Burger King Goes to China
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Burger King (NYSE: BKW) is doing it right in the US. After re-vamping stores, adding more menu items, and ramping up overseas expansion, they turned in a pretty impressive Q2. Same Store Sales in the US and Canada rose 4.4%, compared to a decline of 2.2% in Q2 2011. This is solid, sustainable growth and, for the most part, domestic.
Unlike Yum Brands (NYSE: YUM), which depends heavily on China, Burger King has been able to build a new model in the US that isn't based on fads (like the Doritos Taco). Though revenue was down due to the re-franchising plan that sold 278 stores to Carrolls (NASDAQ: TAST) (BKW's largest franchisee) and an additional 186 elsewhere, the best metric to track growth in this case is that of Same Store Sales.
It is evident that BKW is in good hands at the moment, which makes the Asia Pacific expansion all the more exciting. In Q2, Asia Pacific sales rose only 2.1%; compare this to Yum's 27%. Yum relies heavily on the massive appetite for KFC and Pizza Hut in China, as noted by Yum CEO David Novak, who said, "we expect China and Yum! Restaurants International (YRI) to drive our second-half profit growth." In Q2 alone, Yum opened 160 new units, upping the total China presence now to 3,917 KFCs and 696 Pizza Huts. McDonald's (NYSE: MCD) has a piece of the China action as well with 1,400 units. Burger King? 63 units total.
Not for long. BKW has plans to tap into China and open 1,000 new stores by 2019. AP noted this is "the largest multi-unit development deal in Burger King's history," and, once completed, it will make 4.4% growth look paltry. Sure, it's that easy.
So, will Burger King take the Yum track and cater a menu to Chinese tastes, or go the way of Best Buy and ignore local preferences. This author used to enjoy a good slice of American life at the Burger King in the bottom of Metro City Mall in the Xujiahui district of Shanghai, and it was pretty much identical to the BKs here in the US. Not a good sign.
There is no indication out there that says the menu won't be totally revamped, and given the deal being a joint venture between an American private equity firm and a Turkish franchisee, let's hope the lessons of Best Buy are heeded. Sure, this is a far-off scenario, and Chinese business pretty much requires a fixer on the ground, but many huge foreign companies have muscled their way in and haughtily assumed if the menu works in the rest of the world, it will work in China as well. Not quite.
Burger King has an incredible growth opportunity in China, let's just hope they do it right.
TheLaowai has no positions in the stocks mentioned above. 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.
