Burger King's great performance in Q4 2012 demonstrates the earnings potential in the franchise, which had been written off by analysts during the recession. Although the turnaround is still in progress - last quarter's results were less astounding - the improvements result from a persistent effort by management to enact changes that work. Much of the credit goes to Steve Wiborg, President of North America of Burger King, as well as the management that strategically chose him to lead the way.
Long Road to the Throne
Burger King had been prone to a common franchise problem for many years: a growing divide between management and franchisees. By the time Burger King was sold to 3G Capital in 2010, many franchisees were angry over the perception of being ignored, as well as unpopular policies such as an unprofitable $1 Double Cheeseburger and mandated late-night hours.
As a product of the franchisee system, Wiborg helped to bridge this gap. He got his start as an employee at a Chicago-area Burger King, getting hired at the tender age of 16. He often ate there on weekends with his mother and brother, and his mom encouraged him to apply for a job one day. Burger King was not the only place where he applied, but they "were the first ones who called" Wiborg told Franchise Times.
Wiborg worked his way up to area manager under AmeriKing, one of the franchise's largest operators, and then spent time away working with a chain of Hardee's restaurants in Springfield. When AmeriKing filed for bankruptcy in 2003 and was put on the market, a franchisee by the name of Al Cabrera scooped up 131 stores. The condition? Burger King demanded that Cabrera not hire anyone who had worked in AmeriKing to run the business. Cabrera signed but then hired Wiborg anyway, making him chief operating officer of the new company called Heartland.
"He was very hard-working and organized," said Cabrera. The Core Value Fund run by Cabrera exited in 2006 at a hefty $150 million after purchasing its Burger King stake originally for $30 million, making a tidy profit for its efforts. Wiborg stayed on as CEO of Heartland under new owners GSO Capital Partners.
3G Capital, Change
Burger King continued with its struggles until 3G Capital stepped out of the blue and purchased it for $4 billion in 2010, at a 45 percent premium. Wiborg was among a slew of franchisees that 3G partners Alex Behring and Daniel Schwartz interviewed before the deal. They ultimately decided to appoint Wiborg as head of North American operations. Not bad for a fast food employee whose appointment to management Burger King had attempted to block years ago. Cabrera called it "poetic justice."
The intention to change that 3G showed in appointing Wiborg carried over into the actual operations. This was crucial for the success behind changes that Burger King would make in the next two years. In fact, Wiborg initially demurred but signed on after confirming 3G's willingness to let management have enough freedom to work.
Wiborg said that the key to delivering results was that management has to "believe in it."
Burger King quickly dived into a series of changes, including settling a lawsuit over the $1 Double Cheeseburger dispute and another over a soda contract. 3G felt it was important for franchisees to be successful in order for the entire brand to succeed. Burger King CEO and 3G partner Bernardo Hees stressed the importance of working "together as one brand."
3G also slashed jobs at its headquarters, cutting 413 positions that Wiborg explained allowed his budget for general and administrative expenses to be increased. The net result? A greater focus on operations in the field, where franchises are operating and real interaction with the customer is happening.
Burger King made other positive changes. It did away with its confusing "King" ad campaign starring a masked human embodiment of its royal brand. The chain also changed some of its menu, adding smoothies, frappes, salads and wraps. Recently, it has also initiated a brand overhaul to emphasize a more family establishment atmosphere where people want to "hang out" and eat quality food. The effort will be headed up by Mother NY, the new agency of record for Burger King.
The company has also invested heavily to improve infrastructure, remodeling 800 units last year, with plans to remodel another 1,000 this year towards a goal of half of its 7,250 stores renovated before 2014 ends.
Another surprise: 3G sold all of its company-owned domestic locations to franchisees last year.
Completing the transformation are small changes that will add up - tweaking the taste and formula for ketchup, mayonnaise and other ingredients. Plus, Burger King will add soft-serve ice cream, a move that many consumers could love.
Credited with much of these changes is Wiborg, who is known to better understand franchisees. And for choosing him, 3G Capital has earned some respect among Burger King operators.
Whether the changes will convert into more positive results remains to be seen. But McDonald's surely has a more fearsome competitor to contend with.
