Homework answers / question archive / OBU Research and Analysis Project (Burger King) Topic 18 A review of the marketing strategy of Burger King and its effectiveness Being a Research and Analysis Project submitted in partial fulfilment of requirements for Degree of BSc (Hons) in Applied Accounting in Oxford Brookes University OBU Research and Analysis Project (Burger King) | 2013 Contents 1

OBU Research and Analysis Project (Burger King) Topic 18 A review of the marketing strategy of Burger King and its effectiveness Being a Research and Analysis Project submitted in partial fulfilment of requirements for Degree of BSc (Hons) in Applied Accounting in Oxford Brookes University OBU Research and Analysis Project (Burger King) | 2013 Contents 1

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OBU Research and Analysis Project (Burger King)

Topic 18

A review of the marketing strategy of Burger King and its effectiveness

Being a Research and Analysis Project submitted in partial fulfilment of requirements for Degree of BSc (Hons) in Applied Accounting in Oxford Brookes University

OBU Research and Analysis Project (Burger King) | 2013

Contents

1.0 Project Objectives and Overall Research Approach

1.1 The reasons for choosing project topic area

1.2 The reasons for choosing the organisation

1.3 Project objectives and research question

1.4 Research approach

2.0 Information gathering and accounting/business techniques

2.1 Sources of information

2.2 Methods used to collect information

2.3 Limitations of information gathering

2.4 Ethical issues

2.5 Accounting / business techniques

3.0 Results, Analysis, Conclusions and Recommendation

3.1 Industry analysis

3.1.1. Threat of New Entrants...

3.1.2. Bargaining Power of Customer

3.1.3. Bargaining Power of Suppliers

3.1.4. Threat of Substitute Products or Services

3.1.5. Rivalry among existing competitors

3.2 Marketing Strategies

3.2.1. Product

3.2.2. Price

3.2.3. Place

3.2.5. Process

3.2.6. Physical Evidence

3.2.7. People

3.3 Effectiveness of Marketing Strategies

3.3.1 Financial Performance

3.3.2. Non-Financial Performance

3.4 Conclusion

3.5 Recommendations

1.0 Project Objectives and Overall Research Approach

1.1 The reasons for choosing project topic area

“Marketing is defined as the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals” (Bennett, 1995).

The project topic area was chosen as:

a) Marketing is a vital part of every business’ continuity and success. Through in-depth researching on the topic, a valuable viewpoint of marketing can be adapted for use in future business choices.

b) The research of the correlation between marketing strategy and its effectiveness is a relevant part of every organisation, as an effective marketing strategy will translate into a healthy long-term growth of the organisation.

c) The topic gives a wide expanse of areas to be researched which strengthens the graduate skills and critical thinking promoted by the project, whereas, evaluation of the marketing environment as a whole, leads to a more practical research.

1.2 The reasons for choosing the organisation

Burger King was chosen as the organisation as:

a) Burger King is a recognisable organisation in the food and beverage industry globally, making it the sixth of the top 10 global fast-food chains and also the fifth in the top 100 global franchises (Forbes, 2012) (Franchise Direct, 2013). Therefore, the research into marketing strategies of the organisation will bring a holistic view on marketing, as the strategies reflect the effect of global economy on the organisation.

b) Burger King has a history of 60 years (since its inception at 1954), and has maintained a steady presence in the quick service restaurant (QSR) industry (Burger King Worldwide Inc., 2013b). The research into its marketing strategies and effectiveness will reveal the secret of its stability, which can be further extrapolated to further improve their performances.

c) The QSR industry is an unstable industry due to the volatility of customer's preferences, however, Burger King has not adapted to these fluctuations (Herald-Tribune, 2012). Despite this, Burger King still boasts of growing comparable sales of 3.2% and increase in system wide sales of 5.9% (Burger King Worldwide Inc., 2013a). Therefore, it would be interesting to discover the steps the organisation took to go against this volatility and still thrive.

1.3 Project objectives and research questions

This research project main aim is to evaluate and review the marketing strategy of Burger King and its effectiveness. This will be done by:

i. ascertaining the marketing strategies and the marketing mix of 7 P’s adopted by Burger King and relating the strategies to current performance of the organisation (McCarthy, 1960) (Borden, 1964).

ii. Evaluating the effect of the marketing strategies on the organisation's financial and non-financial performance.

Besides that, the other aims are to:

a) Apply the knowledge and principles learnt throughout the ACCA course to analyse figures of a corporation's financial statements and produce a meaningful interpretation.

b) To undertake research in methods which conform with standards of professional ethics, graduate skills and employing professional judgement to filter out information which is irrelevant.

c) Practise independent learning and exercise resourcefulness in overcoming limitations in research or report production.

d) Practise relevant information technology skills to evaluate and make reasonable conclusions about figures found in the financial statements of organisations.

The main research questions to be asked throughout the progress of the project would be:

a) How attractive is the fast food industry in terms of potential profitability and competitiveness?

b) What are the product strategies of Burger King?

c) Which pricing strategies are employed by Burger King?

d) What are the promotional activities carried out by Burger King?

e) Which distribution channels are focused on by Burger King?

f) Are physical elements of Burger King’s prevalent in the running of the company?

g) What are the processes employed by Burger King in creating their product?

h) What is the people strategy employed by Burger King?

i) How does the financial and non-financial performance of Burger King reflect the effectiveness of Burger King’s marketing strategy?

j) Are improvements or decline in the financial performance of Burger King due to the marketing activities, or by other varying factors?

k) How does the performance of Burger King stand up to a competitor, i.e. McDonald’s Corporation?

