Significant strategic business decisions which have facilitated or
inhibited Burger King's growth and success in the US and
worldwide and what is significant in Burger Kings History
Burger King stands as one of the most well known fast food restaurant. This chain of fast food restaurants quenches the hunger of approximately 11.4 million customers every day. As we look into the history of Burger King, the sail has never been smooth always as this organization has used various strategies to tackle complex situations of business. As the saying goes “business is dynamic". There has always been a tough market environment in which the business compete aggressively one such environment is the hyper-competition environment (Management, 8Th Ed By Schermerhorn page 221) where there is a direct competition from numerous competitors resulting in suffocating and challenging environment. It becomes essential for these businesses to be creative in getting the right strategy, however most of them will be copied by its competitors as soon as it is found effective .Thus no matter how many competitive strategies’ Burger King comes up with it still remains short lived.
Burger kings was founded by McLamore and Edgerton their first decision of offering its customers with dining rooms along with franchising helped rapid growth of Burger King. A decision about franchising was taken as it required a lower investment to expand the business. However Franchising was done in such a way that the Burger King owned the land and building (accounting for 34%) Once Burger King was under the administration of Smith he increased this to 42%. He focused on franchising because not only did it reduce the tax to the company but also such type of asset had appreciation.
During the administration by Smith he also ensured that a strong contract was drafted between Burger King and franchisee’s in order to control the franchisees. During the initial periods where Burger King was under the control of its founders it was observed that there was a limited control existed by them which resulted in varying quality of services and food among the franchisees thus affecting the brand image of the company hence smith ensured that the contracts were drafted in such a manner that the franchisees could not move out of the boundaries drawn by the company.
In the initial period there were only few regional offices but later the company expanded it to ten regional offices in US. There were surprise checks done from the company along with two compulsory checks in two year this was to understand the functioning of the franchisees and also to have a strong command over the franchisee which facilitated in a smooth
functioning of operations. A lot of activities were carried out to control the franchisees, as lack of it could have had devastating effects on the company.
They effectively utilized the resources present within the company when they started with the breakfast menu without investing much on gathering new equipments to fulfill the requirements soon they had a successful entry into breakfast market.
Burger king focuses and ensures that it delivers the best tasting burgers and French fries when compared to any of its competitors along with a top rated quality. This has been a significant strategy used by Burger king over its major competitor Mc Donald. There has been a consistent growth in the sales as they frequently introduce a wide variety of products. Burger King used extensive marketing strategies such as Distribution of Free sample of fries, establishing fry mobiles to generate awareness etc.
Burger King faced severe problems when the man behind the success of BK to reach the number two position quit the organization in the year 1980 after which they had a fluctuating management that was unstable due to frequent change in its executives. Burger King had failed to design a tailored menu for regional tastes and to niche sector of customers such as health conscious customers.(Strategic Market Management, 7Th Ed By David A. Aaker, page 225).
They ventured into the foreign markets early that did not resulted in its failure however they established themselves in thirty different countries.
In decline for years, Burger King's fortunes have begun to change, so that it is now regarded as a 'cool' and profitable brand. Key to its success has been the fact that Burger King's marketing now focuses on appealing to the super fan; that is the 18-35 year old male who enjoys fast food and values taste above everything else (Successes and Failures in Consumer Goods Innovation and NPD , Publication date : December 2009, Publisher : Datamonitor)
Burger Kings effective disaster plan has been lauded in the corporate circles for the way it handled the disastrous effects of Hurricane Andrew which hit the US coast in 1992. The hurricane had hit Florida where Burger King had its headquarters. Such was the force of the winds which were recorded at 150 miles an hour that it along with the storm surge that followed the hurricane caused extensive damage to the headquarters worth 10 million dollars
at that time and also destroyed homes of half of 700 employees who used to work there. Such was the extensive damage caused by wind and water that it damaged the windows and roofs and left behind a massive trail of destruction. But the management had foreseen the impending disaster and hence was more prepared for it. The management had airlifted its operations to Seattle, Washington where it acted as a temporary base for its operations. Part of its emergency operations was to mobilize key people and use the field offices to handle important corporate work. A ‘Command Center’ was setup to handle work until the main offices at Florida will be back up to full operations. The management also distributed Interest free loans, food and other essentials and established a housing clinic for its homeless employees affected by the storm. (Pg. 67, Disaster and Recovery Planning)
The turnaround plans chartered by Mr John Chidsey , CEO of Burger King have garned world wide attention due to the fact that it helped the second largest fast food outlet to beat the effects of recession in 2006 and go on to look after its shareholders and the franchises. (www.ibscdc.org)
It was not only the recession that Burger King had to deal with but it had also deal with internal problems like the change in management. The new management under the leadership of Mr John Chidsey had to immediately look into the factors contributing to the downfall of the fast food industry like obesity concerns, spurt in food prices and the proposed embargo commodity exports. (www.ibscdc.org)
The management had look into some specifics in order to affect a successful turnaround in the fortunes of the company. These points are as follows:
• Understand the dynamic of the fast food industry
• Factors causing the growth of US fast food industry
• Impact of recession on the US economy and the industry and for Burger King in specific.
