How a Burger King Franchise Can Succeed in a Competitive

Fast Food Industry

By

Bela Florenthal, William Paterson University

Manar Awad, M.Sc. Student, Birzeit University

Giuliana Campanelli Andreopoulos, William Paterson University

John Malindretos, William Paterson University

Abstract

In this study, we consider the owners of two Burger King franchise establishments that have been struggling
financially over the past three years. The owners are looking to grow the revenue of their two struggling
locations and remain competitive in the changing fast food landscape. They realize that their competitors are not
only other fast food brands but also the growing number of fast casual chains, ethnic cuisine restaurants, and
convenience store establishments. They notice that their target customers, Millennials, have become more health
conscious and exhibit an increasing desire to diversify their palates. As a result, the franchisees struggle to meet
, they do not keep up with innovative
technology, such as mobile apps for ordering and delivering fast food items, that has been gradually adopted by
competitors. Thus, the owners of the two Burger King locations are faced with two key challenges: (a) how to
stay competitive and (b) how to be more attractive to Millennials.

The Fast Food Industry

Industry Trends

The fast food industry, including limited-service (order and pay before eating) and quick-service (minimal table
service) restaurants, was a $570 billion industry worldwide in 2017, with $245 billion in the United States and
showing an annual growth rate of 3.2% between 2012 and 2017 in the United States. The industry has long

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experienced rapid growth. The quick-service restaurant industry alone has seen an approximate 28% increase in
revenue, from $159.2 billion in 2002 to $203.2 billion in 2015.

The fast
(including KFC, Pizza Hut, and Taco Bell), with the Top Five brands accounting for over 40% of the market share
in the United States. rket share in 2015, at 17%, and
share was around 10.8%.
bout $88.65
billion in 2016 (Starbucks came in second, with a brand value of about $43.56 billion).

Fast food has long been the most favored choice of food for US consumers, mainly for its convenience,
affordability, and speed. It appeals to those who are looking for a satisfying meal on a budget, including college
students and families, with 34% of children eating fast food every day. These restaurant chains are desirable, as
they provide a recognizable experience no matter what location a consumer visits. In 2016, 80% of consumers ate
at a fast food restaurant at least once per month, and 44% at least once per week. Customer retention is fairly
easy for fast food restaurants, and over 90% of fast food consumers indicate that they would likely sign up for a
loyalty program if their favorite fast food restaurants provided one. The industry thrived even during harsh
economic conditions, as fast food chains were able to capitalize on the 2008 recession by offering low-priced
menu deals. However, as consumer confidence and spending have increased over the past five years, the industry
has struggled to keep up with changing preferences and the demand for healthier food options. Fast food chains
compete with the food industry in general, whether with higher quality restaurants or lower end food
establishments. Donut and bagel shops as well as coffee chains can become strong competitors if they offer fast
food options.

The Burger Industry

Hamburger fast food restaurants largely dominate the market, accounting for 30% of US quick-service restaurant
sales in 2016. Pizza parlors are the second largest segment, with 15% of the market share, followed by sandwich
shops at 12%, chicken restaurants at 8%, and Mexican restaurants as the fifth major segment, with 7% of the
market share. The hamburger is preferred mainly for its portability and customizability, with 57% of consumers
eating hamburgers on a weekly basis. Nevertheless, hamburger sales growth has slowed in recent years, and
industry watchers speculate that this growth has peaked, as U.S. consumers prefer more exotic cuisines. With the
decline in sales and changing customer demands, large hamburger chains have refranchised. The most
franchised chain is Burger King, which now owns only 1% of its US locations. By th
planned to have 90% of its locations worldwide owned by franchisees. The refranchising strategy benefits the

have very low overhead costs and no direct costs, all while continuing to raise capital and pay off debt.

position in the industry, having generated $35.8 billion in sales in 2015 as a result of operating 14,248 locations

ant company worldwide in

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terms of both generated revenue and customers served. Despite having the highest market share of the global

18.6% in 2014 t

menu, offering more low-priced options.

