Burger King overhauls its business model

The chain has slashed operating costs by turning nearly all of its locations over to franchisees.

By Benzinga Nov 1, 2013 5:12PM

Undated handout image from Burger King, showing the new “Satisfries” that the company says has 20 percent fewer calories than its regular fries (© Noel Barnhurst/Burger King/AP Photo)By James Ha


Shares of Burger King (BKW) have recently been outperforming McDonald’s (MCD).


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 

analysts.


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.”


Read more from Benzinga

210Comments
Nov 2, 2013 12:16AM
avatar
I work at a burger king and I understand the frustration with drive thru times but it is not always us. Corp. says we are only allowed to have some many ppl at certain times due to sales well then that one day we get bombed with customers and it does take us a bit and the two five is great but it isn't when ppl order six whoppers and all of them are special and it seriously takes them 4 min to order while you are trying to bag food and help the people who are screaming at you on counter also. Its not as easy as it looks drive thru would be a lot faster if ppl have a thirty dollar order with lots of special items in it either call it in or come in and get it so the person that wants just a soda can get through the drive thru. Not all of us that work at fast food places are not brainless idiots who can't do anything else remember if we didn't work there and put up with ppl's crap you wouldn't be able to get that whopper.
Nov 1, 2013 9:56PM
avatar
WHOPPER w / Cheese is much better than a QUARTER POUNDER ...
Nov 1, 2013 9:52PM
avatar

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. 

Nov 1, 2013 9:53PM
Nov 2, 2013 12:24AM
avatar
Good burgers but the Burger Kings that I have been in were not clean at all. Every time I go in one they are just plain DIRTY. Wendy's are all spotless. I am not picky but I get turned off when any fast food establishments are grubby.  
Nov 1, 2013 11:22PM
avatar
BK has one HUGE advantage over nearly all of their competitors and almost nobody even knows what it is.    Give up?    Their meat is flame broiled, not fried.  The broiling gives it a charred taste available nowhere else.  Why doesn't anybody know about this?  Because the BK management and (especially) their advertising agency SUCK.
avatar
There's no doubt that Burger King's burgers are better than McDonald's, but McDonald's has the reputation and advertising supremacy, and even when you have a superior product, it's hard to overcome those 2 handicaps.
Nov 1, 2013 10:56PM
avatar
"You need two hands to handle the whopper" I still remember that commercial song
Nov 1, 2013 8:02PM
avatar
BK will get my business from now on after a recent problem @ Carl's Jr. where apparently after 2 e-mails to the district manager, and 2 messages to their Facebook page, they haven't responded to any of my concerns. A Whopper sounds pretty tasty right about now.
Nov 1, 2013 8:42PM
avatar
that burger king mascot looks like a child molester
Nov 3, 2013 2:48AM
avatar

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...

Nov 1, 2013 9:19PM
avatar
What a concept - "reducing costs"! Obama should give it a try.
Nov 2, 2013 12:45AM
avatar

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. 

 

Nov 4, 2013 7:43AM
avatar
I don't eat fast food often, but if I had to choose between BK and McD, it would be BK every time.  The only problem is the price.  The cheapest value meal on the menu is the whopper meal and it's about $6. All the others go up from there.  Now when I go there, I get 2 whopper jr's, no fries, no soda. Costs less than $3 and a whole lot healthier.
Nov 2, 2013 2:12AM
avatar
The Whopper is the best but their fries still suck. If only they had MD's fries.
Nov 2, 2013 4:13AM
avatar
Hey Burger King, bring back your Cilantro Lime Fish Sandwich. Now that was goood!!
Nov 1, 2013 6:46PM
avatar
I didn't like the satisfries and don't care for the newer thicker revamped fries either. the old fries were good.
Nov 4, 2013 12:17PM
avatar
I like the BurgerKing burgers, old fry's but haven't tried the "satisfrys" yet.  Love the onion rings and I would go there more if they were closer.  The closest BurgerKing is nearly two McDonald's away!  The next closest BK is in the next closest city, about 7 miles one way! 
The one in my area that's about 3 miles, mentioned above, is clean and has good service.  If they keep up or improve, they should do well.  They should focus on Burger style and atmosphere.
Nov 1, 2013 11:44PM
avatar
Its sad the Burger King dining rooms are cleaner than Panera Breads. WTF?
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.