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Burger King just reported a global comp sales increase of 2 percent, notably outpacing its largest QSR competitor and continuing its steady increase from the past few quarters. The company is beginning to yield quantifiable results from "dramatic changes" in its business model that were implemented in 2010 when it was bought by 3G Capital.
Josh Kobza, CFO, and Sami Siddiqui, senior director of global finance, talked about these changes Wednesday at Barclay's Retail and Consumer Discretionary Conference.
Perhaps the biggest undertaking from the new management team was strengthening the corporate/franchisee relationship. Prior to the acquisition, Burger King was on the receiving end of lawsuits stemming from franchisee grievances.
Now, with a 100-percent franchised business model, the relationship seems to have strengthened.
"Our relationship with the franchises, particularly in the U.S., is in a very good place. The priorities we have — operational simplicity and franchisee profitability — have resonated really well with the franchisee base," Kobza said. "They're seeing us follow through, and now they're seeing it in sales, where we're outperforming some of our competitors, and in their bottom line, where there have been material increases despite a challenging environment.
"Our success in the long run is directly linked to their success."
The company now even provides bonus incentives for driving franchisee profitability, which Kobza said has helped build more trust with the base.
Burger King's 100-percent franchised system doesn't include the 50 or so restaurants in the Miami market that serve as a test market. These units allow the company to spend time figuring out what operational procedures work, and best practices are then shared with franchisees.
The royalty cash flow from the new model has also helped change the growth profile of the business, Kobza said. Last year, Burger King grew its footprint by more than 5 percent globally. Prior, the company was averaging 1- to 2-percent growth annually.
"We've done that by setting up master franchise and development agreements all over the world. This has allowed us to bring in new capital and new partners and to be aggressive in some of these markets," Kobza said.
Mining more data
In addition to franchisee relationship reparations, the company also has focused on remodeling its stores (going from 10 percent to the current 30 percent); has become "much more engaged" in operations; and has made significant changes to the menu and marketing messages to broaden the appeal of the brand.
Burger King also recently began mining sales data to glean better information about who its customers are, what they're buying and what promotions they're responding to.
Kobza said the insight has revealed that the category remains challenged and the consumer remains value sensitive. This is why the company rebranded its value menu last year to King Deals. Kobza said he doesn't expect things to change materially anytime soon.
A heavier focus on customer interaction
Finally, the brand's marketing focus will continue to shift more toward digital. The migration to digital is part of a purposeful initiative to "re-engage" with consumers.
The brand's reintroduction of its Subservient Chicken campaign is part of this effort. The Burger King long-format journalistic piece chronicles what happens to Internet sensations when their 15 minutes of fame are over in a film titled "Burger King Chicken Redemption."
"On Instagram or Twitter, it's really amazing how many consumers are trying to talk to us, whether they're eating at a restaurant or wearing a crown or having fun at a Burger King," Kobza said. "We're not talking back to them enough. We've built a structure internally and are investing new resources to migrate some of our spend to media channels through which consumers are looking at content. It's a big priority for us."
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