The main concern for the burger industry, and fast food in general, is that US consumers are becoming more
health conscious. This would not be such a major threat if it were not for the ever-growing supply of cheaper
healthy food. Because consumers have a wide variety of fast food options from which to choose, they also have
more power to influence brands. Their preferences for healthier menu options force the fast food industry to
undergo a transition by offering more healthy choices. Because many fast food chains have an unshakably bad
reputation for being unhealthy they have decided to more aggressively emphasize low prices.

Competing Fast Food Options

Competing fast food industry products include pizza, pasta, sandwiches, and chicken as well as Mexican and
Asian food. In 2017, the pizza industry had $45 billion in revenue in the United States, and had experienced an
annual growth rate of 1.9% between 2011 and 2016. The key players in the pizza industry are Pizza Hut Inc.,

total industry revenue. The majority of the remaining pizza restaurants, 54.3%, are locally focused,
independently owned stores. Industry growth had been rising slowly over the past five years since the recovery
from the recession. However, as the economy improved, sustained growth was expected for the industry over the
next five years.

A second major competitor to the burger industry is sandwich and sub store franchises, with $21 billion in

economic recovery, the industry had excelled in the past five years because sandwich shops could easily adapt to

heavy, unhealthy hamburger to a light, yet filling, turkey or chicken sandwich. The annual growth for 2011 to
2016 was a steady 2.8%. Strong revenue growth was expected to continue in the next three years.

Mexican and Asian foods have become increasingly popular in the fast food industry. Mexican restaurants were a
$38 billion industry at the end of 2016; this segment rose quickly, with an annual growth rate of 3% between
2011 and 2016. Chipotle and Taco Bell, companies with the largest market share, have driven the rise in the
Mexican restaurant industry. Industry revenue and the number of establishments were expected to continue
growing in the next three years. This expansion and related demand can be attributed to increased immigration
and increased acceptance of ethnic cuisine. For example, there has been an increase in demand for Tex-Mex,
which is a fusion of American and Mexican cuisine. Statistics show that in 2016, three of the 20 leading food item
trends on fast food menus included ethnic cuisine options.

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In regard to such ethnic cuisines, Asian cuisine also has grown in popularity. Asian restaurants are the fastest
growing fast food category worldwide. Global sales of Asian fast food restaurants increased nearly 500% between
1999 and 2015, with a 135% increase in the United States. A survey conducted by the National Restaurant
Association (NRA) found that in 2015, 36% of U.S. consumers reported eating Chinese food at least once per
month, and 42% were eating it a few times per year. This trend continued into 2017 as a Statista survey found
that ethnic-inspired breakfast items were seen as the leading trend in breakfast/brunch restaurant menus by
68% of respondents, and 45% of respondents endorsed traditional ethnic breakfast items.

menu options, such as Hawaiian food in California, to gain popularity in recent years. This interest in ethnic
cuisine has been cultivated by Generation Z, those born in the early 2000s. Consumers appear to be moving
further -Great-American-Meal-fits-
cuisine. The results of a National Restaurant Association survey show that 80% of US consumers eat at least one
ethnic meal per month, and 17% eat ethnic cuisine at least seven times per month. This has caused ethnic food to
become a regular part of most American diets, leading to an ever-growing demand for micro cuisine.

There are also notable substitutes in the industry that, despite having low market share, have high growth rates
and, are increasingly competitors in the fast food industry. These include street vendors, most notably food
trucks, and sushi restaurants. Street vendors were a $2 billion industry in 2016 and had an annual growth rate of
3.7% between 2011 and 2016. Demand for street vendors is increasing because they offer a large variety of foods
at even lower prices than do fast food chains. Statistics show that in 2016, street food/food trucks were the 20th
hottest food option in the United States. Despite the fact that food trucks are generating revenue of only $870
million per year, the industry had substantial annual growth, 7.9%, between 2011 and 2016. Food trucks are
highly desirable for their low-priced, unique, gourmet cuisine. Their revenue expansion outperformed that of
broader food-service sectors by more than double, and this trend was predicted to continue during the next three
years. Sushi restaurants also comprise a $2 billion industry. Although the annual growth of sushi restaurants is
not as impressive as that of food trucks, at 3.3% between 2011 and 2016, revenue is expected to rise as operating
conditions are forecasted to improve. Like the Tex-Mex industry, sushi restaurants gained popularity with the
introduction of American-influenced versions of sushi, such as the California roll. Sushi has now become part of
the mainstream food service, providing both an ethnic and a healthy meal choice.