OBU Research and Analysis Project (Burger King) | 2013

1.4 Research approach

The research approach will be started with the preparation of a research timetable with consideration for the project deadline. After ascertaining the project objectives and research questions as stated in 1.3, the following approaches shall be adopted.

a) Secondary data will be the primary focus of the research process.

Secondary data will be more than sufficient to concede on the scope required by this project, as secondary data are the main sources of data used by stakeholders to judge the performance of Burger King.

b) The Porter's Five Forces model will be adopted.

This method will be used to give a clear overview of the industry's competitiveness and profitability, through the determination of root causes of profitability, enabling the research to be carried out with a clear understanding of the industry’s potential (Porter, 2008).

c) The marketing mix model will be applied during research.

Borden's marketing mix model is used to ascertain the focus of Burger King’s marketing strategy. It is a helpful tool to assist in the understanding of marketing, as it highlights the elements of the marketing mix as well as the corresponding forces which affect it (Borden, 1964).

d) A balanced scorecard method will be adopted.

This method of research will lead to a well-balanced focus on financial and non-financial objectives. It is an effective performance evaluation model and considers the effect of an organisation's actions, as well as the action itself (Kaplan & Norton, 1996).

e) A competitor will also be compared to the research organisation.

Benchmarking will shed a comparative light onto the research findings. Comparison to McDonald’s, a market leader of the QSR industry, will allow Burger King to be seen in the context of the best in current industry scenarios, shedding a fairer picture to the research (IBIS World, 2012).

2.0 Information gathering and accounting/business techniques

2.1 Sources of information

The sources of information which has been used to obtain the relevant data are mainly from secondary sources as most vital information regarding globally listed companies, such as Burger King, are readily available and issued to the public. Primary data research would encounter a great limitation as the data in a globally listed company, which is not issued as secondary data, would normally be confidential and inaccessible to the public.

Examples of such are:

a) Issued annual reports

These will contain information such as, risk factors, published financial statements, and other information of importance to the shareholders of the company. With this information, the financial performance of the company can be deduced and effects of the general business environment (risk factors) or other marketing activities on the company’s performance can be identified.

b) Global media reports and releases

These sources contain important information on the marketing strategies and the executive's vision of the future of their organisation. This would reflect the general outlook of the executives on the company’s potential and their ideas to improve on the current organisation's position. Any negative or positive news which would affect the organisation's performance could also be identified.

c) Relevant literature on business or accounting principles

In-depth reading on these sources would give a deeper and more systematic view on the ways to review the marketing strategy of Burger King and its effectiveness. It would direct the research in a more knowledgeable manner, as all research outcomes can be related to globally accepted principles.

2.2 Methods used to collect information

Information is collected via the following methods:

a) Online access

Online access to the published annual reports and media press releases will shed most light onto the current marketing strategy and the financial performance as well as non-financial performance of the company. This can be done via accessing Burger King’s global website -www.bk.com as well as access of online search engines such as Bing and Google.

Relevant information could be obtained from business and economic portals regarding current market sentiments, as well as theories about accounting and business principles.

Competitor's information was also mainly obtained via online access from its global website —www.mcdonalds.com.

b) Library research

This was the main method to collect information regarding accounting and business principles. Books and journals regarding the topic were looked up in the library to be included in the research and analysis of results. In depth reading regarding the topic of marketing was also done to ensure that the research was in line with the topic of marketing strategies of Burger King and its effectiveness.

A database showing examples of previously submitted OBU theses from the campus was also viewed to get an idea of how the report should be written and the relevant formatting —www.thol.edu.my.

2.3 Limitations of information gathering

Information gathering is limited due to the following factors:

a) Secondary information is not wholly trustworthy.

Secondary information is usually not accurate as it does not contain the primary information in its entirety. It would have been diverted from its original meaning through the inclusion of personal viewpoints or even a misunderstanding during conversion into secondary data.

Information found via online access might also be false as information posted on the Internet by a myriad of users could be fabricated information aimed to mislead users. This can be overcome by referring to many sources to ascertain a key fact, with greater trust being put on reputable sites (i.e.: well-known business analyst websites, official websites of the organisation)

b) Access regarding information to the organisation and its competitor is limited.

In the analysis of marketing strategies and effectiveness, it is undoubtedly true that many marketing strategies and the decision behind it will be deemed as ‘trade secrets’. Thus, they will be confidential and inaccessible to the public. This will present itself as a limitation in the scope of information, leading to the research not being as in-depth as possible. This can be overcome by focusing on the main marketing strategies and revealing in the report that the research has been limited by this area.

2.4 Ethical issues

Ethical issues encountered during the information gathering were as such:

a) Objectivity

Objectivity issues were raised in the information gathering of Burger King’s information and its competitor, McDonald’s Corporation, as both organisations are regularly encountered in daily life. Therefore, there is a risk that personal preconceptions may taint the information processing by ‘cherry picking’ only information which conforms to our image of the company.

This problem is resolved by applying a fair and unbiased mind-set by wiping the slate clean of any personal opinions. All information must be processed in the same manner and will only be selected if it is true and relevant to the research project. On top of that, presumptions cannot be used as a basis for research information and all information gathered should be able to be traced back to reliable facts.

b) Professional Competence and Due Care

As the business and accounting concepts may not be completely familiar and clear-cut, this may pose an ethical issue as there may not be sufficient skills and competence to dissect the concepts and apply them to the research. Due to this, due care might not be applied, as there might be oversight of important details due to the lack of Knowledge or to avoid hassle.

