MK-E0002
Publication: 10/2008
Revision: 08/2012
Burger King in Brazil: the challenges of expansion
Danny P. Claro
Batista S. Gigliotti1
Afonso Braga, corporate marketing manager of the Burger King restaurant chain in Brazil,
has a meeting at the company’s headquarters in Miami within a week. The corporate director
is awaiting Afonso’s proposal to support the expansion of the chain in the country. There is a
lot of pressure for this to happen. “The first five years are a time of expansion, and it is clear
that this will be accompanied by increased investment in marketing, which goes up in
proportion to revenue,” Braga told Gazeta Mercantil in 20062. Established in Brazil since
November 2004, the chain plans to have 123 locations by the end of 2008, amounting to a
total investment by franchise groups of US$90 million.
Case study developed by Professor Danny P. Claro and Batista S. Gigliotti, with assistant Priscila Rosas. The
authors thank the contributions of Professor Irineu Gianesi. This case study is solely for the purpose of classroom
discussion and does not propose to render an opinion on managerial effectiveness or ineffectiveness or to serve as
a primary source of data.
2 “Número de lojas Burger King dobra”, Gazeta Mercantil, Dec. 6, 2006.
1
Copyright © 2008 Insper Institute of Education and Research
No part of this case study may be reproduced or transmitted by any electronic or mechanical means, including
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Education and Research. Violators will be subject to the penalties set forth in articles 102, 104, 106, 107 of Federal
Law 9610 of 02/19/1998.
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Within this scenario, Burger King is at a decisive moment for consolidating its position in
the market. Other multinational chains that entered Brazil directed their efforts at the
country’s higher income groups, and Burger King did the same. Like the majority of retail
and service businesses, Burger King’s business model required the expansion of the chain to
obtain economies of scale and greater brand exposure. But a problem arises when products
and services initially targeting high-income groups must target lower-income groups. In
other words, the following questions emerge:
When can low-income consumers be targeted by marketing efforts?
How can growth be achieved and products and services be made accessible without
serious consequences for the chain’s image and brand?
Where should the new locations be opened and what size should they be?
Afonso Braga will meet with the team and prepare a proposal to support the expansion of
the chain in Brazil.
Burger King Corporation
The history of Burger King began in 1954, when James McLamore and David Edgerton
founded the chain’s first restaurant. With a lot of expertise in the business, they believed in
the idea of offering customers high-quality meals at reasonable prices combined with quick
service in clean and attractive environments. This value proposition launched what would
become one of the world’s largest fast food burger chains.
The first restaurant, originally called Insta Burger King, was located in what used to be
Miami’s suburbs. It sold burgers and milkshakes for 18 cents and offered two soft drink
sizes. Three years later, in 1957, the famous Whopper was launched (Exhibit 1) and sold for
only 37 cents. It would become Burger King’s flagship product. The company was at the
cutting edge of innovation. It was the first fast food chain to offer dining areas, enabling
customers to enjoy their meals within the restaurants. It was also the first fast food chain to
introduce drive-thru service, which now accounts for approximately 60% of its business.
The slogan “Burger King, Home of the Whopper” was the first to be launched by the
company. Since then, the brand has always used creative advertising campaigns, which have
been quite successful. Another slogan that played a significant role in the brand’s history
was “Have It Your Way” (HYW), created in 1974 and revived in 2004, which Burger King
used to set itself apart from its largest competitor, McDonald’s. Another famous initiative
was the “Subservient Chicken” word-of-mouth campaign transmitted over the Internet in
2004 for its chicken sandwich line. Since its creation, the site has been accessed over 700
million times, making the word-of-mouth campaign (also known as viral marketing) one of
the most successful ever conducted in the United States. The goal was to communicate the
possibility of selling sandwiches à la carte; in other words, the way the customer wanted
them, as the company’s slogan says (“Get chicken just the way you like it”).