Fast Casual Competitors

Fast casual restaurants, like fast food chains, do not offer full table service and are considered a quick-service
option; however, they pride themselves on offering higher quality food than do fast food chains. The most
ess, Five Guys,
and Chick-fil-A. Despite fast casual being the smallest segment in the restaurant industry, accounting for only
7.7% of total market share, it is growing rapidly and gaining market share, mainly from fast food restaurants. Its
growth far exceeds that of the full- and limited-service foodservice segments. Between 2014 and 2015 alone, fast

doubled that of any other dining segment. Panera Bread had the largest 2015 sales, with $4.8 billion; Chipotle
was second, at $4.4 billion, and Panda Express was third, with $2.6 billion.

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Most fast casual restaurant chains are relatively new but are continuing to expand throughout the country at a
rapid
increasing from $700 million to a market cap worth $1.5 billion in February 2015. Currently, there are over 11,000
stores among the Top Eight fast casual chains in the United States and a total of over 21,000 fast casual
establishments. Out of the Top Ten fastest growing restaurant chains in 2015, seven were fast casual. Jersey
al sales growth of $402 to
$675 million from 2013 to 2015, was at number one. Chipotle, which opened 229 new restaurants in 2015, was the
second fastest growing chain. The fast casual industry continues to grow as fast food giants downsize.
closed hundreds of stores in the past two years, and Burger King had been steadily closing stores

2013, when it dropped to $1.15 billion from $1.97 billion in 2012. It fell further in 2014 ($1.06 billion) and rose
slightly in 2015 ($1.1 billion).

Fast casual options better meet consumer preferences than do fast food chains, as they are more desirable due to
their higher quality and healthier variety of items. They also provide more dynamic menus, catering to the

factors appear to make up for the slightly more expensive food and slower service. The average receipt price at a
fast casual establishment can be up to 40% higher than that of fast food restaurants, yet fast casual

healthier food options, for which there is an inelastic demand; i.e., they are not sensitive to changes in price or
income. Foods labeled as fresh, organic, or local will always draw consumers, no matter the cost. Statistics show
that, in 2016, 10 out of the 20 leading food item options on menus were healthier, fast casual options.

Competitive Convenience Stores

Convenience stores were a $204 billion industry in 2017, with 7-Eleven having the largest market share. The
industry roughly doubled in size over the previous three decades, with annual growth slowing down to less than
1% between 2012 and 2017. Nevertheless, convenience stores remain an important choice of fast food for many
consumers, particularly Millennials. In the past five years more work hours had reduced leisure time, causing
full-time employed Americans to search for quicker (time-saving) food options that were still healthy. Further,
convenience stores are perceived by consumers to have fresher and healthier options than do fast food chains,
which allows them to compete with fast casual restaurants. These factors have the potential to make convenience
stores more appealing than fast food and fast casual restaurants. The greater variety of food and beverage
options attracts a more diverse consumer base, cutting into fast
convenience store customers, 26% reported that they would have spent their purchase on fast food if they had
not bought from the convenience store. Like fast food establishments, these stores provide convenience and
inexpensive food but at higher quality than some fast food places, with more customizability, and at much lower
prices. In response to the increased demand for convenience store foodservices, the industry operators have
opened more stores and expanded into new markets, which resulted in increased sales. The number of
convenience stores increased 28.7% between 2000 and 2015, and in-store foodservice had $31.2 billion in sales in
2014.

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In addition, the decline in gas sales has led operators to look into convenience store foodservices to increase
revenue. Storeowners have found that offering more foodservice options as in-store products is more profitable
than gasoline sales. In 2015, convenience stores in gas stations accounted for 20.8% of in-store sales and 33.7%
of gross profit. Gas station foodservices have become increasingly popular with Millennials and Generation Z,
who do not have a negative perception of buying food at a gas station, as do older generations.

