Burger King's Franchise

When Burger King Corporation began franchising in 1959, 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 BKC very little oversight control over its franchisees and resulted in issues of product quality control, store image and design and operations procedures.

This 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 one hour 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 Corporation as Chart House had. Smith also sought to have BKC be 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 BKC parent Pillsbury had relaxed many of Smith's changes, scaled back on construction of new locations and stalled growth. Neglect of Burger King by new owner Grand Met, and its successor Diageo, further hurt the standing of the brand, causing yet more financial damage to BK franchises.

By 2001 and after nearly eighteen years of stagnant growth, many of the franchises were in some sort of financial distress. The lack of growth severely impacted BKC's largest franchise, the nearly 400 store AmeriKing; by 2001 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 BKC, and put negotiations between Diaego and the TPC Capital-lead group on hold. The developments eventually forced Diaego to lower the total selling price of BKC by almost three quarters of a billion dollars. After the sale, newly appointed CEO Bradley Blum initiated a program to help 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 took advantage of the AmeriKing failure; one of BK's regional owners, Miami-based Al Cabrera, purchased 130 stores located primarily in the Chicago and the upper mid-west region, from the failed company for a price of $16 million, 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 revamped them. The resulting purchases made Mr. Cabrerra BKB's largest minority franchisee and Heartland one of BKH'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%.

Burger King has a longstanding presence at U.S. Army and U.S. Air Force installations worldwide, dating back to the 1980s under a contract with Army and Air Force Exchange Service. Today, while other chains such as Taco Bell, Popeye's, and Subway have a presence on military bases, virtually every major Army and Air Force installation hosts a BK restaurant.


Sources : wikipedia


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