Burger King SWOT Analysis

Introduction:

Burger king is one of the most well known QSR brands in the world. It is the second largest fast food hamburger restaurant in the world by its number of stores. By December 31, the total number of Hamburger restaurants including the ones owned and franchised was 15,003. It is present in almost 100 countries and US territories. Burger King is nearly 100% franchised. A very small number of restaurants are owned by the company (approximately 800) and the rest are franchised (14,200). These franchises also contribute a very large share to the total advertising budget for the Burger King brand.

Their contributions to the advertising funds managed by Burger King ranges from 3.5 to 5% of their gross sales. The brand has established a very reliable and efficient system of franchises that runs on franchising best practices. Constantly, Burger King’s focus is on fast and profitable growth of the brand through faster international expansion and through better customer service. This is a SWOT analysis of the brand that will help you understand its strengths and weaknesses and how the brand is poised for future growth.

Strengths:

Recognized brand name – A strong brand name and image are very important strengths for any brand. Burger King is among one of the most notable brands in the QSR industry. The brand has grown into a well known international Fast Food business and competes with some of the strongest brand names in the industry. A well recognized brand name is a critical leverage when it comes to sales, profits and customer loyalty. It has also important benefits for the franchise system which would otherwise be riddled with problems. Burger King is easily recognized in several corners of the world by its name and logo. It is among the most popular fast food brand names.

International presence – Its international presence is also a key strength for Burger King. The brand is present across 100 countries and US territories. Vast international expansion and access to varied markets is an important strength in terms of financial stability. While the economic conditions can fluctuate across markets, being present in various markets brings stability in the system. If the business declines in the Western markets then it will be balanced by the brand’s presence in the other countries. So, overall the higher the international presence of a brand, the more balanced and stable will be its financial condition. Burger King is also focusing on rapidly growing its international presence worldwide in new markets and countries. Both India and China are major markets that offer great financial opportunities for the brand.

Successful franchise system – Burger King heavily relies on the franchise system where more than 95% of its restaurants are run through franchises. This franchise system has been running profitably which is evident through its financial performance and growth. Franchise systems do face some common problems and it is true about Burger King’s business model but still it has some inherent strengths that make the model successful. Moreover, Burger King is focusing on further innovation to make its franchise model free from bottleneck and hindrances. This will lead to higher efficiency and better profit sharing between the franchisees and franchisors.

Diverse and rich food menu – The brand offers a diverse and rich food menu that consists of flame-grilled hamburgers, chicken and other specialty sandwiches, French fries, soft drinks and other items. Affordable pricing of these food products is also an important strength of the brand. A rich and diverse food menu is a must for any fast food brand if it wants to attract customers. Menus need to be adopted as per the taste of the local markets and consumers. In this way Burger King is able to cater to the tastes of a very large segment of customers. The brand appeals to a broad spectrum of customers where multiple dayparts and various platforms appeal and serve different customer groups.

Focus on new product development – New product development is a key strategy used by Burger King to grow its brand and market. The long term success of the brand depends on this strategy. Development of new products has the potential to drive traffic by expanding customer base. It also allows the businesses to expand into new dayparts and to become leading brand in food quality and taste.

Heavy focus on digital technology for business operations and management – the brand is focusing heavily on the use of technology for operations and business management. It relies heavily on its computer systems and network infrastructure across operations including POS processing at the restaurants.

Weaknesses:

Overreliance on franchise model – Overreliance on the franchise model has its own problems. Burger King is a brand that relies heavily on this model. Around 95% of its business is operated by the franchisors. Some of the common issues that have been obstructing the growth of every brand relying on the franchise model include the rising costs, low staff morale as well as difficulties in the way of adapting to consumer needs. Innovation many times becomes difficult because it becomes difficult to bring synchronization across the entire system. While to a large extent, Burger King’s model has been successful, yet rising costs and debts are also a difficulty this model is facing.

Low brand loyalty – Even if the brand is focusing on product development and digital technology, brand loyalty is difficult to acquire in the 21^st While changes keep happening fast, the brands also have to focus more on their consumers’ tastes and convenience. Burger King is the part of a heavily competitive industry. Customers’ find it easy to switch brands and building brand loyalty remains difficult. Compared to the leading brands like McDonalds, Wendy’s and Starbucks, Burger King sees less customer loyalty.