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One of the factors contributing to the expansion and growth of Burger King Corporation
(BKC) has been the implementation of the restaurant franchise system. In 1961, McLamore
and Edgerton began the process of granting national and international franchising rights for
the company, which operated 45 restaurants in Florida and the Southeastern United States at
the time. Two years later, the chain opened its first international franchise location, in Puerto
Rico. BKC now has a presence in 65 countries with over 11,350 locations, close to 75% of
which are located in the United States. Approximately 90% of the chain’s restaurants are
independent franchises. BKC’s main revenue sources are its own restaurants, followed by
franchise royalties.
There are essentially four franchise system models, each with its own defining features.
Pure single franchise model, the best known model, in which the franchisee operates
a single unit (this is the model used, for example, in the McDonald’s restaurant chain
in Brazil).
Master franchising model, in which a master franchisee has the right to subfranchise (in Brazil, there is a master franchisee in charge of all individual
McDonald’s franchises). In this case, the master franchisee has responsibility over
matters that would normally be charged to the franchiser.
Territorial or regional franchise model, in which the franchisee operates all units in
a pre-determined region, with exclusivity but without the right to sub-franchise.
Area development model, in which the franchisee is responsible for an expansion
schedule, without the right to sub-franchise and without exclusivity (or with semiexclusivity), possibly coexisting with other franchisees in the same territory or even
with units owned by the franchiser.
In the territorial and area development models, authorization for new expansions by the
same franchisee can be rejected if the previously agreed upon timetable for openings is not
followed.
The franchise model adopted by BKC is the “area development” model. The regime is
semi-exclusive via the exercise of pre-emptive rights. In this system, the franchised company
obtains approval to build and operate a set number of units on a previously established
territory and under a previously agreed upon schedule. It is not a master franchisee, since it
is not granted the right to sell sub-franchises. However, the franchisee is responsible for
making the necessary investments, since its assets are its own property, as are its profits or
losses. With rights for a period of 20 years, the franchisee is required to pay BKC a franchise
fee of US$45,000 per unit open to the public, plus 5% royalties from net sales earned. There is
also a compulsory contribution of 5% of net sales to the marketing fund, which is not a form
of revenue for the franchiser.
In this franchise model, the responsibilities of the franchisee of each region are clearly
defined. The unit itself is responsible for opening costs (retail location, plans, construction
and equipment) and for costs related to operating the restaurant (see details in Exhibit 3:
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Profit & Loss Statement - P&L). In addition to these costs borne by each unit, there are also
general administrative costs of the units in the territory; that is, costs related to the general
administration of all units in its region, including overhead, purchases, the hiring of staff,
training infrastructure and the general administrative activities of its regional chain.
Burger King’s franchise model offers advantages to franchisees in that they are granted
the opportunity to expand on a larger scale, as opposed to the model adopted by other
chains, in which franchises are individual units and the opening of many units by the same
franchisee is more restricted or even prohibited. The system also allows the franchisee to
obtain vertical growth (producer of its inputs) and horizontal growth (sharing with other
food chains with non-competing products), as long as the standards established by the brand
are followed. In the BKC system, unlike the individual franchise system, the regional model
used provides for a substantial reduction in expenses related to network management and
franchisee support because of its concentration in service.
The franchiser (BKC), meanwhile, must transfer all its knowledge to the franchisee and
safeguard its brand. As such, BKC is responsible for activities such as:
training;
product development and research;
supplier accreditation (materials and equipment);
image alignment;
marketing coordination;
logistical planning;
institutional negotiations;
preparation of manuals;
approval of retail locations;
computerization and organization of the restaurant’s operating processes.
Burger King in Brazil
BKC’s first launch initiative in Brazil was in 1991, when the company began negotiations
for the purchase of a local chain, the Bob’s chain. At the time, Bob’s had approximately 240
restaurants concentrated in several of the country’s capital cities. The plan was to convert
these units to the Burger King standard and operate them directly with company-owned
resources; that is, without franchises. However, this effort never materialized due to
disagreement among the parties involved in the negotiations.
The plan to launch Burger King in Brazil remained, even in spite of successive changes to
the controllership of BKC. In 1991, the owner of BKC was the U.S. company
GrandMetropolitan, which held other companies and brands in the food segment around the
world. In the years that followed, BKC went through periods of turbulence. In 1992, it was
hit by the consequences of Hurricane Andrew, which destroyed its international
headquarters. At the same time, a number of mergers caused significant changes (Exhibit 2).
