Burger King vs. McDonald’s: Turning Things Around

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Table of Contents

Introduction
Organization Case Exploration
Burger King’s Turnaround Strategy
Methodology
Conclusion and Recommendations
References

Introduction

In 1953, in Jacksonville, Matthew Burns and Keith Kramer wasted to create a similar restaurant to McDonald’s, which began gaining wide popularity at that tim. To do so, they brought in a unique grill named Insta-Broiler, which led to the restaurant being called Insta-Burger King. By 1959, the chain of restaurants expanded to Miami, which led to subsequent changes. The restaurant was renamed into Burger King, and its main dish, the Whopper, which is now known worldwide, began spreading across the United States.

The rivalry between McDonald’s Corporation and Burger King represents one of the most important business oppositions in the history of the American economy. In contrast to McDonald’s strategy that implies the continuous renewal and complication of the menu, Burger King prefers to keep things simple through rebranding and repackaging items that consumers already love. However, since the late 90’s, the restaurant has been under the intense struggle of declining profits and decreasing market share. For years, the company has been considered as lacking power in the industry of quick-service restaurants, with McDonald’s dominating the scene. Additionally, poor execution of corporate objectives, the unclear vision of the future, and the revolving door of leadership led to Burger King being limited in its operations.

Organization Case Exploration

Past Performance

To understand why Burger King needed to implement a turnaround strategy, it is first important to consider significant strategic decisions that the company made in its history. Given the fact that the company has been in operation for more than fifty years, it is evident that its key strategic decisions shaped the way the company is today. The initial strategy of launching a signature product (the Whopper) and facilitating growth through franchising and expansion was successful, allowing it to expand from forty-five to two hundred and seventy-four restaurants worldwide by 1967 (“Strategic analysis of Burger King,” 2012). A failing strategy was Burger King being sold to Pillsbury. Due to the inconsistencies in franchising efforts as well as the lack of unity in the foodservice industry, the restaurant chain witnessed a significant shift in leadership after being bought. To recover from this issue, the company hired a new executive, Donald Smith, who used to work for McDonald’s. As a result, Burger King increase its traffic of customers by 15% as well as the increase in ownership by 8% through getting better control over existing franchises (“Strategic analysis of Burger King,” 2012).

Between the 1980s and 2000’s, Burger King witnessed a series of failures and successes associated with the strategic decisions. Through the effective increase of the company’s share in the competitive market of breakfasts, Burger King managed to increase sales by 19% (by $9 million) and increasing pre-tax profits by 9% (“Strategic analysis of Burger King,” 2012). Besides, by paying more attention to the selection of kids’ dishes, the company was successful in increasing its sales by $6 in the kids’ program. When it comes to failures in the same timeframe, downfalls in sales and inconsistency in operations were the two primary reasons that limited Burger King’s performance. Between 2001 and 2012, several strategic decisions were made to increase the company’s store sales by 7.5%. However, this time period is characterized by a series of unsuccessful decisions that led to a significant fall in sales between 2002 and 2003 (by $0.4 billion) and the decrease in customer traffic by 22% up to 2004 (“Strategic analysis of Burger King,” 2012). In 2004, the company set out to implement a turnaround planned with the name of ‘Go Forward Plan,’ which was unsuccessful

Triggers for Change

Key issues related to Burger King’s operations should be mentioned for understanding the critical elements needed for reviving the company’s image and bringing revenue. The first problem is linked to inadequate franchise management. It was revealed that Burger King Struggled with managing more than ninety percent of its franchises. The main reason for this was the relatively low share of stake ownership, which improved from 38% to 42% when Donald Smith was hired as an executive (“Strategic analysis of Burger King,” 2012).

The second issue related to continuous changes in leadership; throughout its history, the company witnessed approximately twenty shifts in its management, which drastically affected Burger King’s focus on its goals and objectives, as well as adversely influence the image of the company due to inconsistent operations (Petitti, 2012). The third problem that the company has regularly faced is a market recession. Since the economic recession that hit the US economy in 2006, Burger King was challenged by making effective measures for sustaining its performance and avoiding losing customers to key competitors. Lastly, the unhealthy menu that persists in Burger King’s is a potential disadvantage in terms of targeting health-conscious customers.

