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Burger King Corp. has emerged from a 2002 private equity buyout stronger than ever, and Chairman and CEO John Chidsey said Sept. 9 at Thunderbird School of Global Management that things will only get better as the fast food chain “drills down” in regions such as Asia, the Middle East and Latin America.
“We have such a huge runway for growth all around the world,” John Chidsey told about 300 students, faculty and staff at the international business school in Glendale, Ariz. “It really has been a great winning streak. Our revenue is at an all-time high. Our average restaurant sales are the highest they’ve ever been. We’ve certainly delivered on our commitment to Wall Street.”
A consortium of three private equity firms led by Texas Pacific Group bought the BURGER KING brand six years ago from Diageo PLC for about $1.5 billion. Other Diegeo brands included Johnnie Walker, Guinness, Smirnoff, Cuervo, Captain Morgan and Sterling Vineyards alcohol, and Chidsey said a fast food hamburger chain did not make a good fit.
“This is a classic case of private equity doing a good job,” Chidsey told the Thunderbird audience. “They bought the BURGER KING brand from Diageo, whose shareholders were screaming at them to get rid of it.”
Susan Boedy, director of the Thunderbird Global Private Equity Center, said Chidsey and the private equity firms involved in the transaction deserve much of the credit for the turnaround.
“Chidsey was clearly a great fit as CEO of a PE-backed firm — an essential ingredient in its success,” she said. “BURGER KING went through a period of significant transition and growth with their IPO and global immersion, and it takes the right PE firm and the right CEO to make it work.
She said the relationship can be like a marriage.
“It can be a messy divorce, so it better be the right fit from the beginning. Clearly this has been. BURGER KING is an excellent example of how private equity can have a hugely positive impact. By some, PE is the new savior of Western banking. Perhaps it now also is for global fast food chains.”
At the time of the private equity buyout, the BURGER KING brand had languished under the leadership of 13 chief executive officers in 17 years. The company, founded in Miami in 1954, had been sold to Pillsbury in 1967 and then moved through a series of multinational owners until the 2002 buyout.
Chidsey said the frequent turnover left the BURGER KING brand with no consistent strategy. The chain had added no new Asian restaurants in about 15 years, and one-third of its U.S. sites had fallen into financial problems.
“BURGER KING was a brand that people knew but had forgotten about,” Chidsey said. “It was desperately in need of revitalization to get a little energy behind the brand.”
Among other problems, Chidsey said, BURGER KING restaurants were slow to introduce new products such as chicken nuggets, coffee varieties and value menu items.
“McDonald’s was pulling away by a mile,” he said. “They had salads. They had chicken sandwiches. They had breakfast products. They had all sorts of competitive advantages.”
That’s when Texas Pacific Group stepped forward with Bain Capital and Goldman Sachs Capital Partners. By the time Burger King Corp. went public in May 2006, the investors had injected an estimated $325 million in private equity into the company’s reconfiguration.
Chidsey, who had previously served as Burger King Corp.’s president and chief financial officer, ascended to the role of CEO during the initial public offering.
Chidsey said one key to the turnaround has been a revitalized menu that closes the product gap with McDonald’s. Chidsey said BURGER KING brand’s slogan, “Have it your way,” meant the company needed to offer its customers more choices, including healthy products such as apple fries and veggie burgers.
The company also needed to introduce handheld chicken products. Instead of being the third major chain on the market with chicken nuggets, Burger King Corp. instead developed something called Chicken Fries.
“While we were the third player out there, we actually sell more single servings of chicken than McDonald’s or Wendy’s per restaurant,” Chidsey said. “So we’re now the leader in premium handheld chicken products.”
Chidsey said Burger King Corp. also has gotten on track with its advertising and marketing messages. “We’ve gotten back into the public consciousness and back into the mainstream,” he said.
Despite the success, Chidsey said Burger King Corp. diversification of revenue sources as a global company still remains an opportunity. Currently, about one-third of the company’s revenue comes from markets outside the United States.
An immediate goal, he said, is to reach a 50-50 ratio within the next five years. Chidsey said Burger King Corp. must expand into Russia and India, but most of the company’s international growth will come in countries where the brand has already been introduced.
“Our biggest job is to drill down into the countries we’re already in,” he said.
He said 80 percent of the company’s growth in recent years has come from international markets. Burger King Corp. opened its first restaurant in Turkey in 2003 and now has 208 sites in that country. In Germany, Burger King Corp. has opened about 200 restaurants since the initial public offering.
Chidsey said the biggest opportunity for growth is in Asia, where customers prefer fire-grilled food over fried food. Currently, he said, Burger King Corp. has only 670 restaurants in Asia compared to 7,300 McDonald’s sites.
“What’s the one part of the world where we have the most opportunity to grow? It’s definitely Asia,” he said. “But that’s a 10-year task, at best.”
Chidsey said Burger King Corp. is up to the challenge.
“We have the patient off the operating table,” he said. “The turnaround is now over and we are in growth mode.”
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