This problem is resolved by researching and doing more in-depth reading on the business and accounting concepts to enable a more thorough understanding on the concepts. The accounting and business concepts chosen must be of relevance to the project and be able to lead to a meaningful conclusion to further the project's objectives.

c) Integrity

The issue of integrity will also be encountered when referring to past submitted OBU theses and other sources of information, as there is a risk of plagiarism or unwittingly copying blocks of information directly from the sources without citing proper references.

This problem can be solved by citing proper references for all research resources as well as using past submitted OBU theses as a source of reference for formatting and ideas, and not wrongfully appropriating other's work as one’s original work.

2.5 Accounting / business techniques

The accounting and business techniques used in this research project are as follows:

a) Porter’s Five Forces

                                                               Threat Of New Entrants

      Bargaining Power of Suppliers          Rivalry Among         Bargaining Power of Customers

                                                             Threat of Substitute Products of Services

                                                                        Figure 2.5A: Porter’s Five Forces

• Porter's Five Forces is a model commonly used to evaluate and forecast potential competition as well as profitability in a specific industry (Porter, 2008). Therefore, an environmental analysis on the Quick Service Restaurant (QSR) industry could be carried out using this model to ascertain the attractiveness of the industry as a whole. Opportunities and threats which affect Burger King via the QSR industry can be discerned and used to evaluate the effectiveness of marketing activities contextually.
• Limitations of this method are that it is best applied to static and simple industry SR industry where strategic alliances may occur, i.e. between Friendly’s and Burger King (Berry, 2012).

b) The concept of marketing mix

• The marketing mix is a business tool which is often of primary importance when determining a product's potential, and is often synonymous with the four Ps: price, product, promotion, and place (Borden, 1964) (McCarthy, 1960). In service marketing, the four Ps have been expanded to the seven Ps with the addition of physical evidence, participants and process (Booms & Bitner, 1980). Thus, this concept can be used to dissect BurgermKing’s product potential and to ascertain the main focus of Burger King’s marketing strategies.
• The limitation of this technique is that it is too internally oriented whereas external and uncontrollable environmental factors are very vital elements of the marketing strategy (Robins, 1991) (Kotler, 1984). In this case, it would mean that Burger King’s analysis via this technique would ignore important external factors, such as market and industry-specific factors. Furthermore, access to internal information is limited as marketing strategy data is normally classified as confidential management information, leading to a research which is not fully accurate.

c) Ratio analysis

• Ratio analysis is the broad method by which financial data is converted into simple quantifiable ratios for comparison. Financial analysts regularly use financial ratios to compare the strengths and weaknesses in various companies (Groppelli & Nikbakht, 2000). Examples of ratios used are profit margins, ratio of marketing expenses to revenue and market share ratios.
• The limitation of this technique is that the analysis is limited to quantifiable information, making it only applicable to financial statement figures Therefore, non-financial performance, such as, customer satisfaction, of Burger King cannot be evaluated through this technique. On top of that, ratio analysis makes use of information found in the financial statements, which show aggregated amounts from the entity’s financial past. Thus, ratio analysis reflects the entity's overall past performance which might be deemed irrelevant in a volatile and fast-changing industry (such as the Quick Service Restaurant industry) as the figures would fluctuate based on the current business environment. This will lead to the inability to make a meaningful comparison using the ratios.

d) The balanced scorecard approach

Financial

• To suceed financially, how should we appear to our shareholders?

Customer

• To achieve our vision, how should we appear to our customers?

Vision and Strategy

Internal Business Process

• To satisfy our shareholders and customers, what business processes must we excel at?

Learning and growth

• To achieve our vision, how will we sustain our ability to change and improve?

Figure 2.5B: The Balanced Scorecard Approach

(Kaplan & Norton, 1996)

• It is a performance evaluation model and considers the effect of an organisation's actions, as well as the action (Kaplan & Norton, 1996). This approach involves attaching targets to certain targets and objectives to several financial as well as non-financial measures, to determine if areas of these measures are up to the mark.
• The balanced scorecard approach presumes a direct relationship between a measure and its target. However, it would be difficult to ascertain a direct relationship as a target might be affected by various measures in different magnitudes. For example, Burger King’s target of customer satisfaction might be a function of several measures, such as, internal business processes as well as customer issues.

3.0 Results, Analysis, Conclusions and Recommendations

3.1 Industry analysis

Porter's five forces would be used to analyse the fast-food industry.

3.1.1. Threat of New Entrants

Multinational fast-food corporations have economies of scale that reduces costs and gives them a competitive advantage (Wilk, 2006) (Michman & Mazze, 1998). Long-standing brands would wield this advantage together with brand loyalty, preventing new entrants.

However, start-up capital of $400,000 on average is relatively low (Franchise Prospector, 2005) (Beesley, 2013). Apart from an idea and money, the industry has no barriers of entry, no certification, accreditation, or advanced business knowledge required (Smith, 2011).

Overall, the threat of new entrants would be high due to the fast-food industry having a low barrier to entry, as the low entrant costs overcome the advantages wielded by incumbents (IBISWorld, 2013).

3.1.2. Bargaining Power of Customers

In the fast food industry, despite individual customers being able to switch from an organisation to another with ease, their bargaining power are not high as they do not make collective decisions which can impact the organisation in a material manner (Wahlen, et al., 2010).

Therefore, the bargaining power of customers is relatively low.

3.1.3. Bargaining Power of Suppliers

From the point of a market leader, i.e. McDonalds, most raw materials would be subcontracted to various suppliers, except for their buns and drinks which are sourced from a single supplier (Salisbury, 2011). In the cases where resources are sourced from a single supplier, the bargaining power of suppliers is high, and vice versa.

