Introduction
Founded in 1954, as the Insta-Burger King is an American based fast food company. It is the second largest burger restaurant chain in the world (Lewis, 2018). The company claims to have more than 14000 franchise worldwide. The number of operational countries is 100.
The increase in the sale of quick-service restaurants has affected the sales of fast food burger restaurants. Burger King accounts for a large number of shares in America’s fast food burger industry. Competed against, McDonalds, Hardees’ and Wendy’s, Burger King has shown remarkable performance over the last few years. The ups and downs in the history of Burger King have affected the fast food giant multiple times. The company has been sold multiple times but still is performing well
The modern-day health concerns are pushing fast food industry to change their strategies. In order to cope with these challenges different new amendments and steps are required to be taken by fast food companies like Burger King. Prior to planning these steps, a critical analysis of the internal and external environment of the business is required. This critical report based on the analysis of Burger King using different analytic tools such as SWOT, PESTLE and Poster’s five forces, shows the current condition of the company and help suggest the future strategies for it.
SWOT Analysis of Burger King
SWOT or Strength, Weakness, Opportunities, and Threats is a framework used in determining the competitivity of the company (“SWOT Analysis”, 2018). It is used in identifying the pros and cons of the company in both internal and external environment. The SWOT analysis is helpful is setting goals and achieving targets of a company, identifying the possible threats to the company. SWOT starts with the identification of the strength and weakness of the company and then point s out the possible opportunities for the advancement of the company and the possible threats and risk associated with.
For Burger King, the SWOT analysis is as follows.
Strength
Great Market Position: the very first strength of Burger King is its great market position. The company has the second largest burger restaurant chain in the world, especially measuring the number of franchises and sales worldwide.
Partnership with Coca-Cola: The company holds the longest partnership with another beverage giant, Coca-Cola. This partnership pays a large amount of profit in increase sale and low investment.
Franchises: Large number of franchises provides the advantage of low or no capital needs for the growth of the company.
Weaknesses
Bad Market Strategy: the main difference between Burger King and its biggest competitor is the target market strategy. Burger King only focuses on young peoples by offering only high calories fast food menu.
Franchise Dependency: Too much dependency on franchise system in order to generate revenue is the second biggest weakness of Burger King since almost 90% of Burger King restaurants are franchised.
Low International Market: Majority of Burger King restaurants are situated in the USA. While the rest of them are spread through the Middle East. The concentration of Burger King at two places results in the low international market for the company.
Opportunities
Benefit from Coca-Cola: More robust partnership not only make Burger King’s brand image more stable but it also provides the company with the opportunity of joint marketing.
Targeting New Market: Burger King can increase its profit generation by adding new items to its menu. Targeting new markets of health-conscious people is another great opportunity for Burger King to adopt.
Entering International Market: New attractive markets of Europe and developing countries of Asia like India Pakistan are potential marketplace of r the international presence of the company.
Threats
Low Entry Chances: Due to the limited food item, the company is serving, there is a minimum chance for the company in successful entering in new markets.
Unstable Leadership: The instability in the leadership of Burger King is another bigger threat to the company’s strategies, especially in the attainment of the goals and objectives. This unstable leadership is one of the major causes behind the falling profits.
Unhealthy Products: Due to the increasing awareness of health, the high calories products of Burger King are a constant threat to its business.
PESTLE Analysis of Burger King
PESTLE or Political, Economic, Social, Technological, Legal and Environmental analysis is a framework that recognizes different factors of the organizational environment (“What is PESTLE Analysis? A Tool for Business Analysis”, 2018). The PESTLE analysis of Burger King determines the external factors that may act on the optimization of the corporate performance of the company. Following is the brief PESTLE analysis of Burger King.
Political Analysis
Politics of any country has both direct and indirect effect on any organization working in the country. Since most of the countries are moving towards the globalization, companies can expand their business in those countries. Since the majority of the business of Burger King is in first world countries like the United States of America, therefore the political stability of those countries can be very helpful for companies like Burger King.
Economic Analysis
Economic conditions are external environmental factors that affect directly on any organization. The stability in a country’s economy defines the possibility of a good business while on the other hand the inflation or instability may cause a loss in profit. The economy of Burger King shows positivity since a large number of the revenue of the company generates from the US market. Other international markets having a stable economy are also possessed great opportunities for Burger King.
Social Analysis
Society has a great impact on the drive of a business. Different socio-cultural factor affects an organization in different directions. In the case of Burger King, the social factors have both positive and negative effects.
The positive effect is the increasing diversity in the customers of Burger King can allow this company to operate in different new markets. The diversity may also be helpful in terms of new development and innovation, especially in the menu of Burger King. The negative impacts, on the other hand, will be due to the increase in health awareness programs that have resulted in the criticism of fast foods.
Technology Analysis
Advancement in new technologies and development of new commerce systems especially the online shops have made it possible for companies like Burger King to move forward and to improve the quality of their products and services. These improvements are beneficial for operational outcomes of the organization.
