Burger King Company: Strategic Audit

Introduction

Two entrepreneurs, James McLamore and David Edgerton founded Burger King in the mid-1950s as InstaBurger King (Miller, 2016). Burger King’s corporate vision is centered on promoting excellence in the fast-food business. Using this vision, the company strives to be the best in the industry. At the same time, its corporate mission is a testament to its operational plans, which center on providing customers with excellent service, ambiance, and affordable prices for the goods and services they purchase (Miller, 2016). Generally, Burger King’s mission and vision statements are platforms for fostering the organization’s operational strategies, which are designed to improve its position in the fast-food business sector.

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Headquartered in Miami, Florida, Burger King is regarded as one of the world’s most recognizable and successful fast-food enterprises. The company has a multinational appeal because it operates in more than 70 countries using a franchise business model that includes more than 14,000 restaurants (Miller, 2016). About 47% of them are US-based and privately owned. Collectively, the businesses employ more than 34,000 workers (Miller, 2016). Although Burger King is globally known for selling hamburgers, it has different product offerings, including chicken, French fries, soft drinks, milk-shakes, and salads (among others). According to Miller (2016), its current revenue is more than $4 billion, while its operating income is about $363 million. This paper is a strategic audit report of Burger King. Its key tenets contain an analysis of the company’s internal and external environments. An analysis of the internal environment is undertaken through the SWOT analysis and the CAPM, while a review of the external environment is completed using Porter’s five-force analysis framework

Analysis of Internal Environment

An analysis of Burger King’s internal environment will be undertaken using a SWOT Analysis described below. This strategic analysis tool evaluates the company’s strengths, weaknesses, opportunities, and threats (Wheelen & Hunger, 2013).

Strengths

Strong brand image

As mentioned in earlier sections of this paper, Burger King is one of the world’s most recognizable brands. In this regard, it has a strong brand image, which has helped the organization’s managers to open new branches in several locations and still register good sales. The company’s strong brand image is a huge asset to the Miami-based organization because it supports its global operations. For example, its brand appeal is proving to be an invaluable asset to its market expansion plan in developing nations because many people in these markets know the Burger King brand and stream into its outlets without the parent organization spending many resources in marketing its products.

High market penetration rate

The strong brand image associated with Burger King is also responsible for the high market penetration rate evident in most of its markets. The high market penetration rate enjoyed by the organization is partly a product of the good work undertaken by 40 subsidiaries, which oversee its franchising model and financial operations (Miller, 2016).

Strong franchise network

As highlighted in the introduction section of this report, Burger King’s business plan is premised on a strong franchise model that includes more than 15,000 outlets. This network is a significant strength for the organization because it ensures its restaurants adhere to the strict quality standards set out by the management. Similarly, the network allows the fast-food chain to provide its products to different markets around the world, thereby increasing its global brand presence and appeal. Lastly, the strong franchise model used by the company is instrumental in supporting its operations because it frees up most of its capital to finance other businesses. In other words, the company does not have to focus on opening new outlets; instead, it can concentrate on innovating more and adding new products/foods to its existing menu.

Moderate differentiation of products

Burger King also enjoys moderate differentiation in the market, which is a key pillar of its operations. Its moderate differentiation standards are evident through some of its products, such as grilled burgers, which are rarely found in other fast-food restaurants. Generally, the company’s differentiation strategy is centered on its marketing and branding efforts.

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Weaknesses

The weaknesses of Burger King stem from the company’s operational model and strategic direction. They are detrimental to the organization’s operations because they undermine their effectiveness. The main weaknesses of Burger King are highlighted below.

High possibility of imitation

Although Burger King has a low product differentiation standard, it is easy to imitate its products and services. Indeed, the restaurant business does not have unique offerings that other companies cannot provide. For example, it is easy for new entrants to offer grilled burgers the same way Burger King does.

Decreasing sales in mature markets

Since its founding in Florida, Burger King has operated in some markets for more than five decades. These markets are considered mature and have recently reported a decline in sales numbers (Miller, 2016). This concern was registered in the company’s 2014 annual report, which showed that only the Asian Pacific region recorded an increase in sales (Miller, 2016).

Large franchises

The expanding franchise network of Burger King sometimes makes it difficult for the management to guarantee the standards of operations in all of its outlets. The sheer magnitude of its operations, particularly in overseas markets, makes it difficult for the American-based company to ensure all its franchises adhere to its quality and safety standards. If left unchecked, this concern could affect the company’s brand image.

