Burger King Is Still a Struggling Chain—Here's Why
Burger King may be one of the most well-known burger chains in the world, but not even its big name recognition and footprint have protected it from its share of financial troubles over the last couple of years. In 2020, it lost its spot as the second-largest burger chain in America to Wendy's. Then as other fast-food chains started to get back to their pre-pandemic levels last year, Burger King's sales and traffic lagged.
The burger giant has been seeing some signs of improvement in its financial situation this year, likely due to its sweeping $400 million investment campaign aimed at improving its brand and restaurants. The chain beat analyst estimates with a 12.3% increase in global same-store sales and an 8.7% increase in same-store sales in the United States in the first quarter of 2023. However, Burger King still has a ways to go if it wants to gain traction in the burger wars again and become more competitive with major rivals like McDonald's and Wendy's. There are a couple of reasons behind Burger King's continuing struggles, but the biggest one of all might be its ongoing woes with the health and profitability of its franchisees.
Two major Burger King operators–TOMS King Holdings and Meridian Restaurants Unlimited—filed for bankruptcy in the first quarter of 2023 due to declines in foot traffic and revenue. Burger King has also shuttered dozens of restaurants since the start of the year, including 27 of Meridian's locations and 26 restaurants from another operator that Burger King sued over its alleged failure to pay required royalties, ad fund payments, and other charges.
In good news, Burger King has plans to improve the health of franchisees that coincidentally include the closures of even more restaurants. The company expects to shutter as many as 400 restaurants this year, most of which will be "low volume" units, in order to "improve the overall health of the system," Josh Kobza, CEO of the chain's parent company Restaurant Brands International, revealed during a May earnings call. On top of purging some struggling restaurants, Burger King is also trying to work with other franchisees to drive better results and encourage those that can't meet brand standards to sell their locations to better-performing operators.
"I do expect a bit more short-term noise as we transition some portfolios into the hands of top local operators, but think we are moving in the right direction to improve our foundation for the long-term," he said.
The other reason that Burger King is still struggling comes down to traffic. Kobza revealed during that May earnings call that traffic for the first quarter of 2023 was "modestly negative." Still, the company found it encouraging that traffic wasn't quite as negative in the first quarter as it was in the fourth quarter of 2022. Kobza said that RBI is focused on growing traffic throughout the rest of 2023 through good advertising and focusing on improving operations, which can lead to better customer experiences. Only time will tell if Burger King can meet these ambitious goals, but the chain is betting on itself.
"We're feeling increasingly positive about the case path forward this year and into the future," Kobza said.