History:
The Burger King was founded as a franchise by James Mclamore and David Edgerton in 1954 in US and the King making its appearance the year after in 1955. Burger King made its foray outside US by opening its first restaurant in Puerto Rico in 1963. Till date Burger King operates 12000 restaurants in 76 countries worldwide. The restaurants also include franchises owned by families and have being in operation for decades. (www.investor.bk.com)
Core
Competencies-According to C K Prahalad and Gary Hamel Core competency is defined as having knowledge and experience of an area or a product which is different but better than others. (www.quickmba.com) As per the definition core competencies lead to a better development of the intended core products which are not directly sold to end users but are used to produce a large number of end user products. For improving the core product the company should possess good technology, skills and in depth knowledge of the product. According to Prahalad and Gary:
An organisation can access variety types of markets
• Significant contribution to the end product
• Make it impossible for the competitors to imitate
Core competency is the ability to integrate and co-ordinate the various groups in the organisation and in doing so bring out a product that markets the results. Through alliances and licensing agreements the missing pieces can be joined together to give a better overview of the product. However core competency does not necessarily involve:
• Sharing costs among business units
• Integrating vertically
In line with the core competencies, Burger king invested in food and service technology to develop its core product namely ‘the humble hamburger’. The company procured the Insta-Boiler which had the capacity to produce 400 burgers within an hour with a selling price of unbelievably 18 cents. Over the following years Burger king installed the flame boiler in its production units to introduce its new product ‘The Whooper Sandwich’ in the market. This particular product became so popular that Burger King is still unrivalled in that particular segment and is called the home of the whopper.
In mid 2006 Burger King introduced the revolutionary yet untried service of pork ribs from its fast food outlets. Pork ribs are generally found in fine dining restaurant with the customer enjoying it over a drink. Technically the concept was untested and costly as compared to the economical hamburger. But Burger King went ahead with its pilot project in USA and it worked wonders for them so much that they couldn’t meet the demand and had to shelve its project temporarily. People flocked to the joints to buy these pork ribs and they didn’t mind the price. (www.time.com)
Competitive Method of Burger King:
Micheal Porter had devised model to which explains three generic strategies to gain a competitive edge in the market. The model is illustrated as follows:
(www.marketingteacher.com)
Lost cost leadership strategy:
The low cost leader in any market gains competitive edge for the ability to produce at the lowest cost. Cost advantage is an important factor right from building factories to recruiting employees and training them. The product tends to be no frills and in some cases it doesn’t necessarily mean low prices. (www.marketingteacher.com)
Burger King which started as a small fast food joint in 1954 in USA and made its foray in to the international market by opening an outlet in Puerto Rico in 1963. Till date this chain has opened more than 12000 restaurants spanning over 76 countries with most of this franchises owned by families due to its low cost nature for running.
Differentiation:
Differentiated goods and services satisfy the needs of the consumer through sustainable competitive advantage. This directs the company to focus on the product which gives them a better margin. This helps the organisation in segmenting its products and thus helps in gaining more than the average price. However this differentiation results in additional costs which should be offset by the revenue generated by sales. (www.marketingteacher.com) Burger king is not only in completion with Mcdonalds but also with KFC, Pizza Hut etc. In order to establish itself it installed machinery which churned out more than 400 burgers in an hour and also introduced products according to customer’s taste like apple fries for children and low fat baguette style chicken sandwich.
Focus or Niche Strategy:
This strategy comes into play when neither the organisation can afford a wide scope cost leadership nor a wide scope differentiation strategy. This strategy is generally used by the smaller firms. However these strategies are generally not useful in the long run. (www.marketingteacher.com)
Burger King has strived to achieve the top position in the market but this hadn’t been entirely possible. This is where the management at Burger King introduced awareness programs like ‘Battle for burger’ and ‘Aren’t you hungry for Burger King?’.
Why is McDonald Better Burger King?
Mcdonald has upstaged Burger king in terms of marketing, advertising and in terms of numbers also. Mcdonalds has been in the fast food industry more than Burger King and has more than 40000 fast food outlets while Burger King has more than 12000 restaurants. In terms of the total revenue generated outstrips the one generated by Burger King. Revenue apart Mcdonalds outshines Burger King also in terms of advertising to both the adult as well
as kids segments. Burger king is slowly making foray into advertising segment by targeting the teen segment. (www.bloggingstocks.com)
Another issue affecting the smooth functioning of the Burger King is the constant change in the top management. Various decisions are made and remain incomplete the different style of functioning of the CEOs. Even if any good work is done then unknowingly it gets undone by the new CEO. If Burger King has had a stable management it would have at least helped in bridging the gap between it and Mcdonalds.