Building a Competitive Advantage

The fast food industry is highly competitive, and competition only seems to be increasing with the newfound
popularity of fast casual restaurants and convenience stores in recent years. The fast food industry will lag
behind, however, if restaurants do not evolve to match fast casual offerings. Fast casual outlet sales increased
10.5% in 2014, whereas fast food chain sales increased only 6.1% during the same year. It is becoming
increasingly difficult for burger industry giants

up with competitors. Both chains have added a spicy hamburger option to compete with Chipotle; Burger King

options and expanded its menu according to consumer demand to remain competitive. For instance, it started to
offer an all-
increase of 0.9% in store sales in that same quarter.

Fast food chains also have attempted to compete with up-and-coming fast casual operators by including
healthier options on their menus. In addition to offering vegetables as a main course, they are using fresher
ingredients with fewer additives. Nevertheless, it is difficult for consumers to associate fast food with freshness
3% of sales in 2013, as
opposed to hamburgers and hash browns, which accounted for 13 14%. Burger King also failed in their attempt
to provide healthier options, discontinuing their lower-
them.

The best strategy for fast food restaurants to build their competitive advantage appears to be to incorporate new
trends. Major chains will fight for public attention by quickly responding to any new successful trend. Burger

also has become a key preference of consumers. Research shows that 61% of consumers prefer to have
customizable toppings on their sandwiches, and 43% prefer to build their own burger, options long offered in
fast casual restaurants. Five Guys offers more than 250,000 ways to order a hamburger. To keep up with the
competition,
s Chipotle, are trying
to capitalize on hamburger demand. The company opened a new branch, Tasty Made, in 2016, specializing in
burgers and fries. The restaurant reported strong sales and favorable reviews.

Competition in the burger industry intensified in 2015. Top competitors began announcing price promotions and
-for-

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 -for- of the Big King

food industry and, specifically, to compete with fast casual restaurants, fast food chains have slowed down
service through increased drive-through wait time. The new options interfered with the already optimized quick
the problems caused by its overcrowded menu.

Millennials as a Target Market of the Fast Food Industry

Millennials are changing the restaurant game, affecting greatly the fast food and fast casual industries, especially
as these consumers move into their prime spending years. These 20- and 30-something consumers have a more
health-conscious and ethnically diverse palate than do their parents and grandparents. These newfound
consumption habits make fast casual restaurants a more attractive option. As noted, fast food chains made

menus and decreasing efficiency with few or no results when it comes to healthy menu items. Fast casual
restaurants, however, from the beginning have advertised themselves as healthier, fresher food options and do
not have a negative image to repair, as do fast food chains.

Food Consumption

Millennials eat out much more often than do previous generations, making them a prime target of most
foodservice segments. Of Millennials, 53% eat out at least once per week and comprise 51% of fast casual
consumers. In 2006,
figure almost doubled, to 6.1%, in 2014 and continues to grow. Technomic.com reported that, between 2011 and
2014, there was a 12.9% decrease in monthly visits to
same period, fast casual monthly visits increased by 2.3% for the same age group, and the monthly visits of
consumers aged 22 to 27 to fast casual restaurants increased by 5.2%. It is clear that fast food consumption is
largely decreasing due to the rise of fast casual restaurants.

Fast casual food is not the only threat to fast food operators. Millennials reportedly prefer convenience stores at
twice the rate as fast casual restaurants. A marketing research group, NPD, reported that in 2006, convenience

half of Millennials aged 18 to 37 who eat ethnic cuisine four times per month, fast food establishments are losing

took a to
net income.

With these figures in mind, it is no wonder that those in the quick- and limited-foodservice industry aim to

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capitalize on marketing strategies that will attract Millennials, specifically targeting health-conscious
Millennials and college students. Sheetz and 7-Eleven expanded their menu options to include nutritionally
their McWrap sandwiches to attract
consumers in their mid-teens to mid-thirties.