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Among these was the merger of GrandMetropolitan with United Distillers & Vintners-UDV
and Guinness in 1996. Finally in 1998, the British holding company Diageo was founded
(currently holder of leading global brands in the beverages sector). In the same period, Brazil
also underwent economic and social change as a result of the economic reforms of the Collor
Plan economic plan and the implementation of the Consumer Protection Code. The first
Brazilian franchise law was approved and published only in 1994. These developments
caused the launch plans to be postponed.
In 1997, the company decided to restart its launch process in Brazil. After careful analysis
of entry options, which included joint ventures, company-owned operations and the
purchase of local chains, the company decided that the operation would only take place
through the franchise system. However, in early 2000, then owner Diageo announced its
plans to sell all its food companies with the goal of consolidating itself exclusively in the
alcoholic beverage sector. In December 2000, Diageo sold Pillsbury to General Mills and in
December 2002, sold Burger King to the joint venture of Texas Pacific, Goldman Sachs and
Bain & Company.
In July 2003, the controllers approved the Brazil project. Before opening the first
restaurant in the country, BKC carried out a market analysis which encompassed georeferenced studies, SWOT analyses and a study of the macroeconomic environment,
competition and sphere of activity. Internal risk analyses were also conducted to determine
whether Brazil had a sufficiently acceptable economy for the company’s entry. This
comprehensive market analysis enabled progress in ongoing negotiations with the first
regional franchisee in the state of São Paulo. The negotiations were finalized on March 31,
2004. In November of the same year, the brand was officially launched in the country with
the opening of a restaurant in the food court of the mall Shopping Ibirapuera in the city of São
Paulo.
The chain arrived in the Brazil with plans to open 50 restaurants in the state of São Paulo
within 5 years, adding other units in the other regions of the country within the same period.
Nish Kankiwala, then president of Burger King International, said at the time that “the
Brazilian market is one of the most attractive growth opportunities for Burger King
Corporation in the entire world”3. By September 2007, the brand had opened 35 units in 15
Brazilian cities (Exhibit 4) belonging to seven regional franchisees.
Just as in its U.S. operations, the company adopted an aggressive market communication
approach through its launch campaign, which alluded to McDonald’s. “The idea is to follow
the same leading-edge advertising line in Brazil as in the U.S. operation,” Afonso Braga
explains4. The advertisements include slogans such as “Down with the Dictatorship” (Exhibit
5) and “Fry the Competition” (Exhibit 6). São Paulo state franchisee Luiz Eduardo Batalha,
3
“A guerra do hambúrguer”, Shopping Centers publication, Dec. 2004.
4
“Quem faz o comercial é você”, Exame publication, Nov. 30, 2006.
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majority shareholder of the BKG group (the name given to the group of shareholders of the
São Paulo state franchise), had the following to say during the initial opening period: “The
big fast food battle was missing in Brazil, because all the other first-place and second-place
companies from other global sectors had already come here. This is true for banks, perfumes,
clothes and many others. The only thing missing was fast food. This was perhaps our biggest
incentive. The burger war is on.”5
Burger King’s value proposition
Burger King has always been concerned with creating value for the business. It was the
world pioneer in the drive-thru system, in product customization (the “Have It Your Way”
operating process), in new equipment technology such as broilers and in the development of
PHU units that enabled cooked meat to be retained for six times the normal period without
altering the quality of the product (roughness, tenderness and temperature). In has also
sought innovation in its product line, with the launch, in some parts of the world, of grilled
salmon and tilapia sandwiches, seasoned burgers, vegetarian burgers and a variety of salads
and desserts.