The bargaining power of organisations towards these suppliers are high, as shown by Jack in the Box suing its supplier and Burger King terminating its contract with Silvercrest due to the supply of contaminated meat (Smith, 2011) (MercoPress, 2013).

Therefore, bargaining power of suppliers can be concluded as mixed, depending on the relative size and collective powers of the supplier.

3.1.4. Threat of Substitute Products or Services

Instead of the fast-food industry, there is a large variety of other foodstuffs in the form of grocery stores, casual and fine dining. The switching costs associated with substitution are very low, as discussed in 3.1.5.

This leads to a very high threat from this aspect in the QSR industry.

3.1.5. Rivalry among existing competitors

The global QSR industry is highly fragmented and key players form a market share of merely 23.5%, leading to intense rivalry as organisations wield equal capabilities in the form of diversified competences (IBISWorld, 2012). The nearly nil consumer switching costs aggravates this rivalry.

However, brand loyalty is a prevalent factor, shown by Chick-fil-A outranking KFC as the top chicken brand due to deep customer loyalty (Oches, 2013). When customers are loyal to an organisation, they would not be tempted to switch brands despite other brands’ advantages.

As a conclusion, the Porter's Five Forces analysis on the QSR industry can be summarized as follows.

Porter’s 5 Forces	Threat
3.1.1. Threat of New Entrants	High
3.1.2. Bargaining Power of Customers	Low
3.1.3. Bargaining Power of Suppliers	Mixed
3.1.4. Threat of Substitute Products or Services	High
3.1.5. Rivalry among Existing Competitors	Mixed

 

For Burger King, the low bargaining power of customers and their fragmented suppliers are opportunities that need to be exploited. The high threat of new entrants and substitute products should be remedied by venturing into ‘strategic gaps’.

These major threats will lead to rivalry among existing competitors to be mixed, mainly dependent on the placement of the company in the industry as well as their competitive advantage.

Therefore, it can be concluded that the Quick Service Restaurant industry is a highly competitive industry (Penney & Green, 2012).

3.2 Marketing Strategies

3.2.1. Product

After 3G Capital took over Burger King in 2010, they reviewed Burger King’s menu item by item in 2011. This has led to the introduction of 10 new menu items in 2012, which can be coined as the largest expansion of Burger King’s menu in its history (Associated Press, 2012) (Burger King Worldwide Inc., 2012a) (Huffington Post, 2012). This has led to an investment of US$ 750 million alone in the US to revamp their menu items, marking its largest annual investment, very much highlighting its new focus on its products as a marketing strategy (Horovitz, 2012). This proves that the speed and amount of new products launched has increased significantly in the early of 2012 and continues for the whole year.

Burger King has adapted the menu to a health-conscious direction, by adding salads and wraps, emphasising on nutritious food (Black, 2012) (Subramanian, 2012) (Burger King Worldwide Inc., 2012c) (DiSalvo, 2012). They have also emphasized on their premium ingredients with sandwiches showcasing artisan- style buns. This highlights Burger King’s expansion on the width of their product line by diversifying into areas of healthy-eating and artisan products.

Burger King has improved on its signature Whopper via product refinement, which is now made with a single thicker cheese slice and freshly smoked bacon. Tiny details were also researched upon, such as the right ratio between eggs and oil for the perfect mayonnaise as well as the right nuances of vanilla for their soft serve ice cream (Subramanian, 2012). This is an expansion of the depth of the product line to appeal to customers with improved versions.

Quality is important to Burger King, as shown by its promise to remove ammonia- treated beef from their burgers and the termination of contract with its supplier after traces of horse meat were found in beef patties at Silvercrest's facility (Adams, 2012) (Hill, 2012) (O'Toole , 2013) (MercoPress, 2013).

From adolescent boys, they are now focusing on a wider market segment of families and women, showing a product diversification model by introducing new products and venturing into new markets (Horovitz, 2012).

Burger King has focused on improving all levels of the product components:

a) The core product: to nourish customers,

b) The actual product: increasing the variety of foodstuff

c) The augmented product: a continual guarantee of quality and wholesome foodstuff

3.2.2. Price

Comparison of Combo Prices between Burger King and McDonalds

$9.00

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00 United

	United States	United Kingdom	United Arab Emirates	China	Portugal
Price of A whopper Combo	$5.79	$8.20	$4.90	$5.72	$7.65
Price of A Mac Combo	$6.00	$6.47	$4.63	$4.47	$7.00

 

Figure 3.2.2A : Comparison of Average Prices Of a Whopper Combo and a Big Mac Combo Globally

(Burger Lad®, 2013) (Jing, 2012) (Helen Ziegler & Associates, 2013) (Fast Food Menu Prices, 2013b) (Patrone, 2012) (Expatistan, 2013a) (List A-Z, 2012) (Expatistan, 2013b) (Expatistan, 2013c)

As seen in Figure 3.2.2A, Burger King’s prices vary throughout locations, attributable to purchasing power parity which causes a global rift in prices due to exchange rate fluctuations (The Economist, 2013). It usually has a higher price than the market leader, due to a premium pricing policy and a perceived pricing method (Fowler, 2012). In conjunction with this, McDonald's has a better benefit from its diverse range from its dollar menu priced at a competitive $1, whereas Burger King’s more diverse dollar menu starts from $1 but escalates to a maximum of $1.49 (McNichol, 2013). Therefore, to convince customers of premium quality, a corresponding higher price would reinforce this image (Vu, et al., 2013).

