WorldCity Business Magazine

(1) Company Profile: Burger King - the King is Back

by Doreen Hemlock

Burger King gets its act together overseas and is riding high in Latin America, especially in Mexico where it will soon claim the throne.

Julio Ramirez is almost giddy, like a child before Christmas, as he shows off the scoreboard by his office at Burger Kings headquarters. Just four more restaurants, he says, pointing out the numbers 351 and 354 displayed on the board, and we will pass McDonalds in Mexico. Well be No. 1. Were planning a big event.

As chief for Latin America and the Caribbean for the past 11 years, Ramirez wasnt always so upbeat. His region, at times, has performed well for the Miami-based chain. Puerto Rico, for instance, was the first market opened outside the continental United States and boasts the worlds highest concentration of Burger King restaurants. But the company, as a whole, foundered for many years through ownership and management shakeups. The result: Global business lagged.

Now, sold off by a European conglomerate, with its stock trading on Wall Street since 2006 and doing well, its management team steady, the King is robust and finally intent on building a global empire. Ramirez is happily receiving the support he needs to expand and take on the worlds biggest hamburger chain in Americas backyard. Before, I sometimes felt like I was in the Jacuzzi of the Titanic, Ramirez conceded, with his regional unit bubbling but the company headed no where. Now, Im in the Jacuzzi of a very successful ship thats going in the right direction.

Business in Mexico illustrates the dramatic turnaround. In the past three years, Burger King has opened an average 40 restaurants a year in the Aztec nation. It now has eight franchisees in the country and also operates some outlets on its own. By fall, it should surpass McDonalds, topping 107 outlets in the capital area and 354 nationwide.

That feat would put Burger King ahead in 17 of the 26 markets it serves in Latin America and the Caribbean, the only region where it commands such a lead on the Oakbrook, Ill.-based giant. And it would help energize the companys push into South America, where McDonalds soared in 1990s as Burger King stalled closer to home.

The stakes are huge in Latin America and worldwide. Burger King tallied more than 11,000 outlets as of March 31, with only about one third overseas. By contrast, McDonalds has more outlets abroad than in the United States. Indeed, McDonalds sold nearly as much in Europe alone $7.6 billion as Burger King did in its core North American market, company reports show.

Analysts laud the new empire-building strategy, but they warn that Burger King faces tough competition not only from U.S. brands but also foreign rivals. Expanding as aU.S. brand also is more challenging nowadays, as anti-Americanism rises overseas.

To succeed, experts urge detailed research, care in choosing foreign franchisees and customizing to local tastes and cultures. While Burger King in the United States is mainly a drive-through, for example, its more of an eat-in, gathering spot elsewhere. You have to have a long-term perspective, said Chris Muller, professor of hospitality management at the University of Central Florida and a former consultant to Burger King on pricing strategy. If you think you are going to get global expansion done in two or three quarters, thats a mistake.

Right trumps fast

Burger King managers say theyre well aware of their handicap as late entrants. They are not in a race to overtake the worlds largest hamburger chain in other parts of the world, as they are in next-door in Mexico, said James Hyatt, chief global operations officer from his Blue Lagoon office.

We dont have this mantra that we need to be bigger than McDonalds, Hyatt said. Right trumps fast. You want the brand that you have to be perceived as excellence.

For now, the company plans to concentrate international growth in regions where it has some presence and success especially Europe and Latin America. Its staking a toehold in new markets, from Poland to Egypt. But it could easily take a decade or more to reach a 50-50 split between U.S. and foreign outlets, Hyatt and other managers say.

Ramirez said recent entry into Brazil exemplifies the plan. Burger King looks to partner with successful local entrepreneurs, who know the market and have the money to buy real estate, build restaurants and operate them. Unlike McDonalds, it seeks few partners per country.

In Brazil, it studied for more than a year. It first sought out local suppliers to ensure roots in the local economy and to boost its appeal as a Brazilian company: More than 90 percent of products sold are from Brazil, from meat to napkins and uniforms, Ramirez said.

Its first local franchisee was a cattleman, who supplies the beef, can fund restaurants with ease and also knows the local media. Among his first outlets, several were located in top urban shopping centers not far from a McDonalds restaurant.

Moreover, Burger King incorporated Brazils hip design in restaurants, including shimmering, avant-garde counters. It also used Brazils world-class ad agencies to launch a marketing campaign against McDonalds that appealed to a proud, democratic nation formerly under military rule: The dictatorship is over. You now have a choice.

In just 32 months in Brazil, Burger King already has 34 restaurants with seven franchise partners and dozens more restaurants planned. Though McDonalds still leads by far with about 500 outlets, Burger King boasts some of its highest sales per outlet in the South American nation.

Indeed, one Burger King in Sao Paulo has become a local attraction. Traffic was so fierce to enter the tough-to-maneuver corner that the company installed the worlds first rotating drive-through. Cars pull in, and a machine revolves the car about 120 degrees to reach the pickup window.

Now clients say, Hey, lets do the drive-through for the kids, Ramirez said. Sales at the outlet now top $4 million a year, about four times the company-wide average.

Top management also has shown its support. Chief Executive John Chidsey recently visited Brazil, as well as Mexico, Guatemala, Puerto Rico and other Latin markets. And hes cut paperwork and meetings at headquarters, instituting more standardized and daily updates.

Overall, Burger King expects to launch about 380 restaurants overseas this fiscal year, or four times the number to be opened in the United States and Canada. Outlets plan to customize to local tastes with Whopper toppings such chili sauce in Mexico. Many also offer native specialties. In Argentina, for example, Burger King sells a steak sandwich with chimichurri herb sauce and caramelized onions; in Honduras, fried plantains; and in Jamaica, johnnycake biscuits. Its that local respect. It says, Its your Burger King. You can have it your way, Ramirez said.

So far, Wall Street seems to be pleased. Investors applaud 13 straight quarters of growth in same-store sales, new high-profit menu items such as Angus burgers and the global rollout. Theyre keen too on the new record for average restaurant sales: $1.17 million for the year ended March 31. The stock price has doubled since last summer to about $26 a share.

Yet for Ramirez, theres no greater thrill nowadays than closing the gap and likely overtaking McDonalds in Mexico soon.

Were having a lot of fun, said the 53-year-old Cuban-American, giddily studying the numbers on the scoreboard by his office. And what a big party well have, when we finally pass them.