Burger King exits Romania, Leaves Room for Newcomer Subway
Ovidiu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Burger King ) franchisee for Romania, Atlantic Restaurant System, opened its first restaurant in April 2008, 13 years after the brand’s traditional rival, McDonald’s ) entered the market. The company opened 7 restaurants during the first year, for an investment of 500,000 EUR (800,000 USD in 2008) per store, and targeted an estimate of 50 locations in a 5-year horizon. Plans didn’t work out, though, as the pinnacle of the restaurant chain had been reached in December 2010, with only 9 open restaurants. The evolution of the chain went downward ever since and today the only Burger King restaurant still operational is the one located in the Otopeni International Airport, operated by Autogrill SpA Italy, European franchisee for all airport terminals.
Why such an abrupt ending to the "Romanian Whopper Odyssey," in a market where McDonald’s has reached a sales record of 100 mil. EUR (137 mil. USD) in 2011, with 32 drive-through restaurants, 17 in-store locations and 15 more in shopping malls, that were visited 50 million times? Furthermore, Yum! Brands' KFC and Pizza Hut seem to be thriving here as well, along with innumerable Oriental fast food shops that serve the extremely popular shawarma (220,000 sold daily), on a fast-food market estimated at 500 mil EUR (685 mil. USD) in 2012. To this day, the first McDonald’s location opened in 1995 holds the first position in the chain and also in the 2011 top restaurant revenues, tied at 5 million EUR (6.85 mil USD) with the only IKEA restaurant in Bucharest and The Beer Carriage, a traditional tavern dating back to 1879.
Well, although Burger King has aligned itself to the crisis policy of McD, KFC and Pizza Hut and has offered 3-dollar menus (East European exchange rate, you gotta love it!), it wasn’t able to match the Big Mac’s flagship image with its Whopper, or to create an emblematic icon out of any of its products, like the Crispy Strips and Thin’n Crispy Pizza are for the other franchises. Aside from this, while the Golden Arches are involved in all sorts of sports competitions, they are all over the TV channels, internet and mobile phones, there was virtually no word, image or sound about Burger King since its 2009 campaign…”Revenge of the Onion,” which ended with no significant increase in awareness or sales (Romanians seems to be more of a garlic nation).
It’s understandable that a “chain” of only 9 stores does not justify a nationwide marketing campaign, but on the other side, the lack of one exemplifies the limited size and success of the franchise. Unfortunately for them and for the brand that they had introduced on the market, the franchisees started out as a small business, trying to feel the market response one store at a time, while the Burger King franchise is suitable to be a big chain of restaurants, with wide area coverage and clear, long-term marketing campaigns. It seems that the Romanian side has greatly underestimated the value of goodwill in this business, and has only imported the hardware side of the franchise. Up to date, Burger King has not issued any statement regarding a re-franchising or a direct entry on the market.
Given the recent history of not very inspired decisions by BK and its recent aspirations for 1,000 restaurants on the Chinese market, the company would better choose their partner franchisees and strategy more carefully, or they might realize it’s a bigger bite than they can chew. After all, there are several similarities between the Romanian and Chinese markets (otherwise clearly distinguished by size): ex-communist vs quasi-communist economy, both prone to adopt capitalist icons such as Coca-Cola and McDonald’s, the latter already has a strong position on the market, while BK aims to make a strong entry. The story seems to repeat itself, since BK has used McD as a market tester in Russia as well, where the Big Mac has been on the menu since 1990, but the Whopper is only planned to reach Russian taste buds this year.
While fast-food seems to have taken a step backward, healthy food is now in full blossom, with numerous local brands thriving, Greek chain Gregory’s holding a steady market position and Subway opening its first store in April 2012 and already operating four of them by now. The Footlong sandwich and its half-sized brother are already making their way into young clients’ menus, and it seems that the company has made it clear to their franchisees: there is no such thing as too much brand awareness! A strong advantage comes from product placement in Hollywood movies, which made the Subway products a must-have long before they became available to the Romanian public.
From my standpoint, given the already well established Romanian taste for diverse wraps such as the shawarma and the falafel, the market is just about ready for a certain spicy fast-food brand owned by the company traded as (NYSE: YUM).
OvidiuNeacsu has no positions in the stocks mentioned above, though, he does love the Footlong sandwich, the Triple Whopper and anything covered in Fire sauce at Taco Bell. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend Burger King Worldwide, McDonald's, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.