Some prefer the Mac, some the Whopper but what about from an investment perspective?
Is Burger King a good franchise investment?
We'll look at that today on Franchise City.
Taken from their 2018 franchise disclosure documents it will cost between $323,100 and
$3.102,600 to open a Burger King location of your own.
Keep in mind however that lower number is nowhere near actual average costs so you should
be prepared to invest well over a million for a traditional location.
Royalties are 4.5%, and there is a 4% fee for advertising but these amounts can change
in certain circumstances, as we'll cover later in the video.
Just the franchise fee is $50,000 per restaurant.
Many people think they can buy a restaurant just with the franchise fee, absolutely not,
you'll need quite a bit more to get started, buyers will require a net worth of 1.5 million
and have $500,000 available in liquid capital.
The company that would become Burger King started back in 1953 in Jacksonville FL and
was initially started as Insta-Burger King.
It's interesting back then the quick serve restaurant model was considered unique and
ads like this one pointed out the benefits of no tipping!
Today we just take that for granted.
Back then a burger would set you back 18 cents add some cheese for a nickel.Still think inflation
is not a problem?
The Burger King operation was centered around the "Insta-Broiler" that allowed customers
to watch their burger being cooked.
Shortly after that was replaced with the "flame-broiler" that has become so popular today.
The original founders discovered franchising was not so easy when they used the Regional
expansion model, master franchising, which provided licensing to individual owners to
expand throughout their territory.
This created quality consistency issues and the company was soon in trouble.
In 1967 after 8 years of operating privately Pillsbury bought out Burger King, at the time
they had less than 300 restaurants in operation.
In 1970 one of their biggest franchise owners tried to take over the chain at which time
they switched to the individual store licensing model maintaining majority control corporately.
Last year in 2017 Burger King has over 7,000 units in operation throughout the USA.
In 2010 the brand was purchased by 3G for 3.26 billion, same company that has controlling
interest in RBI foods which is Tim Horton's owner and more recently Popeye's.
At the time BK was badly out of date and had not kept up to McDonald's who since 2004 had
been updating it's stores.
Many individuals online had begun shaming Burger King for some extremely dated and frankly
filthy conditions including this story that made it to ABC news
.So rats gnawing on the buns - that's not having it my way Burger King.
Anyway food aside, cleanliness aside, considerations of decor aside, is a Burger King franchise
a good investment.
Well there are some strong points, the franchisor will tell you all of those, but as a counterbalance
argument let's give you the Top 4 reasons NOT to buy a Burger King Franchise.
The first is Golden Fluffy Pancakes 89 cents.
Not so much the pancakes but the fact that as a franchisee you are contractually
abide by the continual promotions that are great for customers, but provide a losing
proposition for you.
Most franchisees dislike this, in fact so much they launched a class action lawsuit
back in 2011 for being forced to sell $1 cheeseburgers.
As a gesture of good faith the new owners, 3G agreed to allow franchisees more input
on the items on the value menu and how long the specials run.
That said, in the competitive food market you need to offer specials or your store will
be empty.
Customers that buy on price are also notoriously disloyal, once you go back to regular pricing
they are gone to the next deal.
The food industry over the past decade has become fiercely competitive and margins have
shrunk.
This situation is not necessarily limited to Burger King, but to any restaurant that
has entered into the low priced value meal arena.
Every scenario is different but we typically suggest smart investors explore food brands
in niche markets that sell on quality and value instead of price.
Think organic foods or specialty foods that don't compete on price in the same arena as
the giants in burgers, fries and subs.
Remember when we showed the 18 cent burger?
Inflation is real.
And the shrinking margins on value meals will make that dollar burger increasingly less
popular.
Remodel costs.
Burger King mandates that stores must be remodeled regularly to meet existing branding initiatives.
And frankly updated stores have proven to be more profitable.
They are cleaner and people prefer to sit in a nice place.
Especially when rats haven't gnawed on the buns.
But who do you think pays for the remodel?
That would be you - the franchisee.
Burger King remodel costs are higher than many other brands, they'll cost between $300,000
to $600,000 each store, we've typically seen about $500,000 as the norm.
You have to sell an awful lot of 89 cent pancakes to cover that.
Number 3 is profits.
When you consider you just dropped about 1.5 million Burger King is not very lucrative
comparatively.
The average sales for a Burger King restaurant are only 1.3 million when we look here at
the QSR50.
That number is almost 1.3 million dollars a year lower than McDonald's.
If you watched our McDonald's video you'll see that their owners net profit is seemingly
not that impressive . There are new emerging food franchises that offer AUV's of over a
million dollars with a quarter of the investment and 20% margins - call Franchise City for
details.
Number 4 is 3G.
One of many tools we use to help clients choose a franchise is a psychometric assessment.
One of the modules looks at what type of company culture would be a good match for their personality
and operational preference.
Most people don't even think of that let alone use it to guide their decision.
But every franchise has a distinct culture.
and certain personalities will have a very hard time dealing with 3G, RBI group, Burger
King.
3G has a reputation of being very effective at cutting costs and streamlining processes,
but has been perceived as being hard on franchisees.
The battle with Tim Horton's franchisees in Canada recently brought that to light.
I'll place a link at the end of this video to that one.
Little bit of trivia if you Google the address 7146 Beach Blvd Jacksonville FL you'll find
this little old restaurant called Stans.
This building was was actually the birthplace of the very first Burger King location ever.
Everyone thinks they are making a great franchise decision, most are not.
We help buyers make informed decisions you can learn more about us here.
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Thanks for watching.