Burger King Woes

Wed June 21 2023

Burger King, the longtime No. 2 U.S. burger chain, looked even more like a pretender to the throne after slipping to third place in 2020 behind Wendy’s by revenue.

 

 

 

 

 

 

 

 

 

 

But market share was the least of its concerns after the pandemic roiled the restaurant industry. Its franchisees have seen revenue and profitability sag, and two of its largest owners have been forced into bankruptcy recently with another failing to pay royalties. Now the chain is nine months into a mission to “reclaim the flame”—a tough-love approach to beef up its best operators and encourage weaker ones to cut back.

 

 

According to a ranking last year of top U.S. quick-serve restaurants by QSR Magazine, Burger King placed 12th out of 15 burger concepts by average unit volume at $1.47 million a year. McDonald’s and five other chains had $3 million or more. And in the increasingly vital digital realm, McDonald’s stands alone among restaurants in terms of presence on customers’ smartphones. Its app was downloaded 40 million times in the U.S. last year, according to Apptopia, compared with 7.1 million times for Burger King, good for ninth place.

 

Even with a minority of the promised sums invested, there has been some improvement with comparable sales growing by 10.8% in the first quarter from a year earlier. Investing in only the strongest franchisees makes sense—there is no reason to water your weeds. Fast-food chains with financially weak partners have a harder time pushing through promotional discounts or launching products that might require a new piece of equipment. Dirty, understaffed or poorly located restaurants detract from a chain’s overall corporate image.

But continuing cost pressures and now signs of fatigue by core fast-food customers, who skew younger and lower income, are weighing on quick-serve restaurants. Along with Wendy’s, Jack in the Box, Shake Shack and even Taco Bell owner Yum Brands, 2023 earnings-per-share forecasts for RBI have slipped over the past 12 months, according to FactSet. The sole exception? McDonald’s, which seems to be moving from strength to strength.