Unstable ownership

One weakness of Burger King’s operations is its unstable ownership structure, which has affected its vision, goals, and strategic focus. Indeed, since its inception in 1953, the fast-food chain has changed its owners six times (Miller, 2016). The current ownership structure is a product of an acquisition by a Canadian-based company, which manages the company’s operations, under the banner of “Restaurant Brands International” (Miller, 2016).

Opportunities

Market expansion into developing countries

For a long time, Burger King has concentrated its operations in developed countries. However, the company has an opportunity to expand its markets in developing countries. Already, it has shown signs of acknowledging this business opportunity because it has started to set up new restaurants in these locations (Miller, 2016).

Introducing health-conscious foods

Burger King has an opportunity to include health-conscious foods in its diet to exploit the new market trend where consumers are preferring to buy health-conscious products, as opposed to fast-foods. Having healthy menus and low-calorie foods in its franchises will help to exploit the growing trend of health-consciousness in the market. This strategy could increase the company’s revenue and revamp its operations in the long-run.

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Threats

Stiff competition

The stiff competition from Burger King’s rivals proves to be a significant threat to its operations because it affects its profitability and ability to expand into new markets. Particularly, the strong threat posed by Mc Donald, KFC, and Subway, which use the same business model as the company, is a significant threat to its operations.

Changing consumer habits

The trend towards healthy foods is a significant threat to Burger King’s operations because more customers are shying away from buying Burger King’s products because of health reasons. If this trend continues to grow, the fast-food model may prove to be an unsustainable one.

The high prices of raw materials

The increase in the global prices of food is a significant threat to Burger King’s operations because it may cause an increase in the prices of its products, thereby locking out a significant proportion of its consumers who may find their foods too expensive to purchase. Table 1 below summarizes the findings of the SWOT analysis.

Table 1. SWOT Analysis.

Strengths
  • Moderate differentiation of products
  • Strong franchise network
  • The high market penetration rate
  • Strong brand image
Weaknesses
  • Unstable ownership
  • Large franchises
  • Decreasing sales in mature markets
  • High possibility of imitation
Opportunities
  • Introducing health-conscious foods
  • Market expansion into developing countries
Threats
  • Increasing prices of raw materials
  • Changing consumer eating habits
  • Stiff competition

Capital Asset Pricing Model (CAPM)

In the context of this study, the CAPM will be used to evaluate the relationship between the expected return of Burger King’s stocks and their associated risks. The model stipulates that the return on investment is similar to the combination of risk-free returns and risk premiums. All these values are based on the beta value of the company. Relative to these assertions, Burger King’s asset performance shows that it is sensitive to systematic risks. The company’s asset valuation also shows that it has a low beta value of 0.062 (Miller, 2016). This value means that much of its risks are specific to the organization. A beta value of 0.062 also means that about 62% of the company’s operational risks come from the market. The remaining percentage emanates from company-specific risks.

An analysis of historical data relating to Burger King shows that the organization has a higher beta compared to its peers in the market. The 0.062 value indicates what investors should expect, relative to a loss or gain of the company’s benchmark (Miller, 2016). A larger beta means that the investors should be expecting greater returns on their investments, while a lower beta means that they should be expecting a lower than average return. Since Burger King has a high beta, the investors should be expecting a similar return on their investments. Overall, as Wheelen and Hunger (2013) point out, a high beta value implies a high risk for the investors, while a low value implies low market risks. Nonetheless, as is evident in the current literature, the weakness of the CAPM in analyzing the valuation of CAPM is its inability to capture unsystematic risks associated with the company’s operations (Miller, 2016).

Analysis of External Environment

Porter’s Five-Force Analysis

Michael Porter formulated porter’s five-force analysis. He highlighted five factors that influence a company’s performance. They include competitive rivalry, bargaining power of customers, threats of substitutes, supplier bargaining power, and threats of new products (Wheelen & Hunger, 2013). In this paper, these forces are analyzed in the subsequent sections below, relative to how they influence Burger King’s performance.

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Competitive rivalry

As highlighted in this report, Burger King has many rivals. They include McDonald, Wendy’s, Subway, and KFC (among others). These competitors have a strong effect on the company’s operations because they influence their pricing, marketing, and product development strategies. Furthermore, it is easy for customers to switch from one company to another. Generally, this analysis reveals that the industry has a high number of competitors, a huge variety of rivals, and low switching costs.

Bargaining power of customers

As highlighted in the section above, Burger King’s customers have a low switching cost. This attribute of the market means that customers have strong bargaining power. At the same time, the customers are usually spoilt for choice regarding what is available to buy in the market. There is also a moderate presence of consumer organizations, which adds pressure to the Miami-based conglomerate to protect the interests of its customers. Collectively, these attributes show that Burger King’s external environment has strong customer bargaining power.

