Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-212-3423.
43 Burger King franchisees operating 1,112 restaurants filed for bankruptcy in the past 5 years, almost 15% of all Burger King units. While costs rose for franchisees (utilities, labor and food), total customer flow and average sales per customer did not. The price wars between McDonald’s, Hardee’s/Carl’s, and Wendy’s did not help. Many franchisees are highly leveraged, so a reduction in in cash flows put a serious strain on finding the money to service the debt.
Burger King charges a $50,000 franchise fee for a 20-year agreement. Renewal after 20 years is possible for another $50,000 fee, but only if the store meets the new Burger King operational and design standards, which usually require about $400,000 in upgrades. Additionally, the Burger King franchise agreement prevented multi-unit owners from closing underperforming stores.
One bright side is that Burger King reported the highest same-store sales in 10 years this past year. With so many franchisees in bad shape, speculative business owners can pick up a franchisee on the cheap. Any takers?
Update November 24, 2005:
Though I’m not a fan of NPR, you can listen to the audio of a reporter slam Burger King’s new “King” character marketing. He wrote this critical article.
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i don’t know what BK’s franchise agreement says, buy i’ve seen many different styles of restaurants. the biggest problem i have with BK’s is the staff. i don’t think i’ve ever been in a BK that i would be proud of. the employees all look lazy and sloppy, the sandwhich looks thrown together without care, and the dining area is dirty (almost as bad as the Rally’s fast food chain). this is the franchisees fault, but slack corporate controls at BK probably contribute. i don’t think there is much hope for BK.
BK is bad news. Most franchisee of BKs own multiple units, but some I know are individual owners. They’re not happy.
It was opinioned:
the biggest problem i have with BK’s is the staff
My reply:
Ever been in a McDonald’s? I travel about 48-50 weeks a year, so on the road about 250 days a year. I cannot remember the last time I had an employee at a McDonald’s who was even vaguely familiar with English. In fact when I was in VA last week I left on totally frustrated because no tone employee present in the store was capable of understanding my order(no salt on the french fries and no tartar sauce of the Filet of Fish). So it is not just BK that has an image problem.
My point is, franchisees are getting the employees they deserve. And customers are fleeing as a result.
A business needs to make economic sense. If your business model is third world employees who are not paid enough to live in the communities they work in a first world lifestyle then I will contend the business is not truly economically feasible.
And when you review most franchise offerings with the above in mind, guess what, many do not look that attractive.
FuwaFuwaUsagi
I agree with Fuwa. McDonald’s and their franchisees are probably one of the worst offenders of the immigration laws. I’ve often been in a McDonald’s and their was only ONE English speaking employee in the entire restaurant and it was the one behind the counter taking my order. Ugh.
The problem is BK customers die young from heart attacks!!!! BK doesn’t seem to innovate as fast as other franchises.
Actually, the reporter had positive things to say about the commercial overall, giving it an A-