Use of social media and mobile apps can lead the marketing strategy of Burger King to a level where the market share is much greater than the current one.
Legal Analysis
When a company goes international, different legal issues came up. But in the case of Burger King whose majority of the business is based on the franchise system, the legal system of the targeted marketing country does not seem to be affecting Burger King. However, some laws and regulations are meant to be followed universally. For example, the environmental laws. A mishap in any of the environmental law does not only impact the business in that country but also affects other neighboring markets.
Environmental Analysis
Climate is the major global problem nowadays. Organizations that are not following proper environmental rules and regulations, fear threats regarding ban and decline in the revenue. The use of eco-friendly products can lower the leverage on the company.
The pestle analysis of the company shows that company does not pose threats from political, environmental and technological factors, but at the same time the negative impact of environmental and legal factors may result in a decline of the overall performance of Burger King.
Porters Five Forces Analysis
Developed by Michael Porter, the porter five force analysis is a performance analysis tools for business companies. Porters five forces determine the influence of external factors on the organization (“Porter’s 5 Forces”, 2018). The very first factor affecting Burger King is the competitors. Consumers, suppliers and partners, substitutes and new market rivals are five major forces that can influence the business of Burger King. A brief description of these forces is as follows.
Competitor
The major rival or competitor of Burger King is McDonald’s. The competition in-between Burger King and McDonald’s have a strong force. Due to the same target market, the same products and services and the same price are the major factors related to the competitor of Burger King.
The main disadvantage for Burger King is a smaller number of products, in their restaurants. The other disadvantage that makes the competitor a strong force is unhealthy calorie-rich food products.
Consumers
Consumers are the backbone of the organizations. For Burger King, consumers are found to be a strong force in terms of Porters’ five forces model. Easy availability of the same products at lower costs allows the switching of customers. The switching of customers has a direct impact on the business of Burger King. Making consumer a strong force.
Suppliers and Partners
Suppliers and partners also play important role in the business. But in the case of the fast-food giant like Burger King, the impact of suppliers is not so much strong. The presence of a large number of suppliers that are willing to work with Burger King and the easy availability of resources and ingredient supply makes consumer generally a weak force.
Substitutes
The increasing number of fast food restaurants have resulted in the low switching cost for consumers. A consumer can now easily switch to another substitute if the company is unable to provide the quality of product and quality of service. Burger King is also facing a different substitute in terms of taste, quality, and price. This possibility makes the availability of substitute ad strong force in Porter’s five force model.
New Rivals
Just like the substitute and the competitors, the threat of new upcoming rivals is another strong to moderate force for Burger King. Despite being a large business, that benefits Burger King in terms of economy, the small new uprising restaurant is a constant threat to the company.
CAPM of Burger King
The CAPM or capital asset pricing model (CAPM) is a relationship in-between risk of investing and the expected return of a company. This model is used to calculate the cost of capital and rate of return (Jagerson, 2018).
The formula for calculating the capital asset pricing model is as follows:
Er = Rf + βi(Mr)
Where Er = Expected return
Rf = Risk-free rate
βi = Beta of the investment
Mr = Market risk premium = (Market value of Equity – Shareholder Equity)
The expected return is a time-based guess of the investment. The risk-free rate is the yield of the country of investment for a period of ten years. Beta is defined as the volatility of the returns i.e. the fluctuation in the stock price of the company. While market premium is the extra market return that is free of the risk-free rate.
CAPM is important for finding out the enterprise value in terms of future cash flows and net present value of the company. It is also calculated for determining the fair price of the stock.
For Burger King, the cost of equity is found to be 7.4% (“QCR”, 2018) as the Burger King is currently held by QSR (Restaurants Brand International)
Conclusion
The analysis of Burger King shows that the second largest hamburger chain in the world has a lack of proper strategic planning, that is why the history of the company has almost 20 times change in its management. Other factors that have been affecting the overall performance of the company are poor products, poor consumer relationship, and poor franchise image. In order to resolve these issues Burger King, have to monitor, constantly and with consistency, the customer response and have to respond to the feedback from its stakeholders. The external environment has great potential for the company to thrive off but the mishaps in the internal environment are worth considering.
References
Jagerson, J. (2018). Capital Asset Pricing Model – CAPM. Retrieved from https://www.investopedia.com/terms/c/capm.asp
Lewis, R. (2018). Burger King Corporation | History & Facts. Retrieved from https://www.britannica.com/topic/Burger-King-Corporation
Porter’s 5 Forces. (2018). Retrieved from https://www.investopedia.com/terms/p/porter.asp
QCR. (2018). Retrieved from https://finbox.io/QSR/models/wacc
SWOT Analysis. (2018). Retrieved from https://www.investopedia.com/terms/s/swot.asp
What is PESTLE Analysis? A Tool for Business Analysis. (2018). Retrieved from https://pestleanalysis.com/what-is-pestle-analysis/