High aggregate indebtedness – As of December 31, 2015, the brand had an aggregate outstanding indebtedness of $8725.6 million. Such high indebtedness makes the brand vulnerable to several major risks. This limits the brand’s potential to respond to several economic and financial fluctuations. It also limits the brand’s ability to respond to changes in the business and competitive environment. Overall, high aggregate indebtedness can slow growth by subjecting the brand to several important challenges.

Opportunities:

Digitization for better customer service – The brand has some important opportunities in hand including those brought by technology. Digital technology has brought important opportunities in marketing and sales as well as customer service. By making better use of digital technology, it can engage customers and earn loyalty. Investing in digital has several benefits and the leading QSR brands like McDonalds, Wendy’s and Starbucks have made significant investments in this area for better customer service and higher customer convenience.

Focus on growth in emerging Asian markets – China and India are significant markets for Western businesses. These two markets offer significant opportunities of growth. The number of Burger King Restaurants in India and China has remained very low. McDonalds already has a heavy presence in the country with its nearly 1500 establishments. To compete with the brand, it would need to increase its presence further. Burger King is planning to increase its presence in both the countries. While it plans to reach at least 1000 restaurant stores in China over the coming years, it also plans to enter the Indian market through a partnership with one of the local private equity firms.

Food innovation – Innovating the food menu for its customers can have several benefits apart from higher popularity and a larger customer segment. Consumers’ tastes are changing and even in the Western markets people have switched to healthier food choices. Burger King has focused on food innovation and is doing more to make its food menu attractive and healthier.

Threats:

High compliance related costs – The compliance related costs in the QSR industry have kept rising. There are several laws as well as rules and regulations that the fast food brands are subject to. From food preparation to health, safety standards, environment and sanitation, there are several laws that these brands are subject to. There are federal, state and local regulatory and licensing bodies that oversee these areas and the level of oversight has increased a lot overtime. All of this raises the compliance related costs leading to a rise in operational costs.

Heavy competition – The level of competition in the QSR industry has increased a lot. In US and Canada as well as the international markets, the brand is facing heavy competition. From McDonalds to Dominos and KFC, there are several international brands that are competing for market share. Apart from it, there are several local brands too that compete with Burger King in the various local markets. Heavy competition leads to erosion of market share as well as increased costs of marketing. For Burger King, further expansion is also difficult because of the stiff competition.

Increasing prices of food, commodity and labor- 21^st century has seen several changes happen and apart from economic fluctuations, there has been a major rise in the costs of raw material and labor too. Rising costs of raw material add to operational costs and reduce profit margins. Labor costs have increased manifold and with it the operational costs have risen. Overall these things have led to higher investment and lower profits. Customers are concerned for quality and convenience and the brands are investing in these things as well as marketing to remain competitive and profitable. This is one of the most significant challenges before Burger King and its franchisees.

Conclusion:

Burger King is one of the most well known names in the QSR industry. It has grown despite the heavy competition and relies on a largely franchising model for business. The brand has some important strengths and has expanded to 100 countries and US territories. It constantly focuses on franchising in best practices and food innovation for attracting customers and market share. However, there are some important challenges related to a franchising system that can sometimes make the model challenging to run. Apart from it the rising costs of raw material and legal and regulatory costs are also adding to its operational costs. 21^st century is an era of digital technology and brands have to invest significantly in technology to remain competitive and profitable. There are some important inherent strengths of the brand and its business model which help it remain competitive and grow. Burger King is planning faster growth in the Asian market and within the next few years plans to add many more restaurants in both the markets.

Sources:

https://www.forbes.com/sites/greatspeculations/2014/07/01/key-trends-impacting-burger-kings-business/#785ff1c03cd0

Burger King 2016 Annual Report

https://digitalcommons.murraystate.edu/cgi/viewcontent.cgi?article=1059&context=scholarsweek

https://www.fin24.com/Finweek/Entrepreneurs/six-challenges-facing-the-franchising-sector-20160211