Those interested in investing or cheeseburgers (and I would hope that covers everybody) should read this article about Burger King. It covers the rise of Andrew Schwartz from analyst at Credit Suisse First Boston to CEO of Burger King by age 32, and the drastic changes made at the company since he assumed the role. The approach taken by Schwartz has been an unprecedented departure from the industry norm. Fortunately Wall Street is a fan.
Excerpt taken from Bloomberg Businessweek:
Schwartz, who did not cooperate for this article, has overseen much chiseling. McDonald’s owned 19 percent of its 35,429 restaurants worldwide in 2013. Wendy’s owned 18 percent of its 6,557 outlets. Historically, Burger King operated much the same way: When 3G bought the chain in 2010 it owned 11 percent of its 12,174 restaurants around the world. Since then, Burger King has sold all but 52; it keeps the last few for training executives and testing products.
That’s such a departure from the way its competitors operate that some people are questioning the company’s strategy. “Unless you keep a certain percentage of stores, you don’t really know how the business is operating,” says Malcolm Knapp, a New York restaurant industry consultant. He contends that Burger King’s management is interested primarily in siphoning cash out of the business. Howard Penney, managing director of Hedgeye Risk Management, a research firm in Stamford, Conn., is similarly skeptical of Schwartz’s methods. “It’s financial engineering,” he says. Burger King disputes this, but such suspicions are reasonable. After unloading more than 1,200 restaurants, the company’s corporate head count has fallen from 38,884 to 2,425 in 2013. Now its income flows almost entirely from royalty fees from franchisees, on average 4 percent of franchisees’ monthly revenue. That’s less money than before overall, but Burger King has become a cash machine. And 3G hasn’t been shy about helping itself to some of that money.
At the same time, Burger King’s business has been growing. Schwartz negotiated agreements with restaurant operators and financiers in Brazil, China, and Russia, where American hamburgers are still a novelty. They haven’t just purchased restaurants from Burger King, they’ve also constructed new ones. As a result, the number of Burger Kings worldwide rose by 1,493 in 2013, to 13,667. And the company hasn’t had to spend much money; its partners are putting up the bulk of the cash.
Wall Street has responded enthusiastically. Burger King went public again in June 2012 in an offering that put a $4.6 billion value on the company. As of early July, its market cap had risen to more than $9 billion. The doubters are in the minority now, and many in the investment community would like McDonald’s and Wendy’s to mimic the kids at Burger King.
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