Purchases via Digital and Mobile Technology

Technology has become a key aspect of daily life, and companies must keep up with the ever-growing
technological advances and consumer dependence on technology or lag behind their competitors. The fast food
industry is no exception. In recent years, fast food chains have largely invested in mobile apps for customer
purchases. Apps are an easy and convenient way to reach a much larger customer base, as, in 2017, 77% of
Americans owned a smartphone (compared to 35% in 2011), and in the prior year, 78% owned a laptop. By 2020,
over 10% of quick-service restaurant orders are expected to be placed via smartphone. At this rate, with the help
of mobile ordering, the quick-service restaurant industry will realize revenues of $38 billion, with a five-year
compound annual growth rate of 57%. The increased convenience, easier payment method, and faster fast food
mean that mobile apps can significantly increase store sales of any fast food chain.

Mobile apps cater easily to individual consumer demand. Customers can take their time browsing menu options
and track a step-by-step process of their transaction. For in-store pick-ups, apps make for much quicker
service. Customers simply purchase food ahead of time, using the app, and pick up their order without waiting in
line. Taco Bell has seen 20% higher average-per-order sale from the use of this innovation. Taco Bell is part of
Yum! Brands Inc.
quality. This proved to be highly successful for Taco Bell, and the chain saw a 30% higher average-per-order
value from mobile purchases compared to in-store. Taco Bell has one of the most convenient mobile apps in the

mission of convenience. It derives 46% of its sales from digital channels and saw an 18% increase in spending on
the average pizza order in 2015.

Pizza parlors have distinguished themselves with continually advancing technology seen in their more
hrough

annual increase in orders made through digital channels, from 40% in the first
quarter of 2013 to 55% in the first quarter of 2016.

Almost all of the giant fast food chains have created online and mobile platforms for customers to place
purchases. Starbucks was one of the first fast foodservice chains to see great success in digital purchases,

quarter of 2016 (compared to 21% in 2015). Other technological innovations include kiosk orders (self-ordering
system) and digital menu boards in the store and for drive-thru. The boards can emphasize promotions and
high-profit offers by rotating menu options. This way, more menu items can be communicated to the customer.
They also speed up orders, increasing sales. These strategies boost operational efficiency and increase order

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frequency and customer retention, which, in turn, increase profit margins.

Burger King remains a force in the burger industry; however, it has been struggling in recent years, most notably

began to slowly decline in 2009, and it saw a massive decrease in 2013, with revenues of $1.15 billion, down from

it resulted in a $2.8 billion increase in revenue between 2014 and 2015 (compared to a $52 million increase
between 2013 and 2014 after a reported loss of $0.82 billion between 2012 and 2013). Now, almost 90% of Burger
King establishments are franchisee owned, allowing Burger King to focus on building its image and menu to
better meet consumer demand. In 2003, fast food chains began to focus their marketing strategy on developing
new products rather than on price promotion, and Burger King was no exception. This can still be seen today, as
its menu has become more competitive in many aspects, offering healthier and more ethnic-inspired food
options. Although Burger King does take advantage of social media and digital marketing, as its competitors do,
their competitors make better use of technology. The little technological innovation that Burger King uses, such
as online ordering and a mobile app, is common practice among its competitors. The company permits its
franchisees to use these methods of technology to reach new consumers. To ensure consistency among its
various locations, however, Burger King does not allow much flexibility when it comes to brand messaging and
store image.

Franchising gives small business owners a unique opportunity to enter a multibillion-dollar industry with a pre-
established, loyal customer base. Burger King offers its franchisees three methods of ownership:
individually/owner-operated, entity, and corporate. The franchise agreement sets forth specific standards,
procedures, restrictions, and specifications by which the franchisee must abide. Burger King specifies everything
from required products to be sold, offered menu items, and food preparation methods to customer service and

Franchisees also receive ongoing support from the franchisor, with some offering financing opportunities. For
example, Bu

However, there are many limitations and difficulties that come with being a franchisee. To start, there is a large
initial franchise fee of $50,000 for a 20-year agreement under Burger King. Then, the franchisee must account
for location costs, and acquiring and improving the desired real estate could cost over $2 million. There are also
are problematic for
franchisees. To ensure consistency across locations, the franchisor requires all raw materials be purchased from
the same supplier. The franchisor has a special relationship with the supplier, earning rebates on franchisee
orders, which means franchisees must pay higher costs, 5 10% above prevailing market value. The franchisor
may even cause greater competition by attempting to fit as many locations in an area as possible. Franchising is
a very restricted operation. Those who want to improve their stores products and services or décor and employee
uniforms would be violating their agreement, and any minor violation could have large consequences. Under
Burger King, franchisees who do not finish remodeling on time are charged late payments and increased royalty
fees until completion.

