Burger King Revival

For years, Burger King was the sick man of the quick service restaurant industry. A perennial laggard to McDonald’s in scale, the company was also widely seen as hamstrung by poor execution, a revolving door of leadership (Joe Nocera noted in 2012 that the company had had 13 chief executives in the prior 25 years), and an unclear strategic vision.

The company’s purchase for $1.5 billion by a private equity consortium of Bain Capital, Goldman Sachs and TPG in 2002 marked a brief resurgence, but when private equity firm 3G acquired the company in 2010 for $3.3 billion, Burger King was still seen as a troubled operator.

What a difference focused ownership can make. Burger King is now setting a grueling pace that its fellow quick service restaurant competitors are being pressured by Wall Street to match.

3G’s playbook has been heavy on the fundamentals, and laser focused on solid execution.

• By refranchising restaurants, Burger King is challenging industry orthodoxy that a franchisor should operate a large number of its own restaurants. Also, divesting those company owned restaurants has allowed Burger King to offload the capex requirements for those locations onto franchisees, boosting free cash flow.
• Increased focus has been placed on international expansion, an area where Burger King has long been seen to be badly trailing McDonald’s and others.
• General and Administrative expenses have been rationalized, lending further operating leverage to the retooled business model.
• Increased focused has been placed on advertising and marketing.

This approach is simple, but not easy. The focus and clarity of vision that 3G seems to have infused into Burger King is generating excitement on Wall Street, while driving competitors (in particular McDonald’s, Wendy’s, and Yum! Brands) to adopt similar tactics.

The example of Burger King highlights the value creation potential of an outside perspective paired with a simple yet audacious strategic plan. In a market awash in capital, private equity firms will increasingly seek to execute value creation strategies premised not on simple financial engineering but on re-envisioning their portfolio companies, as 3G has done with Burger King.

About the Author

David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition.  Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies.  David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround, and value creation.  He can be contacted at: david@abraxasgp.com.