Thursday, April 05, 2012

Can Burger King Be Saved?

Business Week reports that we will have yet another change in ownership structure for Burger King.   According to the magazine, "Now, merely 18 months after the venerable Home of the Whopper was sold to buyout shop 3G Capital, it is again returning to a stock market listing by taking over the ticker of Justice Holdings, a special purpose acquisition company owned by famed activist investor William Ackman."  Meanwhile, the chain continues to struggle.  McDonald's has done a tremendous job of remaking itself over the decade and driving comparable store sales growth as a result. Wendy's has become the #2 burger chain in North America.  New players such as Chipotle and Panera have taken share, while regional burger chains such as Five Guys and In-and-Out Burger have thrived.  Internationally, McDonald's and Yum Brands have done very well, particularly in places such as China. 

What happened to Burger King?   First and foremost, I think the chain suffered from the fact that it was owned by corporate parents pursuing unrelated diversification strategies for several decades.  Pillsbury owned Burger King for many years.  Then, Diageo - the alcoholic beverage company - owned Burger King during the 1990s.  Diageo essentially treated Burger King as a cash cow to finance growth in its alcoholic beverage businesses (much like rival Allied Domecq did with its ownership of Dunkin' Donuts).   Since Burger King was not the focus of either Pillsbury or Diageo, it has not received the type of strategic focus and investment required to succeed in an increasingly competitive marketplace.    Over the past decade, it has been owned by several private equity firms, but instability in ownership has been an additional challenge - two private equity firms have owned it over the past ten years, and now we are seeing yet another ownership change.  Dunkin' Donuts, of course, also was acquired by a private equity firm when Allied Domecq finally stopped pursuing its unrelated diversification strategy.   However, in Dunkin's case, the firm thrived under private equity ownership.   A renewed focus on the business led to growth and high profits, leading to an IPO. 

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