Burger King Global Performance and Strategy Review

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Burger King Global Performance and Strategy Review

Prepared for Nestlé Professional Centre of Excellence

Louise HowarthSenior Analyst

Robert GregoryGlobal Research Director

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1. Global Foodservice Trends

2. Burger King Global Strategy

3. Burger King Corporate Performance

4. Burger King Regional Performance

4.1. North America

4.2. Latin America & Caribbean

4.3. Europe & Middle East

4.4. Asia & Oceania

5. Burger King Implications & Opportunities

ContentsContents

Global Foodservice Trends

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Global obesity levels have nearly doubled since 1980 according to the WHO.

Consumers worldwide are demanding fresh, healthy and quality items from all foodservice operators, including fast food.

Health and nutrition can take one of three forms: balanced, all-natural diet; fat/sugar/salt/ calorie reduction; functional and fortified food.

Consumers focusing more on health as world gets fatter and older

1. Global Foodservice Trends: Health and Nutrition1. Global Foodservice Trends: Health and Nutrition

As obesity mounts in US, 2013 has seen KFC focus on grilling over frying and Burger King launch new turkey burger for health conscious consumers.

McDonald's launched a new strategy in September 2013 to promote healthier menu choices across 20 major markets worldwide.

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Consumers want full-flavour, novel and unique eating experiences, not just “food”.

Image-building is critical to winning consumer acceptance: “artisan”, “hand-crafted”, “real”.

Foodservice consumers willing to spend more, but also want value for money. Providing the quality for the menu item’s price point is critical.

It’s not enough to taste good, food must “wow” the tastebuds

1. Global Foodservice Trends: Gourmet and Indulgence1. Global Foodservice Trends: Gourmet and Indulgence

Panera leverages artisan bakery proposition to encourage US consumers to treat themselves.

Upscale “better burger” joints like gourmet burger kitchen and Five Guys take burger and fries to next level.

McDonald’s Black and White burgers target aspirational consumers in China and Hong Kong.

Burger King’s range of premium and healthy smoothies highlights “real” fruit content.

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More foodservice operators creating new opportunities – and things – for people to eat at different times of day.

Breakfast has been fully utilised, but tremendous opportunities remain for other dayparts including lunch, teatime, happy hour and late night dining.

Casual dining establishments stand to gain the most from leveraging new dayparts, especially happy hour and late night thanks to higher margin alcohol sales alongside food.

Moving beyond singular menu to specific options for different times of day

1. Global Foodservice Trends: Daypart Segmentation1. Global Foodservice Trends: Daypart Segmentation

US burger chain Steak ‘n Shake launched its AllNighter menu in February 2013, which includes a 7-patty 1300 calorie cheeseburger.

In China and Hong Kong, Pizza Hut offers a special “teatime” menu in late afternoon, between the lunch and dinner dayparts, featuring smaller portions, gourmet items, desserts and coffee drinks.

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Will it fit in your car drinks holder? Can you eat it with one hand? Can you dip it?

Snack menus enable time-pressed and on-the-go foodservice consumers to eat any time and anywhere they’re hungry, regardless of time of day.

Smaller sized snacks are also typically cheaper than full-portion menu items, allowing foodservice operators to better reach lower income consumers.

Mini snack menu items on the rise for cash and time poor consumers

1. Global Foodservice Trends: Snacking and Convenience1. Global Foodservice Trends: Snacking and Convenience

Arby’s and Wendy’s have launched new menus in the US, aligning value with all day snacking.

Burger King’s Change Range menu in New Zealand combines snacking daypart with value offer.

http://4.bp.blogspot.com/-nBpQS8K-KE8/UWNpWe_GWWI/AAAAAAAAAXI/9-xUoZpPrtw/s1600/arbys-snack-n-save-menu.jpg

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In developed markets, transparency around ingredients sourcing and food provenance has become a unique selling point in both retail food and foodservice markets.

Sourcing is also increasingly top of mind in emerging markets such as China, which has been blighted by various food safety scares in recent years.

Sourcing and provenance speak to other rapidly growing consumer trends such as animal welfare, ethical production and cutting food miles.

Consumers want to know where their food comes from more than ever

1. Global Foodservice Trends: Sourcing and Provenance1. Global Foodservice Trends: Sourcing and Provenance

McDonalds has gone to great lengths to highlight how more than half of its food served in UK and Ireland is locally sourced.

