Burger King struggled during the Great Recession as the venerable burger chain struggled to keep pace with McDonald’s $1 menu. Operators filed for bankruptcy and warred with the brand. But it was sold to 3G Capital in 2010.
The private equity firm brought a measure of stability to the brand, which had gone through multiple leadership and ownership changes over the years. It also brought a certain aggressiveness, particularly on marketing, that it would use for several years to generate consistent sales and help many franchisees grow through acquisitions.
The performance of that U.S. business, coupled with growth internationally, would be the foundation for the creation of Restaurant Brands International, featuring later acquisitions of Tim Hortons, Popeyes and Firehouse Subs.
But sales have been inconsistent at best more recently and the brand struggled coming out of the pandemic. As the Miami-based burger chain plans to reveal a host of revitalization initiatives, including expected investments from parent company Restaurant Brands International, it has fallen behind other major fast-food chains.
A big challenge for Burger King has been its marketing, particularly its focus on discounts. The company increased levels of discounting late in 2016 and by the end of 2018 about 10% of franchisees’ sales were discounts.
While value is important for fast-food chains to get customers in the door, those discounting levels make it difficult for operators to make a profit. Carrols Restaurant Group, Burger King’s largest franchisee, saw profitability struggles as those discounts increased and by the end of 2019 was cutting back on capital spending to pay off its immense debt load.
Customers grow used to those discounts. And it can be difficult for a company to break free of them. It’s a particular problem when a company discounts its premium product, as Burger King did with the Whopper until this year. Why pay full price when you can get a couple of them on the 2-for-$5 menu?
Burger King enjoyed some success with its Impossible Whopper in 2019. But some of its other marketing initiatives didn’t take—or at least they didn’t take for long. Maybe the worst came last year, when the company introduced its Ch’King, a high-end, hand-breaded chicken sandwich meant to be a major player in the Chicken Sandwich Wars.
The Ch’King tested well and was arguably one of the best of the new chicken sandwiches. But it was also late, as some four dozen restaurant chains had already introduced their versions by the time of Burger King’s introduction.
The complex sandwich did not sell nearly as well as did McDonald’s or KFC’s sandwiches, based on same-store sales data. Complex sandwiches that do not sell well cause problems.
Meanwhile, Burger King took steps during the pandemic to close some restaurants.
As a result, the brand has fallen behind many of its competitors. Chick-fil-A, the high-flying chicken sandwich chain everybody is racing to match, overtook Burger King in 2018. It is now McDonald’s largest direct competitor.
Taco Bell, which competes for many of Burger King’s customers, also overtook Burger King based on U.S. system sales in 2018. And then Wendy’s leapfrogged Burger King in 2020 to become the country’s second-largest burger chain. It’s poised to continue growing, having introduced breakfast that year. Among the 10 largest restaurant chains in the U.S., it and Subway are the only two whose sales were still below pre-pandemic levels last year.
The sales challenges have been a major problem for franchisees struggling with rising costs for food and labor. Credit rating agencies have been downgrading major operators’ bond ratings of late based on profit challenges.
Burger King has been making significant changes and is poised to make more starting next week. The company has largely overhauled its executive team, bringing in former Domino’s Pizza executive Tom Curtis to be president of North American operations. It stopped discounting the Whopper and has a new chicken sandwich that is apparently easier to operate.