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The R. & K. J. franchise operates several Burger King establishments. Figure 1 (see Appendix A) shows the
business structure of an R. & K. J. franchise, which indicates that this Burger King franchise has two owners. One
of them, R. J., is the managing owner. A vice-president oversees the operations, maintenance, and financials of
the owned stores. A district manager is the liaison between the vice-president and the regional managers who
directly oversee the day-to-day operation of the stores in their region. Each store has a store manager who
reports to the regional manager. A financial controller, who reports to the vice-president, is in charge of
financial operations and oversees the payroll and office management.

The R. & K. J. franchise has seen great success with stores located in urban areas; however, it is struggling
financially with stores located in suburban areas. Two establishments in particular, Store A and Store B, are a
major concern. It has become increasingly difficult to attract new customers and to operate at a comfortable
profit. The franchisee has yet to specifically target Millennials, a profitable market to attract, through
advertisements. Continued operation at the current state could leave both locations in a long-term financial
slump.

Franchises: Store A and Store B

Traffic, Customers, and Competition

Traffic. Both Burger King franchise locations are situated in high-traffic areas. Store A is located on a main route
in its town, and Store B is located off Main Street. In this respect, there are many consumers to attract with
minimal effort, especially for Store A, whose route sees heavy traffic throughout the day. Many potential
customers are already in the area and will not have to travel far to reach the Burger King. However, there are
many other restaurants that also take advantage of the ideal location, creating various competitors for the
franchise stores.

shut down, significantly slowing traffic. The major problem for the store appears to be a lack of advertising,

-thru is also lost with the

inconvenience of the parking lot structure. Store B, inversely, sees most of its traffic from the drive-thru.
Unfortunately, this means that the store is left practically vacant, as most customers do not enter the store.

Customers and interior design. Both Burger King stores are located in suburban areas, making it challenging to
attract middle- and upper-middle class customers who prefer healthier meal options. Nevertheless, stores in
both areas have the potential to attract younger customers. A university and two high schools are within less
than a 3-mile radius of Store A and over 15 other schools in the area. Store B is located within 2 miles of the

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 e
opportunity to increase customer flow if they focus on targeting Millennials, high school and university students,
and employees on lunch breaks. According to the Food Institute (www.foodinstitute.com), 44% of Millennials
spend more of their food dollars on eating out than do Generation X and Baby Boomers; and, thus, Millennials
should be a prime target for fast food chains. Further, this percentage is growing each year, as Millennials age
and see an increase in annual income. Millennial consumers eat out 10 times per month and visit six different
fast food restaurants every 90 days. In the town in which Store A is located, 15% of the population is between the
ages of 18 and 34 years, while, in the town in which Store B is located, 6.1% of the population is between the ages
of 18 and 24 years, and 21.5% are between 25 and 44 years.

In addition to educational institutions, there are many businesses that surround both stores. For example, Store
A is located near two libraries and 14 small businesses. This is a rich target market to tap into. Notably,
-out habits do not include lunchtime. Lunch breaks are becoming fewer for many American
,
making it more difficult to leave the office for a meal. Unfortunately, neither Burger King franchise store has a
means of online ordering to reach these potential consumers, which makes it difficult for workers to view Burger
King as a meal option during lunch hour.

As can be seen, changes need to be made to both stores to get potential customers (e.g., Millennials, small
business employees) in the door. The menus lack innovation that would attract Millennials. For example, Store
Grilled Dogs, Chili Cheese Dogs, and Bacon Cheeseburgers, which do not meet the needs
of Millennials, as they fail to appeal to their concern with healthy food choices. Store A has major interior design
issues, as it includes only the bare essentials, making the store appear outdated and uninviting. Conversely, Store
B has a more modern, welcoming interior; however, the space is not well used, as most customers prefer the
drive-thru.

