Burger King beginning to see turnaround effects

 
March 15, 2012 | by Alicia Kelso

When 3G Capital bought Burger King in the fall of 2010, many new initiatives were put into place focusing on food, image and financial discipline.

In a March 15 earnings call, Daniel Schwartz, chief financial officer, said the changes are starting to pay off.

Although the company turned in negative 0.5 percent system-wide comparable sales for the full year, the chain experienced a 1.7 percent increase in system-wide sales versus 2010. Company executives said the second half of 2011 featured long-anticipated progress after shifting brand positions during the first half of the year.

December was a particularly strong month for the chain, buoyed by the launch of the new dessert platform (soft serve ice cream), french fries and BK Crown Program geared toward kids.

"Our dessert platform is currently about 30 percent above our estimated targets and that's through winter and late fall, so it's done extremely well. And it has increased our snack and dinner dayparts, which is what we were hoping for. The launch of our new french fries in December continues to (yield) a double-digit increase of fry usage in restaurants and we're very happy with that product and guest comments," said Steve Wiborg, president, North America.

Also, the new kids' program – BK Crown – has received favorable responses with its opportunities for kids to give back to designated groups, and to have healthier options such as apple slices and milk.

Wiborg said Burger King will roll out more new items during the second quarter.

The company didn't offer specifics, but it does plan on accelerating openings globally in 2012, compared to 2011. Additionally, 1,000 restaurants are committed to the chain's lowered-cost 20/20 reimaging program, and they are expected to be completed within the next 12 to 18 months. Currently, there are 236 restaurants in the system that boast the new design.

Schwartz said the company is seeing double-digit increases from the remodeled units, and an ROI, which is why so many have signed up for the program this year.

International boost

Although Burger King North America is experiencing some growing pains under new management, the company's international portfolio hasn't skipped a beat. During the fourth quarter, for example, Latin America experienced a double-digit sales increase in more than half of its system.

The company's marketing efforts also have paid off in Germany, Turkey, the Middle East and Spain, Schwartz said.

For the full year, system-wide comp sales were negative 0.5 percent, with negative results in North America and Asia Pacific, offset by positive results in Latin America and the Caribbean, and Europe, Middle East and Africa.

Net income was $1.97.4 million for 2011, compared to $161.7 million in the prior year. The fourth quarter's net income was $29.4 million, compared to a loss of $93.9 million for the prior year period. The improvement is primarily due to the impact of transaction costs incurred during the acquisition.

Net restaurant growth for the year totaled 261 restaurants, compared to 173 restaurants in the prior year. Of that, 117 new restaurants were opened in Q4 thanks in large part to a new master agreement in Brazil. In 2012, Russia and China will be a growth target, in addition to Brazil.

Notably, the company's adjusted EBITDA for the full year jumped by 29 percent to $585 million, mostly due to strong results in foreign markets and the continued benefits of the company's new financially disciplined approach which includes a zero-based budgeting program.

"We're excited to achieve this robust growth in adjusted EBIDTA in just one year behind the culture created post-acquisition," Schwartz said. "2011 was a pivotal year for the brand. We have refocused our business priorities in North America, accelerated our international growth and established a corporate culture of fiscal responsibility and ownership."

Read more about operations management.


Topics: Business Strategy and Profitability , Food & Beverage , Franchising & Growth , Marketing / Branding / Promotion , Operations Management , Restaurant Design / Layout


Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
View Alicia Kelso's profile on LinkedIn

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