To face the increase in commodity prices in the beginning of 2012, McDonald’s have increased their price by 1 % in February and dropped less profitable items off their dollar menu for items with a higher profit margin (Choi, 2012). On the contrary, Burger King has adapted a different pricing strategy by keeping their prices constant despite diversifying into new products; in fact, they even managed to reduce their prices when competitors were increasing theirs (Milano, 2012). This would be aimed at attracting as well as retaining the QSR customers who are price elastic and would stray away from Burger King if prices increased drastically (Vu, et al., 2013).

Burger King has introduced economical promotions such as sandwiches and smoothies for $1. However, this short-term discount pricing method is not their main strategy (Burger King Worldwide Inc., 2012d) (Burger King Worldwide Inc., 2012e). It is only to attract new customers and increase initial sales for products through market penetration pricing.

3.2.3. Place

Burger King is a globalised organisation run by 97% franchisees who bridge the connection between head management and the final customer, practicing an indirect strategy, (Fowler, 2012).

Breakdown of Burger King Restaurants in 2012

3% = Number Of Company Restaurants

97% = Number Of Franchise Restaurants

Figure 3.2.3A: Breakdown Of Burger King Restaurants in 2012

(Burger King Worldwide Inc., 2013a)

As seen in figure 3.2.3A, franchising is the main strategy lane undergone by Burger King. From the view of Burger King, this is an advantageous move as franchising allows Burger King to filter the list of potential franchisees via its franchising interview which would be able to limit potential risk of franchise failure as franchisees with unfit credit limits and unscrupulous personalities can be cut off (Burger King Worldwide Inc., 2013k). On top of that, Burger King, as a highly geared company with a 253% long-term debt to equity ratio, would benefit from this as it is a method to expand the company without taking on additional debt (Bloomberg BusinessWeek, 2013b). The royalties and a percentage of the profits of profits from the franchises’ returns would be used to further increase Burger King’s marketing fund and as a cash reserve to be able to exploit any opportunities which might come by (Burger King Worldwide Inc., 2013a).

On the other side, franchising reduces the control of Burger King over its franchises and brand as the main headquarters has little control and supervision over all the franchisees who are dispersed, leading to a lax of emphasis on basic process and hygiene guidelines, which has led to an issue of undercooked meat and poor hygiene in some of their franchises in Washington (Monson, 2011). However, in light of all of this, Burger King has decided that the advantages of franchising clearly outweigh the disadvantages, leading to them selling off almost all company-owned restaurants in 2012 with the view that franchisees are more entrepreneurial and can adapt to local market environments quickly (Miller, 2012).

Breakdown Of Burger King Restaurants by Location in 2012

8000

7000

6000

5000

4000

3000

2000

1000

0

	US & Canada	EMEA	Latin America	APAC
Franchise Resaurants	7293	2989	1290	1007
Company Restaurants	183	132	100	3

 

Figure 3.2.3B: Breakdown Of Burger King Restaurants by Location in 2012

(Burger King Worldwide Inc., 2013a)

Glossary: EMEA - Europe, the Middle East and Africa APAC - Asia-Pacific

Based on Figure 3.2.3B, U.S. & Canada is Burger King’s main market, comprising 57.5% of its global position. However, as market saturation was reached in 2010, Burger King explored other markets for opportunities (Zacks Equity Research, 2009). Therefore, 80% of restaurants opened in 2012 were located outside of the U.S., moving into countries with a diluted QSR industry, such as China (White,

2012) (Burger King Worldwide Inc., 2012h).

Burger King has also introduced direct selling via food trucks to bring their product to the final customers and offer free samples, forming a direct link between the producer and consumer (Black, 2012) (Christensen, 2012). The trend is continued by offering home delivery to customers (Burger King Worldwide Inc., 2012f).

”Image 3.2.3A: Burger King’s food truck

 (Burger King Worldwide Inc., 2012g)

3.2.4. Promotion

Burger King’s image revamp is a ‘pull’ promotion method which encourages customers to visit their outlets and purchase their products (Black, 2012).

Their promotions have focused on ‘celebrity-endorsement by David Beckham, Jay Leno and Salma Hayek (Choi, 2012) (Vieira, 2012). The advertisements capture the viewer's attention and portray their products as favourable. This is a major change from previous advertising gimmicks which were controversial (Glover, 2009).

Burger King has issued regular press releases in their official website —www.bk.com, on their new products and low prices (Burger King Worldwide Inc., 2012g) (Kelso, 2012). This informative sales promotion will inform consumers on Burger King’s continual menu innovation.

Burger King employs Corporate Social Responsibility (CSR) activities to build a positive brand image. It has pledged to uphold animal humanity by removing gestational crates from its pork production and promoting cage-free eggs (Burger King Worldwide Inc., 2012i). Burger King also supports the community's education by establishing the BURGER KING McLAMORE Foundation offering a sum of $150,000 annually (BURGER KING McLAMORE Foundation, 2013). However, in comparison with the McDonald’s RMHC/HACER scholarships offering a sum of $400,000 annually, Burger King’s scholarship is a nominal amount in comparison to its organisational presence (McDonald's Corporation, 2013a). Stakeholders would be skeptical if Burger King is sincere to further its corporate social obligations, or merely as a publicity stunt. These CSR activities use public relations to increase the receptiveness of the public to Burger King’s promotional activities.

Burger King’s social media marketing strategy in Facebook and Twitter is focused on their products and price deals, introducing consumers to Burger King’s products. However, their YouTube channel has non-frequent uploads (only four videos) and a focus on catchy jingles and price promotions, aiming to increase awareness of new customers.

Burger King should be seen through ‘Process, Physical Evidence, People’ as it is a service-based company due to over-the-counter and food preparation services.