Competition. High competition in both areas is also a concern. Store A has seven direct competitors within a 2-

dominate the fast food burger industry. There are 10 indirect competitors within a 2- to 8-mile radius, including
another Burger King, owned by a different franchisee. This store not only has an ideal location but also is newly
renovated and easily accessible, with a comfortable environment. Store B also faces considerable competition;
there are nine competitors within a one-mile radius. Even though none is a direct substitute for Burger King, the
competitors, including Panera Bread and Subway, offer healthier, more preferred options. There are also two
sushi restaurants, providing the ethnic cuisine option. Other competitors include two pizza places and a Bagels &
Deli. Such competitors appeal more to consumers, especially Millennials. Finally, these competitors also have a
more inviting atmosphere than do the Burger King franchise stores.

Reviews and Customer Satisfaction

Reviews.
choice of restaurants. Millennials especially, who rely on technology more than do previous generations, use
customer reviews to guide them where to eat. Store A does not have many online reviews; the 19 on Google, 18 of

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which were within the past year, score it a 2.8/5, and the six on Yelp over the past five years give a 2.5/5. This is

, on Yelp; however, it scores lower on

the past seven years, a clear indication that it is more frequented. Further, the Burger King performs terribly,
compared to the healthier options of Muscle Maker Grill and Hot Bagels, which score 4.3/5 and 5/5 respectively
on Google, and 3.3/5 and 3.8/5 on Yelp.

Store B performs very poorly in terms of online reviews. Its eight Yelp reviews over the past six years give it a
2/5, while its 22 Google reviews over the past five years score it a 2.5/5. This is very low compared to its
competitors Panera and Subway, which have a Google score of 3.8/5 over the past five years and 4.6/5 within the
last year, respectively. The restaurants in the shopping center next door, a sushi restaurant and a Bagels & Deli,
also have high Google review scores, 4.7/5 and 3.7/5, respectively.

Customer satisfaction. Like online reviews, customer satisfaction surveys provide ins

Limited-Service Restaurants places Burger King at the lower end of the index, with a score of 76. This may seem
reasonable, compare
-fil-A at 87 and Panera at 81. A
customer satisfaction survey was conducted for Store A, with 36 students of a nearby university at which 70% of

to Burger King, at 58% and 64%, respectively. Despite the fact that 95% of survey participants stated that they
eat fast food in general, 42% had never eaten at Burger King. This is of even greater concern when considering

convenience, flavor, and price in an online survey of 13 participants. Customer dissatisfaction included food
quality and customer service. A survey conducted for Store A made it clear that Millennials prefer healthier food
options, as 61% preferred Panera Bread ove

Use of Technology

As noted, online and mobile ordering have become important tools for many foodservice operators, as the use of

power rising, it has become imperative for restaurants to target them via mobile technology. US Internet users
view online reservation services, free-wi-fi and online/mobile ordering as important. Fast food chains need to
incorporate technology, as 34% of participants in a 2016 survey on restaurant technology indicated that they
order food once per month via smartphone. Restaurant communication and information provided through online
means also are features that Millennials value. Further, discounts and special offers appear to be a top priority
for consumers, as 80% of US restaurant goers would like to receive them, and 49% of Millennials view them as

fare well in this segment. Store A does not offer online promotions, and, although Store B does engage in online
advertising, they also use outdated methods, such as newspaper ads and flyers.

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Both Burger King franchise locations are lacking in even the simplest technological innovation. Store A has old
soda machines and no online ordering services. Store B has no method of mobile payment or online interaction
with customers. Making food ordering an easier process should be a key focus of the Burger King franchisees, as
boxed-meal delivery services were expected to become a $3 to $5 billion market within the next decade. These
franchise stores even lag behind other Burger King franchise locations in technology in offering online ordering,
use of mobile apps, and more updated technology in-
technologically advanced. Panera Bread adopted mobile apps and online ordering, catering, and delivery systems.

calculator offered on its website, a very useful tool for the health-conscious Millennials of today.