Therefore, there were many triggers for Burger King to change its direction and implement a turnaround strategy. The way in which the company implemented its new strategy served as an example to other companies, including Burger King’s key competitor, McDonald’s. In the following section, the turnaround strategy introduced by the company will be discussed.

Burger King’s Turnaround Strategy

Strategic Objectives

The turnaround strategy was intended to align with Burger King’s vision and mission through the establishment of several objectives. The company’s vision statement is the following: “to be the most profitable QSR business, through a strong franchise system and great people, serving the best burgers in the world” (Rowland, 2017). Its mission is to “offer reasonably priced quality food, served quickly, in attractive, clean surroundings” (Rowland, 2017, para. 4). The strategic objectives that were meant to be achieved through the turnaround included:

Expand the target demographic of clients to include females, children, and health-conscious consumers;
Simplify the menu while including more healthy options;
Reach a mutual understanding and enhance collaboration with franchisees;
Follow the latest trends in the fast-food service industry to include restaurant renovations;
Increase revenue and stop the decline in growth.

Due to the limitations of the company’s operations associated with inconsistent leadership and market fluctuations, Burger King decided to hire a new team of specialists to turn its strategy around (Bhasin, 2012). The breakdown of Burger King’s turnaround strategy will be presented in the next section. It will point out how the strategic objectives align with the vision and mission of the company.

Because Burger King has been subjected to the continuous change in leadership and management, the turnaround strategy needed the support of professionals who could envision the future of Burger King as a successful fast-food service provider. Despite the fact that David Schwartz did not have any experience in the fast-food industry, his leadership and vision of Burger King as the leading player in the field paid off. Besides finding a new CEO, the company created a team of specialists led by Burger King’s North American president to come up with new ideas prior to the turnaround’s implementation. Careful planning allowed the team to evaluate its propositions and identify practices that have the most potential in being successful. Additionally, the management team paid attention to getting closer to franchise owners around North America to communicate the strategy’s mission to them.

Four Tiers of the Turnaround

Led by Steve Wiborg, the company’s North American president, the turnaround team brainstormed for nine months (Bhasin, 2012). The careful planning yielded a four-tiered, $750-million strategy that Burger King announced in April 2010 (Melnick, 2012). The first tier of the strategy was associated with the expansion of the menu to target a new demographic of customers. New dishes included fruit smoothies, fresh salads, wraps, new coffee drinks, and more. These were taken from the strategies implemented by Starbucks and McDonald’s that made an attempt at broadening their consumer base.

Wiborg mentioned that “especially when you consider that half the population is female and half is male, and then when you really dial that into the 18-34-year-old target, you’re now really limiting yourself” (as cited in Melnick, 2012, para. 6). Thus, the strategy was focused on opening the company to the new target market and making sure that the menu is there to make customers satisfied. The second tier of the turnaround strategy involved the implementation of a new marketing campaign. Previously, advertisements heavily featured the brand’s mascot, King, whose image was predominantly targeted at young males. The new campaign was drastically different from Burger Kings’ past strategies. The mascot was retired from doing ads and was replaced by celebrities who were more recognizable to customers. In addition, marketing specialists worked on changing the odd humor of past advertisements, replacing it with comedic advertisement tools that would appeal to a broader target audience. The need for changing the marketing efforts was linked to the consumer search that Burger King completed. The search revealed that consumers were passionate about the company, but many of them did not pay attention to the advertisements due to the lack of their orientation on a broad spectrum of customers. For instance, for female clients, previous Burger King advertisements seemed to exclude them from the target demographic (Melnick, 2012).

The third tier of the turnaround strategy involved the improvement of restaurants’ operations. Burger King’s president mentioned that this tier was the most important in the entire strategy because the largest complaint customers had was that restaurants within the chain were inconsistent. In order to facilitate change and improve restaurants’ operations, Burger King settled an ongoing legal dispute with the National Franchise Association that filed a lawsuit “on behalf of Burger King franchisees after the chain prices its double cheeseburger at $1 on its Value Menu” (Melnick, 2012, para. 7). In the end, the lawsuit was dropped after Burger King had promised its franchisees a greater input on deciding the pricing on the Value Menu.