Supplier bargaining power

Supplier bargaining power is instrumental in the operations of fast-food restaurants like Burger King because it affects their pricing and product strategies. The supplier bargaining power in the industry is generally weak because there is a high number of such players in the market and a strong overall supply of products in the industry. At the same time, there is a low forward integration of suppliers in the market because many suppliers are competing to provide their products to Burger King. The abundance of raw materials and ingredients used to make the company’s products also limit the influence of supplier power on the operations of the fast-food chain.

The threat of substitute products

There is a high threat of substitute products, which affects the operations of Burger King. The main factors contributing to the high threat of substitute products in the industry are low switching costs, high availability of substitute products, and satisfactory performance of substitutes in the industry. In other words, it is easy for customers to buy alternative foods from the market. Furthermore, consumers have an option of “eating out” differently (such as fine dining). Similarly, they could choose to consume food through home cooking. These alternatives in the market make it easy for customers to buy substitute products. At the same time, most of these substitutes available in the market are satisfactory to consumers in the market if they are evaluated in terms of taste, cost, and quality. These conditions in the market imply that the threat of substitute products is strong.

The threat of new entrants

The threat of new entrants in the fast-food business poses a moderate threat to the operations of Burger King. A low switching cost is the strongest constituent of this threat because if some new entrants venture into the market, customers will have few inhibitions to buy products from them. Comparatively, a moderate cost disadvantage and cost of doing business could affect the company’s operations. The moderate cost disadvantage is informed by the economies of scale that Burger King enjoys. Therefore, it would be difficult for new entrants to compete effectively with the global conglomerate if they were to set up a new company. The fast-food business also attracts huge investments, which moderates the effects that new entrants would have on Burger King’s business. Therefore, collectively, Burger King has a moderate threat of new entrants. Table 2 below summarizes the effects of the five industry forces on the company’s operations.

Table 2. Porter’s five-force analysis.

Force Intensity
The threat of New Entrants Moderate
The Threat of Substitute Products Strong
Supplier Bargaining Power Weak
Bargaining Power of Customers Strong
Competitive Rivalry Strong

Strategic Alternatives

An analysis of the internal and external environments of Burger King shows that it has unique competencies and strengths that could be leveraged if aligned with the opportunities that exist in the market. This fact is further supported by the analysis of the CAPM, which shows that the Miami-based conglomerate could offer its investors a higher than average return, relative to the risks posed by the company’s operations. The beta value of 0.062 reflects the company’s market risks and opportunities, which were highlighted in the SWOT analysis. In other words, the SWOT strategic analysis tool helped to highlight some of the inherent strengths and weaknesses informing the perception of investors regarding the company’s stock performance. Based on the merit of these factors, it is essential to note that the company needs to rethink its business strategy to align with existing market opportunities and key internal competencies.

One strategic direction the company needs to focus on is the expansion of business operations in developing markets. This approach should leverage on the organization’s key competencies (Wheelen & Hunger, 2013). Its strong brand image is the key driver that this plan should pivot on because developing markets already know about the brand. If Burger King approves new franchises in these locations, it would possibly experience heightened market success in its overall global marketing plan.

Burger King also needs to have a tighter grip on its franchise model to control the quality of goods and services that its customers get. Currently, its franchise model is broad. Consequently, there is little management effectiveness in ensuring that its operations are carefully controlled. This concern was expressed in the SWOT analysis because it is both a weakness and a threat to the organization’s operations. Having a tighter grip on its business model would mean that the company introduces stricter vetting procedures for potential franchises because it needs to approve franchises = that conform to the organization’s quality standards. Based on these strategic alternatives, Burger King needs to become more efficient in its management approach. Furthermore, it needs to be more aggressive in exploiting the international market as well.

Conclusion

This paper contains an analysis of the internal and external market environments of Burger King. Key tenets of this report demonstrate that the company is at a tipping point because it needs to address some of the key concerns emerging from the internal and external market analysis. Changing consumer tastes and preferences (towards healthy foods) and intense competition from its rivals are the major concerns affecting the business. As highlighted in the strategic alternative section of this report, these issues could be mitigated by expanding its operations in developing markets and having tighter control of its franchising model. Pursuing these strategies would improve the probability that the company continues to provide significant returns for its investors.

References

Miller, C. (2016). An analysis of the international expansion of Burger King. Web.

Wheelen, T., & Hunger, D. (2013). Strategic management and business policy: Towards global sustainability (13th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

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