"I've been eating at KFC the last few days, could that be a problem?" ("前几天刚吃了肯德基会有问题吗 ")

Chinese Weibo userPosted in April 2013, a month where KFC same store sales in China fell 29%

y-o-y thanks to growing consumer concerns over the safety of its chicken supply and a new strain of avian flu.

Burger King Global Strategy

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Global strategic goals

2. Strategy2. Strategy

International Expansion

New formatsOutlet revamps

New product development

Burger King aims to capitalise on under-

penetrated markets and rising middle class

consumer spending.

Develop menu to driver consumer sales and to

attract a wider customer base.

To operate in more convenient locations including smaller bar format and in transport hubs.

Improve image of restaurants to

entice consumers

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Analysis of global strategic goals: Expansion


• Expand in high-growth emerging markets where current penetration is low

• Convenient locations for the modern consumer.

• Build a presence across untapped sites

Hospitals

Festivals

Transport hubs

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Analysis of global strategic goals: New Product Development


VS.

Gourmet

Healthy

Transparency

Dayparts

Snacking

Burger King Corporate Performance

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Burger King ‘s sales have been on the rise since 2011. However, at 2.2%, Burger King’s three year CAGR* is lower than four of its biggest competitors who have seen impressive growth.

3. Corporate Performance3. Corporate Performance

3.7% CAGR

4.5%

5.4%

5.6%

Global competitors 2012 CAGRs and banner sales:

6.7%

-13.1%

2011 2012 201310.00

11.00

12.00

13.00

14.00

15.00

16.00

17.00

18.00

Burger King’s system-wide sales and CAGR 2011-2013 (USD)

Sales

Year

USD

bill

ion

Source: Planet Retail

2.2% CAGR

CAGR* Compound Annual Growth Rates 2010-2012

USD87.70bn

USD44.32bn

USD17.36bn

USD9.17bn

USD13.32bn

2.2% CAGR

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North America is Burger King’s largest market by far in terms of sales and profits.Comparing regional sales against income both APAC and EMEA are underperforming. However, most future growth projected to come from outside of North America.


Company income: USD751.4 million

63%

22%

10%

5%

56%26%

9%

9%

Burger King: Regional Income vs. System-wide sales, 2012

NA EMEA LAC APAC


Income

Sales

2012 2013 2014 2015 2016 20170

2

4

6

8

10

12

14

16

18

20

Burger King’s forecasted full year system-wide sales by region

Other

Asia & Oceania

Latin America Caribbean

Europe

North America

Year

USD

bill

ion


3% CAGR

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Broken down by country, four of the top 10 fastest growing markets by 2017 are located in Latin America.


60%

38%

39%

12%

30%

30%

27%27%

26%

24%

S Africa10+

Turkey750+

Colombia100+

Venezuela150+

Brazil500+

Paraguay75+

Russia300+

China800+

Malaysia100+

Japan150+

Burger King Regional Performance

North America

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2007 2008 2009 2010 2011 2012

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

Chart: North America Year-on-Year growth, 2007-2012

Av-er-age*Burger KingMc-Don-ald'sYum! BrandsSubwayTim Hortons

Year

Perc

enta

ge G

row

th %

Average* taken from the top 20 North American food service operators


4.1. Regional Performance: North America4.1. Regional Performance: North America

Analysis of Burger King and its competitors in North America

For the last several years Burger King has underperformed against the market average and many of its closest competitors. However, it managed to buck this losing trend in 2012.

Implication/Opportunity:

Burger King’s focus on its core Male customer has damaged its appeal to the wider market. It needs to promote itself to Females and Children by creating iconic new products.

There’s an opportunity for Burger King to widen its customer base by moving away from a reliance on The Whopper and emphasizing a broader array of more nutritious items available 24/7.

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Consumers in the US are becoming increasingly interested in the nutritional value of food they’re eating.

At the same time, consumers are eating less at traditional meal times and are snacking throughout the day. The same demand for choice and convenience is driving the extension of traditional daypart times.

North America: Food Trends


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North America’s QSR and fast food industry is trying to shake off its reputation as being “bad for you” with an increasing array of fresh-focused marketing efforts and healthy menu options.

Simultaneously, operators are looking to cater to the consumers’ demand for convenience with extended dayparts.

North America: Healthy Eating & Extended Dayparts


Panera Bread’s six ‘hidden’ menu items are designed to be health-conscious.

In order to cater to consumer demand for all types of food outside of the traditional daypart times, McDonalds has trialled a 24 hour breakfast menu while Taco Bell has played on the US’ ‘fourth meal’ in its late night marketing campaign.

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2012 saw Burger King revamp domestic menu, leading to a larger emphasis on gourmet burgers.