3.2.5. Process

In food preparation, its process is dependent on the signature flame broiler which has been renewed in 2004 to a self-contained broiler with larger capacity which reduces employee intervention to a minimum, leading to a more efficient production of high-quality patties (Boyle, 2007) (Hoyland, 2009). Employee training has been highlighted after reports of undercooked patties surfaced, due to equipment and employee incompetence (Monson, 2011). To remedy this problem, Burger King tightened its stringent food safety standards to ensure all franchisees comply with the regulations. This is the customer's ‘moment of truth’- they expect quality, wholesome food which is an important commitment by Burger King.

Over-the-counter service is unique as Burger King allows personalisation of a customer's burger, requiring the adaptation of a modified line flow burger assembly process to allow flexibility. Due to customization, lead time at Burger King Averages at 4 minutes 5 seconds, compared to McDonald’s 2 minutes 3 seconds (Rao, 2009). This lead time might deter customers of the QSR industry as they expect quality food in fast time, leading to a loss in revenue from customers unwilling to wait for an extended period for a customized burger.

3.2.6. Physical Evidence

Burger King is getting a revamp on its image by getting more modern with movable cushioned chairs and digital menu boards in the restaurants on top of including a more prominent red and yellow colour scheme to its stores (Horovitz, 2012). The prominence of Burger King’s official colours and a more comfortable decor is aimed at attracting a more diverse clientele, inclusive of its new target market of women and families.

While Burger King revamped its menu and location, it also gave the staff uniforms a facelift. The previous uniforms in dull red, black and blue, were replaced with a smart metal gray shirt and an added apron which was designed with the assistance of employees (Associated Press, 2012). This refreshing look gives off a cleaner and more modern image of the employees to the customers and is also more hygenic.

Burger King’s mascot in the 2000s, the ‘King’ had an unoptimistic image as the “Creepy King’ and was eliminated altogether in 2011 (Cohen, 2011).

Burger King’s logo has prominent display on its products and buildings, has been refreshed; the current logo is a modern version of the previous bun halves, with a brighter hue.

Image 3.2.6A: The King, Burger King’s previous mascot.

Image 3.2.6B: Burger King’s logo from 1999 until now.

3.2.7. People

Burger King provided a comprehensive training programme with an opportunity to gain a National Certificate for its employees in the Hamilton area (ServicelQ, 2012). Burger King also offers 401(k) benefit plans, jury duty, discounted meal plans and medical benefits for certain positions (Burger King Worldwide Inc.., 2013d).

3.3 Effectiveness of Marketing Strategies

3.3.1 Financial Performance

a) Sales Growth

Annual Total Revenue

30,000.00

25,000.00

20,000.00

15,000.00

10,000.00

5,000.00

0.00

 

	2009	2010	2011	2012
Burger King	2,537.40	2,404.40	2,335.70	1,966.30
McDonald’s	22,744.70	24,074.60	27,006.00	27,567.00

 

Figure 3.3.1a (1): Annual Total Revenue of Burger King and McDonald’s year 2009-2012

(Bloomberg BusinessWeek, 2013a) (Bloomberg BusinessWeek, 201 3b)

Revenue for Burger King has consistently been at the threshold of USD$2,000 million, with only the 2012 revenue dipping slightly below this limit by 1.7%. This decrease in sales could be attributed to the following factors.

Sales Growth

15.00%

10.00%

5.00%

0.00%

-5.00%

-10.00% T

-15.00%

20.00%

	2010	2011	2012
Burger King	-5.20%	-2.90%	-15.80%
McDonald’s	5.80%	12.20%	2.10%

 

Figure 3.3.1a (2): Sales Growth of Burger King and McDonald's year 2010-2012

(Bloomberg Businessweek, 2013a) (Bloomberg Businessweek, 201 3b)

As seen in Figure 3.3.1a (2), sales growth has increased from 2010 to 2011 for both organizations, attributable to the end of the Great Recession, inducing growth in the QSR industry with increased consumer spending power (Kelso, 2010). In 2012, another recession led to a decline in the industry, with rising inflation (Duerr, 2012). Revenue decline rates have been affected by the overall economic environment.

Breakdown Of Income by Segment

APAC

Latin America

EMEA

U.S. and canada

                                    O 50 100 150 200 250 300 350 400 450 = 500

Income (USD million)

	U.S. and Canada	EMEA	Latin America	APAC
Growth	2.4%	13.8%	14.6%	53.9%

 

Figure 3.3.1a(3): Breakdown of Income and Growth by Segment of Burger King year 2012

(Burger King Worldwide Inc., 2013a)

According to Figure 3.3.1a (3), U.S. and Canada is the main market, making up 63% of Burger King’s income, but achieved the lowest growth, at 2.4%, due to saturation of the QSR industry in this segment, leading to hyper- competitiveness (Zacks Equity Research, 2009). Conversely, the APAC segment is the smallest market at 5.5%, but has achieved an impressive income growth of 53.9%. This could be attributed to Burger King moving its emphasis to a diluted QSR market (Burger King Worldwide Inc., 2012h). However, this small magnitude of growth is insufficient to push up overall revenue.

With stable prices at an average of $4.00 in 2011 and $4.04 in 2012, the decreasing revenues signal that lower quantities of products have been sold (Milano, 2012). This could be attributed to its slump in the first quarter, brought forward from the previous year. Sales only improved in the second quarter of 2012 after continuous product innovations (Morrison, 2012). Despite a slight improvement in quarterly performance, there is still an overall decrease in quantities sold causing a decrease in revenue.

b) Gross profit margin

Gross Profit Margin

45.0%

40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

	2009	2010	2011	2012
Burger King	32.7%	33.0%	33.9%	41.6%
McDonald’s	38.7%	40.0%	39.6%	39.2%

 

Figure 3.3.1b(1): Gross Profit Margins of Burger King and McDonald's year 2009-2012

(Bloomberg Businessweek, 2013a) (Bloomberg Businessweek, 201 3b)

Burger King’s gross profit margin has shown an impressive improvement in 2012, overcoming McDonald's in terms of gross profit margin by 2.6%.