Revenues, Costs, and Profits

attract this rich market leaves the stores suffering financially; the business is barely making its debt payments
and lacks liquidity (see Exhibit 1). The debt-to-
(risk), indicating the percentage of assets financed by debt, creditors, and liabilities. This ratio is problematic for
Store A, which had debt nearly five times higher than its assets in 2016 and nearly two times higher for the
franchise as a whole in the same year. The times interest earned and fixed payment coverage ratios indicate
fford to make
either payment, while Store B and the franchise as a whole are barely making their fixed payments. The franchise
as a whole and both stores are in poor financial health, as indicated by the current ratio, which is below 1, which
means that current liabilities exceed current assets, rendering the franchisee unable to convert its assets into
cash if necessary to meet its short-term obligations.

Ratios Franchise Store A Store B

2015 2016 2015 2016 2015 2016

Debt Debt to Assets 2.06 2.36 5.79 6.09 5.79 2.54

Times Interest Earned 1.11 1.25 -1.31 -1.15 2.31 2.01

Fixed Payment Coverage 0.31 0.27 -0.37 -0.24 0.36 0.40

Liquidity Current Ratio 0.20 0.61 0.10 0.09 0.10 0.21

Exhibit 1: Debt and Liquidity Ratios of Burger King Franchise, Store A, and Store B

Store A saw a 5.57% decrease in revenue between 2015 and 2016. Fortunately, the store was able to decrease the
cost of goods sold and reduce expenses during that same period, decreasing net loss by about 37%. However,
gross profit still declined by 4.56% from 2015 to 2016 (see Exhibit 2).

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 2015 2016

Revenue $987,782 $932,765

Cost of Goods Sold 328,516 303,597

Gross Profit 659,266 629,167

Top Expenses

Wages 216,017 226,429

Rent & Real Estate Taxes 212,685 212,685

Interest Expense 101,271 68,450

Other Expenses 337,342 252,787

Net Profit (Loss) $(208,050) $(131,183)

Exhibit 2: Store A Statement of Revenue and Expenses

Store B is more financially stable than is Store A. Store B managed to increase revenues by 2.63% and decrease
the cost of goods sold by 5% between 2015 and 2016, increasing gross profit by 25% (see Exhibit 3). Net profit
also increased during this period but only by about 17% due to the high increase in expenses, of about 29%. Most

allocation of costs and resulting profits. It would be more accurate to analyze the store based on revenue.

2015 2016

Revenue $1,234,916 $1,267,392

Cost of Goods Sold 934,801 892,028

Gross Profit 300,115 375,363

Top Expenses

Management Fees 69,500 128,000

Advertising 43,287 52,997

Royalties 46,058 44,127

Other Expenses 47,756 40,426

Net Profit (Loss) $93,512 $109,812

Exhibit 3: Store B Statement of Revenue and Expenses

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The losses of Store A and low profits of Store B barely justify the continued operation and prime locations of both

revenue after deducting the cost of goods sold and after deducting all expenses, respectively. They indicate
management efficiency and measure how much money is available after accounting for expenses. Each store has
its own major problem: Store B had only 28% of revenue after subtracting their cost of goods sold in 2016, while
Store A had a negative profit in 2016, and the franchisee had the same revenue as costs in 2016, with a 0% profit
margin (see Exhibit 4).

Franchise Store A Store B

Ratios 2015 2016 2015 2016 2015 2016

Profitability Gross Profit Margin 0.860 0.870 0.840 0.840 0.290 0.350

Net Profit Margin 0.012 0.000 -0.260 -0.170 0.025 0.025

Exhibit 4: Profitability Ratios of Burger King Franchise, Store A, and Store B

Being a franchisee of Burger King has associated limitations for implementation of marketing

operation. They need to rethink their marketing strategy and tactics to turn around the two stores and
to see revenue growth. They realize that, to make the stores more profitable, they should answer the
following questions:

1. What are the strengths, weaknesses, opportunities, and threats of the two Burger King stores?
2. How can the stores stay competitive in their respective local markets?
3. How should these stores attract more Millennials? What strategies and tactics should they use
to be attractive to this cohort?
4. How should these stores attract small business employees? What strategies and tactics should
they use to be attractive to this cohort?

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