Burger King overhauls its business model
The chain has slashed operating costs by turning nearly all of its locations over to franchisees.
By James Ha
Shares jumped after its quarterly profits shot up from $6.6 million from the same period last year to $68.2 million. This is mostly due to Burger King’s recent cuts in costs and a rise in sales, especially in foreign markets.
Since its purchase in 2010 by private equity firm 3G Capital, Burger King has lowered operating costs by moving to a less capital-intensive model, in which over 500 of its locations were turned into franchises.
While the refranchising of BK caused revenue to drop this quarter from $455.7 million to $275.1 million, restaurant expenses also fell to $22.9 million from $216.3 million.
Due to the movement to sell their outlets to reduce overhead costs, nearly 100 percent of Burger King locations are now owned by franchises compared to McDonald’s 80 percent.
In addition to the refranchising of Burger King, its recent innovations in the kitchen, including the low-calorie "Satisfries" (pictured) and the "French-fry burger," have gained praise from
Will Slabaugh, an analyst from Stephens Inc., however, states that Burger King’s stock is currently overvalued at 13.5 times EBITDA in comparison to McDonald’s stock, which is 10 times its EBITDA.
He adds that McDonald’s “is in a better position to grow earnings as they are just the bigger and more dominant player in the industry with a louder marketing voice in such a difficult consumer environment.”
Daniel Schwartz, CEO of Burger King, counters that the Burger King’s new business model will rapidly expand the existing customer base:
“We grew comparable sales across all three international regions and opened 133 net new restaurants globally. In the U.S. and Canada, we launched Satisfries, a first of its kind better-for-you French fry, which demonstrates our commitment to leading innovation in the fast food industry,” Schwartz said. “We believe that new products like this, combined with our focus on improving operations will enhance the guest experience and drive increased restaurant profitability.”
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Burger King Burgers are ... Mmmm Goooooooood .... Fries are getting better too ... McDonald's fries suck. Why? The oil that is used to fry the fries is bitter.
Burger King uses HEINZ KETCHUP ... McDonald's is switching to the other (i.e cheaper stuff).
BURGER KING RULES.
Our family has been buying at Burger King more...Like their 2 for $5 deal..
Their fish sandwich makes you throw rocks at what MD offers for a fish burger...
I and my son love Burger King. We were very disappointed when they closed the store in the city we live. We have to go 30 miles to get to one now. On Mother's Day my Son knows we are making a road trip. I enjoy their whoppers and their chicken sandwiches. It is always a toss up. I wished they would open one up back in this area.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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