Comparison between Revenue and Gross Profit

3,000.00

2,900.00

2,000.00

1,500.00

1,000.00

500.00

0.00

	2009	2010	2011	2012
Revenue	2,537.40	2,404.40	2,335.70	1,966.30
Gross Profit	829.4	729.5	791.2	817

 

Figure 3.3.1b(2): Comparison between Revenue and Gross Profit of Burger King year 2009-2012

(Bloomberg Businessweek, 2013a) (Bloomberg Businessweek, 2013b)

Despite revenue of Burger King falling by 15.8% from 2011, gross profit has increased by 3.3%, due to a reduction in cost of sales by 26.2%. This can be correlated with reduced production costs originating from the more efficient streamlined processes.

To analyse this ratio, the cost of sales margin will be considered:

	2009	2010	2011	2012
Burger King	67.3%	67.0%	66.1%	58.4%
McDonald’s	61.3%	60.0%	60.4%	60.8%

 

Figure 3.3.1b(3): Cost Of Sales Margins of Burger King and McDonald's year 2009-2012

(Bloomberg Businessweek, 2013a) (Bloomberg Businessweek, 2013b)

Burger King’s cost of sales margins are higher than McDonald's, due to the fact that Burger King has focused on premium ingredients, increasing cost of sales with a higher price paid for the quality (Sheridan, 2010). Therefore, this focus on products has lowered its profit margins.

However, Burger King’s cost of sales margin has lowered across time, despite rising food prices, attributable to economies of scale associated with being a long standing and large customer of the supplier (Duerr, 2012) (Catalyst Investments, 2013).

c) Operating profit margin

Operating Profit Margin

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

	2009	2010	2011	2012
Burger King	13.4%	12.9%	18.6%	26.7%
McDonald’s	28.8%	30.3%	30.7%	30.3%

 

Figure 3.3.1¢c(1): Operating Profit Margins of Burger King and McDonald’s year 2009-2012

(Bloomberg Businessweek, 2013a) (Bloomberg Businessweek, 2013b)

Burger King’s operating profit margins experienced an escalating increase from 2010 to 2012 growing to par with McDonald’s with an absolute margin of only 3.6% between them.

Since 2010, the revamps undertaken have streamlined Burger King’s operations and increased efficiency, leading to lower selling, administrative and general expenses, which reveal a healthy financial for Burger King in the long run. This reduction in costs has narrowed the gap between gross profit margin and operating profit margin.

In the year of 2012, this trend is continued by the 38.2% reduction in selling expenses which comprises of the advertising fund by Burger King. The reduction in required fund contributions by franchisees is due to higher emphasis on process efficiency which led to cost savings in the form of promotional expenditure reduction and by focusing on cost-effective methods of promotion, such as social media.

The reduction in management expense was facilitated by a salary reduction exercise; however, in line with Burger King’s emphasis on employees, there was an employee stock option included in the non-cash based incentive expense to compensate them (Burger King Worldwide Inc., 2012)).

	Organisation	2011	2012
Revenue to Advertising Expenses Ratio	Burger King	29.87:1	41.33:1
	McDonald’s	32.04:1	30.60:1

 

Figure 3.3.1c (2): Advertising Expenses Ratio of Burger King and McDonald’s year 2012

(Burger King Worldwide Inc., 2013a)

Burger King has had a drastic improvement in the effectiveness of its marketing as every $1 spent on marketing has generated a 38% increase in revenue compared to the previous year. In comparison, McDonald's is declining due to Burger King’s promotions which have been at a holistic level with increased focus on social media, whereas McDonald's is complacent on its current competitive advantage (Patton, 2012).

d) Net profit margin

Net Profit Margin

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

-5.00%

	2009	2010	2011	2012
Burger King	7.90%	-1.10%	3.80%	6.00%
McDonald’s	20.00%	20.50%	20.40%	19.80%

 

Figure 3.3.1d(1): Net Profit Margins of Burger King and McDonald's year 2009-2012

(Bloomberg Businessweek, 2013a) (Bloomberg Businessweek, 2013b)

In comparison to McDonald's, Burger King’s net profit margin in 2012 is 70% lower. Burger King’s net loss margin in 2010 is mostly due to the takeover by 3G Capital, reducing the operating profit with high restructuring costs, leaving a domino effect on the net loss.

The improvement of net profit margin in 2012 can be related to its decrease in interest payments. Repayment of their long term loans due to an increase reliance on franchising as a method to expand the company as opposed to internal fund utilisation, has led to a drop in effective interest rate from 7.5% in 2011 to 7.29% in 2012, improving net profit (Burger King Worldwide Inc., 2013a).

3.3.2. Non-Financial Performance

a) Social Media

Social media performance of Burger King lags drastically behind McDonald's in Facebook and Twitter. Burger King only leads in Youtube, with almost triple the number of subscribers of McDonald's.

