industry, rivaled only by McDonald’s/Ty Beanie Babies cross-promotion in 19992000.

Shortly after the acquisition of Burger King by TPG Capital, L.P. in 2002, its newly hired

CEO Bradley (Brad) Blum set about turning around fortunes of the company by initiating an overhaul its flailing advertising programs. One of the first moves by the company was to reinstate its famous Have it your way slogan as the corporate motto. BK handed the effort off to its new advertising agency, Miami-based Crispin Porter + Bogusky (abbreviated as CP+B). CP+B was known for having a hip, subversive tack when creating campaigns for its clients, exactly what BK was looking for. One of CP+B strategies was to revive the Burger King character used during BKs 1970s/1980s Burger King Kingdom children’s advertising campaign as a caricatured variation now simply called “the King”. The farcical nature of the Burger King centered advertisements inspired an internet meme where the King is photoshopped into unusual situations that are either comical or menacing, many times followed

with the phrase Where is your God now?.

Additionally, CP+B created a series new characters like the Subservient Chicken and the faux nu metal band Coq Roq featured in a series of viral web-based advertisements on sites such as MySpace and various BK corporate pages to compliment the various television and print promotional campaigns. One of the more unique promotions that CP+B devised was the creation of a series of three advergames for the Xbox 360. Featuring company celebrity spokesman Brooke Burke, the games sold more than 2 million copies, placing them as one of the top selling games along with another Xbox 360 hit, Gears of War. These innovative ad campaigns, coupled with other new promotions and a series of new product introductions, drew considerable positive and negative attention to BK and helped TPG and its partners realize about 7 million in dividends.

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