Wednesday, May 25, 2005

The Return of the King

The turnaround of Burger King under new CEO, Greg Brenneman

Since its establishment, Burger King, the second largest fast food chain behind McDonald in the United States, has experienced frequent changes in ownership and fallen in big troubles in the past decade. Embroiled in a down-and-dirty price war trying to steal market share, the fast food giant experienced declining same-store sales together with other large chains. Consumers have been more aware of eating healthier alternatives and began to abandon greasy menus. Burger King also suffered from several failed attempts to redesign its brand. Many of its franchises are filing bankruptcies. To make it worse, Burger King experienced a revolving door in the board room: since 1989, the company has welcomed ten CEOs.

In August 2004 the company announced Greg Brenneman as its latest CEO, a Harvard M.B.A. who had led turnarounds at Continental Airlines and PricewaterhouseCooper's consulting unit. Mr. Brenneman moved quickly to boost morale at headquarters here and improve relationships with franchisees, who own about 90% of the company's U.S. restaurants. He cut costs, increased sales and introduced a slew of products. Burger King now has posted 14 consecutive months of sales growth in stores open more than a year. Customer traffic is up 7% since the fiscal year begun July 1, for the first time since 1997.

Is Greg really a master of turning around companies or just lucky? Is this success sustainable? We might want to know how well Greg’s new strategies worked and what differentiated him from the other 10 “unlucky” CEOs.

First, facing the strong competition of McDonald, Greg didn’t simply launch a price war to gain more market share, as his predecessors did before. Instead, Greg changed the focus to offering new products. Since McDonald turned to salad offerings, Burger King kept focusing on chicken sandwiches to avoid direct conflict. New products included the Angus Steak Burger, the Spicy Chicken Sandwich in 2004 and Enormous Omelet Sandwich early 2005. Since their debut, new products have helped grow Burger King’s breakfast sales 20 percent.

Secondly, Greg re-segmented the customers to boost the revenue. Enthusiastic about customers’ desires, Greg decided to focus on blue collar workers aging from 18 to 34, a population accounts for 18% of Burger King’s customers but 49% of business. New products, like chicken sandwich with pepperjack cheese and Red Bull-inspired coffee coming with 40 percent more caffeine than regular, were rolled out to cater these repeat customers’ desires. Concentrating on the most valuable customers, Greg increased sales by 11% and demonstrated the magic of identifying and serving the potential core customers.

Thirdly, Greg integrated Burger King’s complicated market images into a basic concept - "Have It Your Way". Launching aggressive advertising campaign, Greg changed the advertising agent and developed new commercials to promote this new image and target core customer segments. This new promoting strategy and “breakthrough advertising” were an important part of Burger King’s resurgence.

Fourthly, unsatisfied with Burger King’s franchise restaurants, Greg shrank the size of restaurants to save cost and improved the respect between Burger King and franchises. He broke tradition rules of designing fast-food restaurants to improve the utilization and customer experience. New design saved one-third of startup cost, making franchise restaurants more competitive in the market. Also, he urged the communication in Burger King to avoid “Civil War” and started treating franchisees with dignity and respect. He rebuilt company’s culture by visiting restaurants every week, coaching new employees, and sending out voice mail every week. His effort made every employee understood the company’s target and strategies clearly.

Although Greg’s turn-around strategies cover many other fields, like international growth and compensation system transformation, these four aspects is basically how he differentiates from his predecessors. Reviving macro economy might contribute partly to Burger King’s growth, but Greg’s strategies are the key to turning around Burger King. With a great talent in understanding customers’ requirements, Greg knows the way to satisfy them to get the maximum profit from them. He knows how to use comprehensive product, promotion, and channel strategies effectively to rescue staggering companies. Moreover, his decisive personality and strong mind in culture reforming and employees motivation are crucial to revive depressed teams.

Greg’s strategies don’t seem to be hard to understand. However, why didn’t the other 10 CEO do it? Is it because of Greg’s Harvard MBA education? Greg mentioned that his success didn’t come from his education, but from his past working experience and addiction to turning around business. For senior business leaders, hands-on experience, personality, and passion might be 3 important factors that really make differences in their lifelong career progress.

By: Masato Eguchi, Yuxiang Luo, Yihui Zhang

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