Recommendations:
The Burger King is well positioned in the fast food industry and is trying to consolidate its position in the existing market by introducing new products which tilt towards the healthy food segment. Burger King is also working towards modernizing its restaurant as well as expanding its restaurant to handle 24 hour operations like its competitors. Burger king also has to add a little variety to its breakfast menu so as to appeal to the early morning segment of customers.
Burger King has to provide stable working environment to its top management as these are the people who make the decisions that shape the functioning of the organisation. Burger King had 17 CEOs since it started and this really doesn’t bode well for an organisation trying to gain an upper hand over its competitors. The company even has to improve the marketing strategies like upgrading the distribution channel and ensuring that the same quality standards are maintained through all its outlets. The company should try to introduce new products and develop an effective advertising campaign in order to lure potential new customers to its outlets. The company should also try to collaborate with other outlets in order to maximise revenue and have a much wider appeal to the customers.
In UK there are people of diverse culture and religions and thus Burger King has to ensure that it appeals to all. Thus it has introduced Halal food for its Muslim customers and also started healthy food to appeal to the people who believe in fitness.
There are 10 schools of strategy which are as follows:
• The Design School- There should be a clear and knowledgeable approach to the policies put forward by the management for the pursual by its employees.
• The Planning School- There should be a rigorous approach to the policies which can affect a positive outcome.
• The Entrepreneurial School- this is all about having an visionary approach to the decisions.
• The Cognitive School- This style is of having a mental approach to the problems at hand.
• The Learning school- In this process the management studies the functioning of the organization and then suggests ways to overcome the deficiencies.
• The Power School- This process involves the art of negotiating between the power brokers.
• The Cultural School- This involves involvement of various groups within an organisation.
• The Environmental School- Under this process the external environment in the organisation shapes the decision making process.
• The Configuration School- This involves structuring the decision making process. (www.12manage.com)
The Positioning School:
The planning school doesn’t put any limits on the strategies that are possible in any given situation while the positioning school in contrast suggests that a few strategies can be used in the current scenario which can be used against the existing and the future competitors. In this case Burger King has an existing competitor in Mcdonald while future competitors consist of Taco bell and Wendy’s.
The Positioning School of Burger King:
The Burger King holds a commanding No. 2 position in the fast food industry and holds a competitive as well as financial share in the market in relation to its competitors. At the time when USA was in the grips of recession the management at the Burger King have implemented a different strategy to strengthen the business. The management took out slogans like ‘Battle for burger’ and ‘Aren’t you hungry for Burger King?’ which were strategically directed towards money saving clientle and thus ensured the competitive edge is maintained.
Critique of positioning school:
The burger king has always maintained a different approach to the way it approaches the competitive market which is illustrated by the fact of they providing healthy alternative to its fat food. The decision of the management at Burger King usually depends on the business dynamics and the nature of the business. The management try to use different cooking methods but they still cling on to the traditional food like ‘Whooper’. (www.facilitatingimpact.blogspot.com)
Competative Analysis:
The Management has also to ensure that it does a regular analysis of its competitors to understand its position in relation to them. Apart from Mcdonald which is Burger Kings main competitor, it has other competitors as Wendys, Pizza Hut, Dominos who are also vying against each other to gain a share in the market. However they may not entirely eat in to the share of Burger King but they can surely affect the total revenue generated at the end of fiscal year.
Another factor where the management at Burger King has to take a note of is the emergence and prominence of healthy foods especially in Fast Food joints. With lawmakers closely monitoring the fat content in the products sold by fast food joints it has become essential for Burger King to provide a healthier alternative to its customers. At present Mcdonald is the pioneer in providing healthier food alternatives in its outlets and is really consolidating its position in the competitive market for a long term.
Bibliography:
Websites: • http://www.ibscdc.org/Case_Studies/Strategy/Restructuring%20Turnaround %20Strategies/RTS0184.htm • http://investor.bk.com/phoenix.zhtml?c=87140&p=irol-irhome • http://www.quickmba.com/strategy/core-competencies/ • http://www.time.com/time/nation/article/0,8599,2001661,00.html • http://marketingteacher.com/lesson-store/lesson-generic-strategies.html • http://www.bloggingstocks.com/2007/04/09/mcdonalds-vs-burger-king-battle-of-the-brands/ • http://facilitatingimpact.blogspot.com/2008/07/strategy-school-3-positioning-school.html • http://www.12manage.com/methods_mintzberg_ten_schools_of_thought.ht ml Books:• Management, 8Th Edition By Schermerhorn, Published by Wiley, John & Sons
• Strategic Market Management, 7Th Edition By David A. Aaker Published by Wiley India Pvt. Ltd.
• Disaster and Recovery Planning, a Guide for facility managers, Gustin Joseph 3rd
Edition, Published by Fairmount Press
Journal
• Successes and Failures in Consumer Goods Innovation and NPD , Publication date : December 2009, Publisher : Datamonitor
