Burger King Cooks Up New World Order

By Alexis Mueller, Associate Editor

South Florida Business Journal, Vol. 19, No. 14, November 20, 1998

When the 10,000th Burger King opened last week in Penrith near Sydney, Australia, the company celebrated by giving away cheeseburgers for 10,000 seconds.

The milestone, reached far from the company's South Florida roots, has mixed symbolism.  There are Burger King restaurants in 55 countries now, and sales outside North America have climbed to more than 20 percent of the system.  More than 700 stores have been added internationally since 1994.

But the $10 billion Burger King, the world's fourth largest fast food chain, has seen its global expansion, at times, get botched in the drive-thru.  Meanwhile, arch competitor McDonald's Corp., has restaurants in more than 100 countries.

Over the summer, Burger King refocused its global growth.  It finalized a departure from France, left 13 franchisees in Portugal, fired its Spanish subsidiary management and pushed expansion heavily in Asia and the Pacific Rim.  It is also pursuing a new policy to snap up more company-owned stores, unlike rival Taco Bell, Arby's and Pizza Hut.

Take Australia.  The company said it plans to open 30 Burger King restaurants this year, investing $50 million to create more than 2,000 jobs.

"We want to go in and make sure we have a critical mass and that we have the right partner when we go in," said Robert Doughty, vice president for communications at Burger King in South Miami-Dade.

Burger King's plan is to concentrate its efforts where it already does well, like the United Kingdom, Germany, Spain, Australia, Korea, Taiwan, Canada and Mexico.

"We want profitable growth," Doughty said.  "We don't want our people to just collect passport stamps or flags for lobbies."

The next frontier-Brazil

The company is eyeing Brazil.  It has no presence there.  "It is the largest market in South America and we want to be there someday," he said.

Doughty asserts that the company is doing more due diligence with prospective business partners than in the past.  Burger King has had mixed-results overseas:

• In Poland, in early 1997, the company settled a two-year civil law suit with its Miami Beach-based franchisee.  According to public filings, the franchisee sought $22 million in damages caused by parent-company neglect, while the Burger King sought to terminate the franchisee based on its pattern of losses.      
• In Europe and the Middle East, the company fought with franchisees who said the parent company failed because of inflated sales projections, a lack of support in marketing and advertising, improper pricing of product supplies and territory encroachment, according to public filings and press accounts.      
• In Portugal, Burger King said it left because franchisees failed to fulfill the contract terms.  But Jorge Morgado, head of the Portuguese franchise group, rejected that, telling the Portugal-based Diario de Noticias, "This is a good example of how multinational groups abuse local companies in the countries they establish themselves."

Where's the infrastructure?

Burger King has prematurely launched its brand into countries without first setting up the necessary infrastructure to support the new restaurants, said Robert Zarco, a Miami franchise rights attorney. 

"Then they are leaving it to the franchisee to attempt to develop the brand on their own with little or no assistance from Burger King.  It's the same old story," said the attorney, who has represented franchisees in Europe and the Middle East.

In France, the exposure was too small and the company exited because profits were poor, Doughty said.  "There were a lot of things going on, and we had multiple franchisees, not just one."

In Portugal, the franchisee was eroding the quality of the brand, and not meeting its commitments, so sites were cut, Doughty said.

Doughty credits CEO Dennis Malamatinas for reshaping the company's global business plan.

"Grand Met appointed him because of his global marketing expertise running Smirnoff Vodka and Pepsi," he said.  "He understands the power of being a global brand that looks and feels the same wherever you are."

Under the Diageo conglomerate, there is much more sharing of resources between brands.  That was unheard of before last year's $41 billion merger of Grand Met plc and Guiness plc.

That's led the company to identify promising prospective franchisees in Latin America through its United Distillers and Vintners business unit, Doughty said.  "We're much more attuned to working together as sister companies and sharing service."

More Company Stores

The company is boosting the numbers of company stores after divesting to franchisees as many as 93 percent of its 10,000 stores.  Doughty said the company wants to bump the ratio back to 15 percent.

"We need to provide leadership in the system," he said.

But franchisee lawyer Zarco said the company is being unfairly selective in its transition to more company owned stores because it's establishing the majority of them in the most profitable regions, leaving franchisees to tackle the weaker markets, he said.

Doughty said he saw it as a way to lead by example.  "We have to demonstrate that we know how to run a good restaurant, maintain brand standards, and make it happen."