Thursday, February 13, 2014

Burger King Changes Strategy and Realizes 37% Revenue Increase

Burger King moves through a strategic transformation and earns big bucks while increasing customer satisfaction. The fast food giant that has 13,600 restaurants in 90 countries earning 66.8 million in the last quarter compared to $48.6 million in the same period last year (1). That is a 37% increase in revenue while their competitors have declined a few percentage points.

According to a statement by Burger King’s CEO Daniel Schwartz, “We completed our global refranchising initiative, fundamentally transforming our business model and putting restaurant operations into the hands of our experienced franchisees (2)”. They focused on creating greater brand awareness in the global economy, revamping some of their products, and opened 670 new restaurants in three international regions (3).

It is possible to see the changes in the factors of strategic revamping, healthier offerings, and global expansion

Strategic Revamping: Burger King’s movement from a centralized operation to a more decentralized one lessons operational overhead. As BK still owns the distribution process, products, brand, and operational approaches this allows them to maintain functional control while offering franchises a better opportunity to cater to local markets.

Healthier Offerings: BK is offering healthier food and this is differentiating them in the market. For example, they have adjusted their menus with satisfries that have less fat and calories than regular fries and obtain a market premium of 20 to 30 cents (4). By tapping into health trends they are expanding their customer base and overall public perception while reaping the financial rewards.  

Global Expansion:   Moving into additional markets affords an opportunity to create economies of scale through their current operations while developing their future customer base. Having more franchises allows BK to produce and sell more of their products and reduce their transactional costs. 

What is the result of their changes? So far it is helping the company gain stronger footing and expand its base. BK saw their net income move up 99% in 2013 with $234 million versus $118 million in 2012 (5). Companies that adjust to changing trends and formalize new strategies to thwart decline can reap large financial rewards for both themselves and their shareholders.

If you look at Burger King's Stock Price (BKW) you find that they have increased its value significantly since September of 2012. See Here.

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