A New Crown for Burger King

Prototype sets stage for sales-growth effort

Published in CSP Daily News

MIAMI -- Burger King restaurants are ready to join the 21st century. A new prototype restaurant that opened two months ago at one of franchisee Magic Johnson's sites in Miami aims to borrow a page from the Starbucks' playbook and create a place to hang out, according to a report in The Miami Herald.

Gone is the circa 1980s decor with the brown floor and nailed-down furniture. Instead, think industrial chic complete with high-top tables, plasma televisions, cobalt blue lighting fixtures and an etched-glass noise buffer depicting a hamburger, fries [image-nocss] and a Coke.

While the new look is expected to attract customers, the big selling point for franchisees is the economics. The new restaurant has half the seats and is about 30% cheaper to build than the old-style Burger King, which costs an average of $1.1 million, not including land costs. In an era of skyrocketing real-estate prices, the new format also needs only half the land.

It's rare that you can take costs out of things and still end up with a better product, John Chidsey, Burger King's president of the Americas, told The Herald. The idea for the updated format came as Burger King's new management team started looking carefully at franchisee profitability.

Chidsey and his colleagues didn't see the point of building restaurants with seating for 80 or 100 people, when more than 70% of customers order their food to go. They concluded that franchisees were wasting money building burger palaces that their customers weren't using. But before designing a smaller store, management decided to test the theory. Cameras were planted in restaurants in Miami and several other markets to see how many seats were actually used.

The results: During an entire month, there were never more than 25 or 30 people in a restaurant at one time. That's why the new format has only 40 seats, compared to 85 or 100 in a typical old store.

Meanwhile, Burger King chief executive Greg Brenneman said in another Miami Herald report that he strongly believes rising sales will cure all of the fast-food chain's ills. For most of Brenneman's first year at the helm, Burger King has seen a rather impressive recovery by focusing on the Super Fan, a young male consumer who dines frequently on fast food.

Burger King has reached out to that customer with new menu items such as TenderCrisp chicken sandwiches and unconventional marketing by Miami's Crispin Porter + Bogusky at the same time it has improved restaurant operations.

The moves have helped Burger King deliver a 6.8% jump in same-store sales for the year ending in Junethe largest increase the chain has seen in a decade. But the honeymoon appears to be drawing to a close, and Brenneman's ability to put Burger King permanently on the high road is about to face its biggest test yet.

Franchisees say same-store sales have declined in June and July, after 15 consecutive months of positive gains. Is that a momentary blip? Or a sign that Brenneman's turnaround plan may not be going as smoothly as envisioned?

This brand doesn't really need the Messiah, Alan Vituli, CEO of Carrols Corp., Burger King's largest franchisee with 347 stores, told The Herald. They are as good a management team as I've seen. But it's going to be a very hard road, said the 18-year veteran of the chain.

While many franchisees remain encouraged about the direction the company is heading, others say there is discontent brewing. The challenge will be keeping that frustration from boiling over into a feud similar to past showdowns between franchisees and many of Brenneman's predecessors.

Burger King's ability to gain the confidence of the financial community will be critical if plans are to move forward for an IPO. Brenneman said the soonest an offering could happen would be next year, but he is in no hurry. It's really fun fixing Burger King and turning it around being a private company, he said. You don't have to think quarterly. You can take a long-term perspective.

An IPO would provide the exit strategy for Burger King's owners, a consortium of venture capital firms, including Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners. The firms bought Burger King for $1.5 billion in December 2002, with the business in disarray and in need of a major overhaul.