Burger King may be one of the most famous fast food chains in the world, but not even its global popularity and vast store count have protected it from facing some alarming financial issues in the past few years.
In the United States, more Burger King restaurants continue to disappear, with closings in July hitting the highest level since January when 124 locations were shuttered in only 26 days. While its main competitors reveal expansion plans and report profit growth, the financial situation of the royal burger chain can only be described as a train wreck.
The company is failing to attract new customers, catch up with its rivals, and dig itself out of the hole it has fallen into during the pandemic. At this point, everyone in the industry is asking where did Burger King go wrong. Luckily for us, newly reported data show exactly why the fast food giant is facing one of the worst losing streaks since its foundation in 1954.
As other fast-food chains started to get back to pre-pandemic levels, Burger King’s sales and traffic fell steeply, and its financial results continued to disappoint. Over the past two years, sales at Wendy’s jumped 18% while McDonald’s saw sales grow by 25%. In contrast, at Burger King, sales went up by a meager 8%.
During a second-quarter earnings call, Josh Kobza, CEO of the chain’s parent company Restaurant Brands International, said that one of the reasons why Burger King is still struggling comes down to new guest visits. Kobza revealed that foot traffic in the first two quarters of 2023 was negative, and most of the earnings growth experienced by the company was fueled by higher menu prices, not by new customers.
Meanwhile, retail experts point to its ongoing woes with the health and profitability of its franchisees as the biggest issue facing Burger King. In a single year, the four biggest fast-food operators in America, including TOMS King Holdings and Meridian Restaurant Unlimited, whose portfolio was mainly composed of Burger King stores, have filed for bankruptcy citing declines in foot traffic and revenue, as well as ‘systemic’ profitability issues.
After shuttering 53 locations in June, 133 restaurants closed doors for good in July, the highest number in seven months. So far, the burger chain has permanently halted operations in 450 locations, 50 more than its initial target.
The vast majority of restaurants have been forced to increase prices to compensate for higher inflation, But Burger King has taken price increases to a whole other level. In a survey conducted by MoneyGeek of 145 chains in 50 cities, the price for a burger, fries, and a soft drink rose 9% on average in the past year. From 2022 to 2023, the price for a meal at the chain rose 21%, from $6.76 to $8.18.
A few months ago, its parent company, Restaurant Brands International, made a strategic hire that laid bare exactly how nervous executives and shareholders were about its economic prospects. Patrick Doyle was formerly the CEO of Domino’s and he is commended by the chain’s drastic turnaround.
Doyle announced plans to “put the heat back into the brand” with a $400 million initiative called “Reclaim the Flame.” Burger King is going to spend $150 million in advertising and digital investments and $250 million in a “Royal Reset” involving new restaurant technology, equipment, and infrastructure. In other words, executives are admitting that the chain is in desperate need of restructuring on every front, from its products to its brick-and-mortar locations.
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Hopefully, this initiative shows satisfactory results soon, because up until this point in 2023, Burger King is just getting burned.
Article and video cross-posted from Epic Economist.
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