Number of Likes on Facebook

35,000,000

30,000,000

22,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0

McDonald’s	29,409,724
Burger King	6,373,115

 

Figure 3.3.2a (1): Breakdown of Social Media Presence on Facebook (as of 22

August 2013

(BURGER KING® USA, 2013a) (McDonald’s Corporation, 2013b)

Number of Followers on Twitter

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

McDonald’s	1,550,973
Burger King	271,836

 

Figure 3.3.2a(2): Breakdown of Social Media Presence on Twitter (as of 22 August 2013)

(BURGER KING® USA, 2013b) (McDonald’s Corporation, 2013c)

Number of Subscribers on Youtube

30000

25000

20000

15000

10000

5000

0

McDonald’s	9837
Burger King	27160

 

Figure 3.3.2a (3): Breakdown of Social Media Presence on YouTube (as of 22 August 2013)

(Burger King Worldwide Inc., 2013c) (McDonald's Corporation, 2013d)

As Burger King and McDonald’s use Facebook as their main platform, with a larger following and update frequency, it should be used as the denominator to measure the effectiveness of the social media marketing strategy.

	McDonald’s	Burger King
Revenue to Number of Likes on Facebook	$937.34/like	$313.24/like
Revenue to Number of Subscribers on Youtube	$2802378.77/subscriber	$73501.47/subscriber

 

Table 3.3.2a(4): Revenue Generated per Like On Facebook

(Bloomberg Businessweek, 2013b) (Bloomberg Businessweek, 2013a)

(BURGER KING® USA, 2013a) (McDonald's Corporation, 2013b)

As McDonald's has higher revenue generated per like, it has a stronger correlation between social media marketing and revenue. This could be attributed to strategies which portray McDonald's as a way Of life, whereas Burger King focuses on products alone. To support this case, each Facebook update by Burger King has an average of 5 000 likes, whereas its counterpart garners about 10 000 likes.

Despite leading in subscribers on YouTube, lower revenue per subscriber is still earned by Burger King, attributable to McDonald’s revenue of much greater magnitude to Burger King’s. This is inconsistent with Burger King’s higher effectiveness of advertising expense in 3.3.1(c).

Effectiveness was mostly achieved through a drastic reduction in advertising expenses in 2012 by 38.2% to USD$48.3 million and a growing initial emphasis on social media, therefore, number of followers have not picked up to par yet. Besides, perceived audience size regularly differs from actual reach of the social media, therefore, Burger King might have ‘invisible’ audiences who do not follow them on social media but still update themselves via the media and contribute to revenue (Bernstein, et al., 2013).

lt would be useful to measure the percentage of growth in social media following from the previous year to the growth of revenue in the current year to ascertain a clear relationship on marketing expenses’ effectiveness. However, as the previous year’s media following numbers are not available, this meaningful comparison cannot be carried out.

b) Learning and Growth

Burger King has begun to evolve to suit the needs of the current market. This can be seen through its introduction of delivery service (which is now the most prevalent QSR delivery service in the US) and introducing the use of its proprietary thermal packaging (Blank, 2013). lt has also catered to changes in trends by introducing a French-fry burger and a bacon sundae (Thompson, 2013). US$ 750 million alone was invested in the US market to facilitate product innovation (Horovitz, 2012).

c) Customer

Using the American Consumer Satisfaction Index (ACSI) as a benchmark, as Burger King’s main market is the U.S., consumer satisfaction of 2012 is good at 75 points (similar to 2011), higher than McDonald’s 73 points. (American Customer Satisfaction Index, 2013).

However, under the Empathica 2013 QSR Benchmark Study only 29% of customers found their recent visit to Burger King delightful, the worst of the burger segment, in comparison to McDonald's which fared slightly better with 32% ratings (Brandau, 2013). This is due to their large scale of operations, being unable to satisfy guests on a personal level, leading to a trade-off between sales volume and customer satisfaction.

d) Internal Business Process

Relationship Between Gross Profit Margin and Operating Profit Margin Of Burger King

45.0%

40.0%

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

                    2009                       2010                 2011                     2012

                     Operating Profit Margin                        Gross Profit Margin

	2009	2010	2011	2012
Difference	19.3%	20.1%	15.3%	14.9%

 

Figure 3.3.2d (1): Relationship between Gross Profit Margin and Operating Profit Margin of Burger King year 2009-2012

(Bloomberg Businessweek, 2013b) (Bloomberg Businessweek, 2013a)

The key business process of Burger King is food preparation. This is proven by its introduction of a revolutionary broiler which fosters efficiency and innovation (Burger King Worldwide Inc., 2010). This value adding activity streamlines the process and reduces costs in the long-term, narrowing the gap between operating and gross profit margin as shown in Figure 3.3.2d (1).

3.4 Conclusion

For Burger King, their marketing strategy is based on its ‘Four Pillars’ strategy with emphasis on, menu, marketing & communications, image and operations (Burger King Worldwide Inc., 2013f). Product is the main focus of their strategy with promotion, processes and physical evidence supporting it.

Burger King's effectiveness of marketing strategy is also affected largely by the economic environment, leading to negative sales growth during the recession. However, the ‘Four Pillars’ strategy is a long-termist strategy, producing vast improvements in gross, operating as well as net profit margins and internal business processes, due to menu innovation and streamlined processes. This would strengthen Burger King’s structure in the long run and sales growth would improve concurrently.

3.5 Recommendations

Burger King has had an impressive and effective marketing strategy after being taken over by 3G Capital. Therefore, they should continue on their current track and not falter in their implementation of the strategies.

a) Burger King should emphasise on branching out into countries with diluted QSR industries and focus their resources on building up brand loyalty in these areas.

b) They should increase the allocation of resources for CSR activities, to prevent its own sincerity from being questioned.

c) They could research on alternate ways to speed up their food preparation process to be on par with their competitors’ speed.

d) Burger King should try to increase the receptiveness of the public to its social media presence, by aligning their promotion methods to their target market of families and women.

e) Burger King should expand on their Youtube channel, which is currently under-utitlised, by uploading viral videos.