In H1 2013, the company realised this unbalanced tactic was leaving a significant portion of its customer base underserved in terms of value menu options.

What is Burger King doing?


Two pronged approach of value and gourmet which was announced in Q1 2013.

Burger King has begun to introduce a ‘fresh’ approach to tackling the issue

surrounding fast food’s unhealthy image.

Snacking options are becoming an increasingly

important initiative for Burger King.

Launch of Satisfries in September 13 offers 30% few calories but at a 25%

price premium.

Latin America & Caribbean

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Key competitors have out-performed Burger King over the last five years however, the operator has seen steady growth since 2010 while others experienced a drop in the last year.

Analysis of Burger King and its competitors

4.2. Regional Performance: Latin America & Caribbean4.2. Regional Performance: Latin America & Caribbean

2007 2008 2009 2010 2011 2012-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Chart: LAC Year-on-Year growth, 2007-2012, USD

Average*Burger KingMc-Don-ald'sYum! BrandsSubwayBrazil Fast Food

Year

Perc

enta

ge G

row

th %

Average* taken from the top 20 LAC food service operators



Burger King has seen slightly below average Y-o-Y growth recently however, the operator is still experiencing strong growth across the region.

BK could look to extend its partnership with brands and move into co-branded products, including desserts, dairy and beverages.

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Mexico has surpassed the US to become the most obese country in the world, with 32.8% of adults classed as obese - just above the US’ 31.8%. Somewhat contradictory to this is the fact that many Mexicans also suffer from malnutrition.

Across Latin America Caribbean as a region, small food portions and snacking is popular with people tending to pick up bites to eat from local street vendors.

Latin America & Caribbean: Food Trends


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Traditionally, Latin America has a culture of ‘on the go’ snacking , particularly Brazil. Snacks or small meals are picked up from street vendors and roadside eateries. As a result major fast food chains have expanded across the region via traditional and kiosk-style concepts.

These are popular, especially given their cheap price position in a region where there are big economic disparities within the population.

Latin America & Caribbean: Snacking & Health


Brazil Mexico

Colombia

Brazil

Disparities in wealth are a contributing factor to the increase in unhealthy eating. However, operators in Latin America Caribbean have failed to act quickly to meet demand from governments and consumers for cheap, healthy options .

Below, a traditional street vendor. Left,

a McDonald’s roadside kiosk.

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Like its competitors, Burger King offers comprehensive snack menus, comprising mainly dairy products.

The company appears to be ahead of the curve when it comes to thinking about healthy eating in Latin America Caribbean.


4.2. Regional Performance: Latin America Caribbean4.2. Regional Performance: Latin America Caribbean

Brazil

Mexico

Brazil

Mexico

ArgentinaLatin America

Caribbean

Europe & Middle East

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Burger King’s Y-o-Y growth performance has hovered around the average*, interestingly seeing good growth during the recession when overall consumer spending was low.


4.3. Regional Performance: Europe4.3. Regional Performance: Europe

2007 2008 2009 2010 2011 2012

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

Chart: Europe Year-on-Year growth, 2007-2012, EUR

Average*

Burger King

Mc-Don-ald'sYum! Brands

Subway

Quick

Year

Perc

enta

ge G

row

th %

Source: Planet RetailAverage* taken from the top 20 European food service operators


Burger King has a good balance between value and gourmet which is serving the company well. Low value items are driving traffic while higher priced items are boosting profits.

Burger King should look to tie in health & wellness as well as transparency into its two-pronged value/gourmet strategy.

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Europe: Food Trends

4.3. Regional Performance: Europe & Middle East4.3. Regional Performance: Europe & Middle East

Europe was hit hard by the recession, resulting in the vast majority of consumers changing their spending patterns by trading down on price when it comes to food.

That said, recent scandals like the continent-wide Horse Meat scandal has put concerns in the minds of consumers looking for a ‘cheap meal’.

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QSR’s and fast food operators in Europe are aware Europeans are trading down to cheaper fast food but still looking for quality, in terms of taste, ingredient sourcing and nutritional value.

Europe: Gourmet & Healthy Eating


Italy

Austria

PolandFrance

UK

UK

http://www.burgerbusiness.com/?attachment_id=10209

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In comparison to competitors Burger King lags behind in healthy offerings, with only limited options in most markets although its offer is better in northern European markets.

Burger King has recently placed a strong emphasis on offering premium items across Europe. The company is repositioning itself to appeal to more consumers.