Apart from settling the lawsuit, Burger King had to make significant changes in the management of personnel. For example, the company added more than a hundred of franchisor-franchisee liasons, increasing the number to a total of one hundred and sixty. Additionally, the new management visited up to sixty cities where restaurants are located for introducing themselves to franchisees as well as communicating the new vision to the team. In order to manage restaurant operations successfully, the company created three councils: a restaurant, marketing, and people councils that included corporate employees from the brand’s franchisees. By doing so, Burger King wanted to enhance collaboration within the organization and bring both franchisers and franchisees together. It is important to mention that the change in management, as well as the improvement of collaborative efforts among personnel, gave Burger King a new vision to go forward. It became a lot easier to envision future goals when all employees were included in the plan.

The final tier of the turnaround strategy was related to the renovation work that Burger King did in their restaurants (Bhasin, 2012). This strategy was inspired by McDonald’s makeover of their restaurants in order to stay up to date with the latest trends in the service industry. For Burger King, renovations were not only a way to compete with McDonald’s but also to turn their brand around completely. Due to the enhancements and improvements, Burger King can now offer its customers a new experience at more than 7,200 locations worldwide (Melnick, 2012). To ensure a unified transformation of restaurants, the company also created a $250 million lending budget to help franchisees pay for the new equipment they needed for preparing new items on the menu.

Leadership and Empowerment

Overall, the entire turnaround strategy was based on real partnership and collaboration. As Burger King set its $750 million plan into motion, it needed the support of franchisees and the key management to maintain its position in the competitive marketplace of the fast-food restaurant industry. As mentioned previously, the team focused on engaging workers into dialogue and ensuring that franchisees have more power in making important decisions on Value Menu pricing.

For ensuring that the company’s employees are empowered by a strong leader, Burger King hired Daniel Schwartz who was only thirty-two years old. Schwartz was successful in turning the restaurant chain around to create a “cash machine,” as mentioned by Leonard (2015) for Bloomberg (para. 2). Despite the criticism of Schwartz’s vision, the impact of his transformational leadership cannot be debated. Finding himself on his first job in the fast-food industry, Schwartz started from the ‘bottom’ and trained in Burger King restaurants for several months, “cleaning toilets, making burgers, and interacting with customers” (Peterson, 2014b). The experience working in restaurants led him to believe that deep cost-cutting was needed to offer customers the best service. Some of the measures included eliminating executive perks such as lavish offices and $1 million annual parties in Italy. Instead, Schwarts focused on the menu as well as the negotiation of deals with restaurant operators in China, Russia, and Brazil. This helped the company to grow by 12% over 2014 (Singh, 2014).

Thus, the leadership style that resulted from the turnaround strategy was focused on processes optimization in order to ensure that restaurants provide the best services possible. Schwartz made franchising easier for restaurants overseas to facilitate quick expansion and growth. In addition, his leadership efforts resulted in the reduction of the corporate headcount (2,425 from 38,884) through re-franchising. This meant that workers would have to report to franchise owners rather than the entire corporation.

Methodology

For exploring the turnaround strategy that Burger King implemented, articles from key business news media were selected. Magazines and newspapers included Bloomberg, QSR Magazine, Business Insider, Crain’s Chicago Business, and several others. The sample of resources included ten sources, all of which were found with the help of an online search. Up to date, there is a lack of case studies on Burger King’s turnaround strategy reflected in published books and articles. Keywords used for searching included Burger King Company, Burger King’s strategy, Burger King’s challenges, and opportunities, Burger King’s turnaround, results of Burger King’s turnaround, Burger King’s competition, Burger King’s growth. It is important to mention that the majority of articles found during the search pointed to the success of Burger King’s turnaround and suggested that competitors such as McDonald’s were planning to copy the strategy in order to address its decline in growth.

The results of the search concluded that the key turnaround model implemented by Burger King was a four-tier strategic framework. The company approached its renewal from several perspectives: its menu, the design and convenience of restaurants, marketing campaigns, and collaboration with franchisees. In sum, the turnaround model allowed Burger King to address its most persistent issues and identify the most successful procedures that helped in the fulfillment of the turnaround. A great focus was placed on enhancing teamwork with franchisees and giving them more power in making crucial decisions on pricing.

