The majority of the locations of international fast-food restaurant chain Burger King are privately owned, or franchised. While the majority of franchises own single locations, several have grown into major corporations in their own right. At the end of its fiscal year 2008, Burger King reported that there are more than 11,550 outlets in 71 countries; 66% are in the United States and 90% are privately owned and operated. The company locations employ more than 37,000 people who serve approximately 11.4 million customers daily.
Since its inception in 1952, Burger King has used several variations of franchising to expand its operations. In the United States, the company originally relied on a regional franchise model with owners having exclusive expansion rights in a defined geographic territory. This model proved to be problematic as it led to issues of food quality, procedures and image management. A 1970s attempt by one of its largest franchises to take over the chain led to a restructuring of its franchising system, tossing the old method in favor of a restricted, per store licensing model. The 1978 restructuring, led by a new director of operations, firmly placed the mantel of franchise oversight on the shoulders of the company.
While Burger King still utilizes it revamped franchising system in the United States, outside of North America its international locations licenses are still sold on a regional basis with franchises owning exclusive development rights for the region or country. These regional franchises are known as master franchises, and are responsible for opening new restaurants, licensing new third party operators, and performing standards oversight of all restaurant locations in these countries; The largest example of a master franchise is Hungry Jack's, which oversees over 300 restaurants in Australia.
History
The company known today as Burger King itself began as a franchise; the predecessor of Burger King was founded in 1953 in Jacksonville, Florida as Insta-Burger King. The original founders and owners, Kieth J. Kramer and his wife's uncle Matthew Burns, opened their first stores around a piece of equipment known as the Insta-Broiler. The Insta-Broiler oven proved so successful at cooking burgers, they required all of their franchises to carry the device. The rights to open stores in Miami, Florida belonged to two businessmen named James McLamore and David R. Edgerton. In 1954, McLamore and Edgarton were operating several locations with in the Miami-Dade area and growing at a fast clip when they decided to replace the Insta-Broiler with a mechanized gas grill they called a flame broiler. Even though the company had rapidly expanded throughout the state until its operations totaled more than 40 locations in 1955, the original Insta-Burger King ran into financial difficulties and the pair of McLamore and Edgarton purchased the national rights to the chain and rechristened the company as Burger King of Miami.
When McLamore and Edgarton's Burger King Corporation began a full franchising system in 1961, it relied on a regional franchising model where franchisees would purchase the right to open stores within a defined geographic region. These franchise agreements granted the company very little oversight control over its franchisees and resulted in issues of product quality control, store image and design and operations procedures.
In 1967, after eight years of private operation, the Pillsbury Company acquired the Burger King brand and its parent company Burger King Corporation. At the time of the purchase, the chain had grown to 274 restaurants in the United States. Pillsbury continued to grow the company utilizing the existing franchise system despite its flaws. The power of its independent franchises came to a head in 1973 when Chart House, owner of 350 restaurants and one of its largest franchise groups, attempted to purchase the chain from Pillsbury for $100 million (USD) which Pillsbury declined. When Chart House's bid failed, its owners Billy and Jimmy Trotter put forth a second plan that would require Pillsbury and Chart House spin off their respective holdings and merge the two entities into a separate company. Again Pillsbury declined the proposed divestiture. After the failed attempts to acquire the company, the relationship with Chart House and the Trotters soured; when Chart House purchased several restaurants in Boston and Houston in 1979, Burger King sued the selling franchisees for failing to comply with the right of first refusal clause in their contracts. Burger King won the case, successfully preventing the sale. The two parties did eventually reach a settlement where Chart House kept the Houston locations in their portfolio. Chart House eventually spun off its Burger King holdings and refocused on its higher end chains; its Burger King holding company, DiversiFoods, was eventually acquired by Pillsbury $390 million (USD) in 1984 and folded into Burger King's operations.
The regional licensing model remained in place until 1978 when the company hired McDonald's executive Donald N. Smith to help revamp the company. Smith initiated a restructuring of all future franchising agreements, disallowing new owners from living more than an hours drive from their restaurants, preventing corporations from owning franchises and prohibiting franchisees from operating other chains. This new policy effectively limited the size of franchisees and prevented larger franchises from challenging Burger King as Chart House had. Smith also altered the way company company dealt with new properties by making the company the primary owner of new locations and rent or lease the restaurants to its franchises. This policy would allow the company to take over the operations of failing stores or evict those owners who would not conform to the company guidelines and policies. However, by 1988 Burger King parent Pillsbury had relaxed many of Smith's changes, scaled back on construction of new locations and stalling growth. When Pillsbury was acquired in 1989 by Grand Metropolitan PLC, the company fell further into decline, a pattern which continued under Grand Met successor Diageo. This institutionalized neglect further hurt the standing of the brand, in turn causing significant financial damage to Burger King's franchises.
By 2001 and nearly eighteen years of stagnant growth, many of its franchises were in some sort of financial distress. The lack of growth severely impacted Burger King's largest franchise, the nearly 400-store AmeriKing; the company, which until this point had been struggling under a nearly $300 million debt load and been shedding store across the US, was forced to enter Chapter 11 bankruptcy. The failure of AmeriKing deeply affected the value of the company, and put negotiations between Diaego and the TPC Capital-lead group on hold. The developments eventually forced Diaego to lower the total selling price by almost three-quarters of a billion dollars. After the sale, newly appointed CEO Bradley Blum initiated a program to help the roughly 20% of its franchises, including its four largest, who were in financial distress, bankruptcy or had ceased operations altogether. Partnering with the California-based Trinity Capital, LLC, the company established the Franchisee Financial Restructuring Initiative, a program to address the financial issues facing BK's financially distressed franchisees. The initiative was designed to assist franchisees in restructuring their businesses in order to meet financial obligations, focus on restaurant operational excellence, reinvest in their operations and return to profitability.
Individual owners also took advantage of the AmeriKing failure; one of the BK regional owners, Miami-based Al Cabrera, purchased 130 stores located primarily in the Chicago and the upper mid-west, from the failed company for a bargain basement price of $16 million, or approximately 88% of their original value. The new company, which started out as Core Value Partners and eventually became Heartland Foods, also purchased 120 additional stores from distressed owners and completely revamped them. The resulting purchases made Mr. Cabrerra BKB's largest minority franchisee and Heartland one of Burger King's top franchises. By 2006, the company was valued at over $150 million, and was sold to New York-based GSO Capital Partners. Other purchasers included a three-way group of NFL athletes Kevin Faulk, Marcus Allen and Michael Strahan who collectively purchased 17 stores in the cities of Norfolk and Richmond, Virginia; and Cincinnati-based franchisee Dave Devoy, who purchased 32 AmeriKing stores. After investing in new decor, equipment and staff retraining, many of the formerly failing stores have shown growth upwards of 20%.
Relations
In the United States, approximately 90% of Burger King's franchises have banded together to form the Burger King National Franchise Association (BKNFA or NFA). The 900-member group is based in Atlanta, Georgia, and is designed to provide what the group calls Franchisee Relations Advocacy. It acts as a corporate negotiator that mediates with corporate-franchise disputes, as a government lobbying group to deal with issues that effect the fast-food industry as a whole, and it provides group health, property and casualty insurance. In 2001, the group announced a plan to purchase Burger King from then-parent Diaego after the company put forth a plan to float approximately 20% of BKC on the NYSE. The NFA believed that any money raised from the issue would not be put into helping bolster the then flagging BK, but would instead end up being used to help Diaego bolster its liquor brands. The deal collapsed when the NFA was unable to put together an acceptable financing package.
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