Switzerland

Germany

UK

Czech Republic

Germany

Italy

Russia

Netherlands

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In the Middle East, Burger King has placed a focus on gourmet and indulgence items, similar to that of its competitors in the region.

What is Burger King doing in Middle East?


JordanBahrain

Egypt

UAE

Oman

Asia & Oceania

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2007 2008 2009 2010 2011 20120.0

5.0

10.0

15.0

20.0

25.0

30.0

Chart: Asia & Oceania Year-on-Year growth, 2007-2012, USD

Average*

Burger King

McDonald's

Yum! Brands

Jollibee Foods

MOS Food Services

Year

Perc

enta

ge G

row

th %


Average* taken from the top 20 Asia & Oceania food service operators



Burger King’s growth was impacted by the economic recession, as was its competitors. However, its focus on value and low-priced snacking items has helped it ride this wave in recent years.

There’s an opportunity to increase market share in the breakfast daypart by taking a similar route to McDonald’s and its McCafe banner. In addition, such outlets would allow Burger King to capture more daytime snack and drink revenue.

Burger King’s growth was impacted by the economic recession, as was its competitors. However, the biggest foodservice operators have experience relatively constant growth overall thanks to strong emerging market economies.

4.4. Regional Performance: Asia & Oceania4.4. Regional Performance: Asia & Oceania

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Asian diets traditionally involve a high proportion of fresh vegetables, fish and rice – vastly different from the typical western fast food offering.

In general, people in the region tend to be concerned with food safety – especially from local players.

Reinforcing this food trend are the recent food scandals which have occurred in certain Asian markets, pushing food transparency concerns to the forefront of many consumers’ minds.

Asia & Oceania: Food Trends


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Local food scandals have led to a shift in consumer behaviour. In China and South East Asia, Western fast food operators have been seen as more “clean” or “safe” compared to local competitors however, recent food safety violations by suppliers have rocked this image.

Many QSR operators have identified breakfast as a key area for growth in Asia, and are offering a huge variety of options for the daypart.

Asia & Oceania: Transparency & Daypart Segmentation


2012 Q3 2012 Q4 2013 Q1 2013 Q2

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

-80%

-60%

-40%

-20%

0%

20%

40%

KFC China: Impact of supply scares

LFL sales growth

Operating profit

QuarterSource: Planet Retail

KFC in Malaysia combines healthy and daypart segmentation while McDonalds offers its traditional breakfast menu options alongside Eastern traditions.

Pizza Hut in Indonesia offers breakfast options, including locally adapted rice porridge.

Malaysia

Malaysia

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Burger King’s focus here very much reflects trends in North America and Western European due to relative cultural similarities. This is despite consumers in Oceania being highly concerned with sourcing locally.

What is Burger King doing in Oceania?


New Zealand

Indulgent offerings with nutritional

content.

New Zealand

Snacking menu at value prices in New Zealand.

Australia

Burger King is failing to capitalise on the sourcing trend in

Australia.

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In Southeast Asia, Burger King has placed a focus on the breakfast daypart, as many of its competitors in the region are also doing.

What is Burger King doing in Asia?


Combining breakfast and snacking in the Philippines.

Malaysia

Singapore

Indonesia

Philippines

Thailand

Burger King Implications & Opportunities

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Is Burger King aligned properly?

5. Implications & Opportunities5. Implications & Opportunities

Region North America

Latin America Europe Asia Middle

East Oceania

Health & Nutrition

Gourmet & Indulgence

Daypart Segmentation

Snacking & Convenience

Sourcing & Provenance

On trend

Opportunity

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Opportunities for Burger King


Opportunities within New Product Development

Extend snacking and daypart offerings to move beyond the classic Whopper to attract more consumers. Develop desserts, smoothies, coffee beverages

Provide more healthy nutritious propositions and maintain value. Grow health and nutrition propositions

Balance of value and premium options

Promote transparency

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Opportunities within Expansion

Opportunities for Burger King


Burger King should be partnering with established brands in new markets to reinforce a strong co-branded positioning. Boost value proposition

Work with locally recognisable manufacturers to leverage brand equity and add authority in emerging markets

Venturing into new locations and channel formats to widen the existing customer base. Tailoring its product offering to localised trends.

Develop new concepts to exploit key trends.

McDonalds

Taco Bell

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David FieldHead of Sales & Customer Development

Email [email protected]

Iris Meyer Business Development Manager

Email [email protected]

If you have any questions, please send them to us, we will answer you shortly.

mailto:[email protected]

mailto:[email protected]

Burger King Global Performance and Strategy Review

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