Restaurant Brands International CEO Jose Cil foreshadowed in early August that Burger King was preparing to announce a significant turnaround strategy. He delivered on his promise, to the tune of $400 million.
The so-called Reclaim the Flame plan, shared at the chain's annual U.S. franchise convention, is a multi-layered strategy aimed at growing sales and driving operator profitability. The fast-food giant will spend $400 million in the next two years, including $150 million for advertising and digital investments and $250 million for technology, kitchen equipment, building enhancements, and remodels/relocations. Burger King franchisees, which comprise 93 percent of the domestic system, will co-invest in advertising dollars.
Burger King president of North America Tom Curtis said the plan is based on three anchors—operational excellence, refreshed image, and enhanced marketing. The Domino's veteran was promoted to his role in August 2021, around the time Cil first indicated Burger King was formulating a bigger, long-term solution.
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I'm very proud and thankful that our franchisees have stepped up once again to invest in our performance together, reflecting the genuine partnership and mutual respect we have built between the franchisor and franchisees, Curtis said in a statement. Ultimately, the success of this
plan comes down to execution at the restaurant level and we are so fortunate to have Franchisees who love this brand and are working closely with us to focus on the right priorities. I believe in this team, this plan, and a bright future as we evolve and enhance our guest experience and drive profitable growth for the business.
In the past few years, Burger King has underperformed in the eyes of leadership. The chain's domestic same-store sales inched up 0.4 percent in the second quarter, or 13.4 percent on a two-year stack. Meanwhile, at McDonald's, U.S. comps lifted 3.7 percent, or 29.6 percent on a two-year comparison, and at Wendy's, sales grew 2.3 percent, or 18.4 percent on a two-year basis. Also, Burger King is the seventh-largest quick-service brand in terms of U.S. sales, according to the QSR 50, down from fifth in 2019. It was jumped by Wendy's and Dunkin'.
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Going forward, Burger King will look to modernize itself to attract a younger, diverse customer base. The $250 million portion of the investment will be divided into two components. One is $50 million—in addition to matching funds from franchisees—toward a 3, 000-unit refresh program. The remaining $200 million is for remodeling approximately 800 stores. This specific initiative includes a change in incentive structure, too. Previously, franchisees received advertising and royalty discounts for up to seven years. Now, operators will be given more substantial incentives, have access to more contributions in exchange for a higher royalty rate, and receive incentives in upfront cash when remodels are completed.
Historically, Burger King's reimage program has resulted in one-year sales lifts of 12 percent and comps outperformance of 2 percent. The company hopes to upgrade these numbers with its new program.
Remodel program represents a shift toward higher quality remodels and creates a viable path toward modernizing the system, the company said in a statement. Through a more thoughtful approach and increased funding, we are establishing support for our franchisees to address their most important investments and lay the foundation for sales and profitability growth in the years to come. This will be the first step toward a more consistent, long-term cadence of portfolio reimaging that is focused on smarter investments and executing with quality to drive sales growth and attractive returns on capital for both Burger King and its franchisees.
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The menu will invest more in premium branding, especially the Whopper. Curtis previously told analysts, “The Whopper is a multi-billion-dollar brand, and we need to treat it as such. That means removing the burger from discounts and developing flavor extensions. A recent example is the Whopper Melt that released in March. The innovation, featuring fame-grilled beef patties sandwiched between toasted bread, had regular, spicy, and bacon versions.
Burger King will bolster its chicken platform, as well. The chain is replacing its short-lived Ch'King Sandwich with the Royal Crispy Chicken Sandwich, which comes in crispy, spicy, and bacon and Swiss cheese. Burger King did not give a reason for the switch, but it did say the Royal Sandwich is built around a simplified menu and improved operations. The concept said that over the past year, streamlining efforts have resulted in four straight quarters of better operating metics and improvements in guest satisfaction. To maintain this, Burger King will host dozens of Royal Roundtable events with managers and franchisees to educate teams on implementing operational changes.
As the brand builds its premium offerings, it will keep a pulse on everyday value for customers grappling with historic inflation. Currently, this comes in the form of a $6 Your Way Deal (double cheeseburger, Chicken Fries, and regular fries). This takes the place of the $5 Your Way Meal, which included a Double Whopper Jr., nuggets, fries, and drink.
Burger King's $400 Million Plan
In terms of advertising, Burger King will invest $120 million in its fund over the next two years, which represents an annual 30 percent bump in media purchasing firepower, the company said. This increase is inclusive of efficiencies gained through the chain's new media agency, Omnicom Media Group's PHD. Following 2023 and 2024, participating franchisees will increase their ad fund contribution by 50 basis points through 2028, contingent on profitability goals being met. Burger King will also target $30 million toward digital, which now generates $900 million in annual U.S. systemwide sales.
Over the past year, Tom has built a talented leadership team that has worked collaboratively with Burger King Franchisees to develop a multi-year plan to drive the performance of the system, Cil said in a statement. We believe now is the time to make a significant investment to accelerate the work given the quality of the team, focus of the plan, commitment of our Franchisees and the opportunity that clearly exists for our iconic brand to Whether you enjoy fast food or not, the quick, affordable meals served up by these mega-chains are as integral a part of the dining landscape as casual cafés and white-tablecloth restaurants. This is perhaps even more apparent over the past year, as data from Placer.ai reveals that in the midst of pandemic recovery and record-breaking inflation, American eaters have been trading down to lower-priced food options.
But it's only certain chains that have retained or grown their foot traffic, among them McDonald's and Chipotle, the latter company reporting a 36% increase of in-restaurant sales during the quarter ending in June, and the opening of 42 new restaurants during that time (via Chipotle's website). The burger behemoth, Burger King, hasn't fared as well recently, reporting flat U.S. sales that lag behind rivals McDonald's and Wendy's. In fact, Wendy's leapt over BK in 2020 to become America's second-leading fast-food chain by sales and held on to that title in 2021 (per The Washington Post). Now, Burger King says changes are coming with a pricy plan to revamp the brand and its restaurants.
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Fast-food giant Burger King hasn't been performing well lately — and the company intends to try to recoup lagging U.S. sales by revamping its advertising strategies and restaurant locations (per CNBC). The outlet explains that last year, former Domino's executive Tom Curtis stepped in as BK's new North America president, instituting such changes as paring down the chain's menu for faster drive-through times and promoting sales through its mobile app.
But Friday, at the brand's annual franchisee convention held in Las Vegas, Nevada, Burger King announced some much bigger changes that will be put into place over the next two years and cost a whopping $400 million (via CNBC). Of that price tag, $200 million will go towards funding remodels of about 800 store locations, $120 million will be added to the chain's U.S. advertising budget, $50 million will go toward the installation of updated equipment and tech in 3, 000 locations, and $30 million will be invested into the improvement of BK's mobile app, according to The Washington Post.
According to CNBC, remodeled Burger King restaurants have historically brought in an average 12% increase in sales in their first year, and continue to outperform older locations over time. Therefore, it makes sense that the chain's newly announced revamp will focus the bulk of its financial investment on this project. We might see remodels start to hit the market mid-2023 and going forward. It should really be a gradual ramp of the business over the course of the couple of years, Jose Cil, CEO of Restaurant Brands International, which owns Burger King, told CNBC.
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The chain has more than 7, 000 locations across America, the majority of which are privately-owned franchises. Since store renovations can be costly and necessitate the closing of a location for a long period of time, the chain will be offering cash rewards to operators who choose to renovate their restaurants. Every restaurant is a snowflake, BK North America president Tim Curtis told The Associated Press. We will look at which projects will generate the best return and prioritize them first.
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