Analysis and Findings

The exploration of Burger King’s turnaround strategy showed that the company was extremely successful in changing its strategy to win customers back. In 2014, sales in restaurants across the United States and Canada increased by 3.6% in the third quarter in comparison to the results of the same period of the last year. Additionally, same-store sales increased by 2.4% (Peterson, 2014a). For Burger King, this was a significant victory because its main competitor, McDonald’s, reported a 3.3% decline in same-store sales in regard to the same time period (Peterson, 2014a).

In the third quarter of 2014, Burger King reported an increase in revenue to reach $278.9 million (Peterson, 2014a). Both in the United States and Canada, these results were the best since 2012 due to the implementation of the consistent turnaround strategy that reached a balance between innovation and value offerings. As mentioned by Schwartz, “internationally, we (Burger King) continued expanding our brand presence through strong net restaurant growth and successful new products” (as cited in Peterson, 2014b, para. 3). The growth in sales was also linked to the reintroduction of customer-favorite chicken fries as well as the ongoing popularity of the bacon Whopper, the sales of which were limited in time. The chain’s growth is seen from the diagram below (Figure 1). It can be concluded that the re-franchising efforts associated with the turnaround strategy helped the company reach its goals. With the re-franchising of 360 restaurants, the company still expects to yield better results. Apart from the growth in the United States and Canada, Burger King also reported a 6.2% growth in the Asia-Pacific region associated with the rise in sales in Soth Korea and Australia.

Burger King's growth after turnaround. — Figure 1. Burger King’s growth after turnaround (“Burger King shares have soared in the past year,” 2014).

According to Cahill (2015) for Crain’s, McDonald’s learned from the example of Burger King and was planning to implement a turnaround strategy to address the decline in growth. The strategy is very similar to the one that Burger King implemented; it also involves the re-franchising of company-owned restaurants, simplifying the menu, and “slashing corporate overhead” (Cahill, 2015, para. 5). This points to the fact that competitors are threatened by the turnaround and are trying to stay relevant in order to avoid losing valuable customers.

It has been identified that poor management and the lack of unity in franchising efforts were the largest issues that Burger King faced previously. However, the four-tier turnaround strategy managed to resolve these issues while also winning customers back through renovations and updated menus. The overall strategy was successful due to the combination of several programs that were targeted at the improvement of customer experiences and the enhancement of collaboration between corporate executives and Burger King’s franchisees. As mentioned by Wiborg for the QSR interview, the most important point of the menu turnaround was making sure that new dishes are appealing to a wide segment of customers (as cited in Melnick, 2012). Also, with the involvement of celebrities in marketing campaigns, the company wanted to ‘check all boxes’: become better at targeting the female customer segment, introduce healthier items in the menu, and maintain its core clientele of young males. Burger King also recognized the problem of the lack of unification within the franchising efforts, which led to some restaurants being more convenient than others. After dealing with franchising issues, the company made some important changes in the design and operation of its restaurants. These changes included designing new packaging, giving personnel new uniforms, and equipping restaurants with advanced technologies.

Conclusion and Recommendations

Overall, the review of Burger King’s turnaround strategy showed that the company was successful in reviving the brand and getting the attention of new customer segments. Previously, the majority of marketing campaigns were targeted at young males and included strange humor that not many customers could understand. However, as a part of a turnaround strategy, Burger King paid celebrities to appeal to a wider audience. In terms of the menu, the company made a decision to expand the selection since the segment of health-conscious consumers had grown exponentially. At the same time, the company’s CEO made sure that the menu remained simple to make the service delivery smoother and quicker. The most important aspect of the turnaround was the strengthening of relationships with franchise owners. The management invested time into visiting different cities and engaging with franchisees to communicate the new vision.

Recommendations of Burger King are associated with ensuring that the company maintains its strategic direction through capitalizing on its core competencies. The company has several advantages such as the operational difference and the use of a unique device to prepare many items on the menu. It is recommended for Burger King to continue strengthening relationships within and between franchisees because major stakes of Burger King are owned by franchisees (“Strategic analysis of Burger King,” 2012). In addition, creating a positive image in the eyes of potential customers is an essential component for maintaining the company’s growth worldwide. The introduction of new healthy options and the diversification of marketing efforts that appeal to a larger audience can be effective in ensuring the company’s future development regardless of the pressure from key competitors.