In this way, the chain offers products with exclusive features, from flavor to the speed of
delivery. It is the only fast food chain in Brazil that offers true grilled burger production
lines. It is also unique in the amount of meat offered, with a heavier weight compared to
similar products by competitors. The developed operation process (“Have It Your Way” –
HIYW), meanwhile, allows customers to obtain their orders however they want them in
roughly the same amount of time it takes to prepare a standard menu item. It was also the
first fast food chain in the country to adopt the free refill system (in some restaurants), with
clients having direct access to soda fountains. These factors taken together increase the value
added in the eyes of customers, enabling the company to adopt differentiated pricing
(Exhibit 15). The value proposition is of paramount importance and must be delivered at any
cost. The Hélio Pelegrino restaurant was faced with a challenge shortly after it opened, when
a group of students visited the restaurant and ordered a Whopper with no less than 101 meat
patties (Exhibit 16). This challenge tested the kitchen’s ability to make the client’s order the
way they wanted it (HIYW).
An important aspect of Burger King’s value proposition is branding. Before arriving in
Brazil, a blind test study was conducted with the aim of comparing the Whopper to the Big
Mac. The result of this study was that out of every three people, two preferred the Whopper.
The data supported the product’s superiority over that of the competitor, sustaining the
distinctive pillar upon Burger King’s entry in Brazil.
Burger King follows a five-pillar model for building its brand in Brazil.
5
6
“Começou a guerra do hambúrguer”, ISTOE Dinheiro publication, Dec. 1, 2004.
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The first of these is Differentiation, or the effort to make consumers perceive something
different in the brand in relation to the competition. For this pillar, there is a lot of effort
toward consolidating the advantages of grilling the meat and of “Have It Your Way”.
The second pillar is Relevance; that is, to be a relevant brand for consumers. To this end,
Burger King has worked hard to position itself as a prestige brand that offers status to its
target market.
The third pillar is Presence, which focuses on increasing the brand’s popularity.
The fourth is Familiarity; that is, building consumer awareness and understanding of
what the brand offers. Working in the Presence and Familiarity pillars was a significant
challenge for Burger King as a restaurant. Upon its arrival in Brazil, few people knew of
the brand, and those who mentioned it did so only when prompted. Linked to this was
the problem that the names of meals used on Burger King’s menu were hard to
pronounce for Brazilians. Familiarity was achieved somewhat by the opening of new
stores in a number of cities across the country.
The fifth pillar is High Quality and Consistency, which means offering consumers a
high-quality and consistent product. This pillar is a constant focus when dealing with
food. According to Afonso Braga, Burger King seeks to work on the five pillars in order
to build its brand in the eyes of its target market.
Product/Service Mix
When the first Burger King restaurant was opened in the United States in 1957, the menu
consisted mainly of burgers, milkshakes and fries. Although its main product is still the
burger, the chain now offers a large variety of products, including a breakfast line, salads,
vegetarian burgers, desserts and special meals for children. The Whopper is the best-selling
product and is the main competitor to the McDonald’s Big Mac.
In 1985 in the United States, the breakfast line was introduced with the launch of the
Crossan’Wich as the key product. This line has been a big success for Burger King, with
growing sales figures. In 2004, also in the United States, the “Wake up with the King”
campaign was created, in reference to the new breakfast products offered by the chain.
McDonald’s, meanwhile, began selling vegetarian burgers in the Netherlands, England and
India in the early 1990’s and in some U.S. restaurants in 1998. However, it did not sell these
burgers nationally, which opened the door to Burger King. In 2002, in light of its
competitor’s “New Tastes Menu”, Burger King launched 14 new products, including the
Burger King VeggieBurger, which sold for U.S. $1.99. Customers were then offered the
option to switch conventional mayonnaise with low-fat mayonnaise for any type of
sandwich offered at the restaurant.
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In Brazil, however, the variety of products offered is still not as large as in the United
States (Exhibit 7). Before entering the country, Burger King carried out various market
studies, among them a “Habits and Attitudes” study. This study was aimed at uncovering
the adaptations that would need to be made to the services and product mix in order to align
the locations with the purchasing behavior of Brazilians. That way, Burger King would be
able to make certain decisions regarding its product strategy. It was found, for example, that
Brazilians preferred burgers with cheese. The original Whopper does not have cheese, but
cheese was added in Brazil. Another change was the removal of breakfast items from the
product mix in Brazil. It was found that only 3% of Brazilians expressed a desire to leave
home to have breakfast. Besides the breakfast line, there are other items that are not found at
Brazilian locations. The vegetarian burger, for example, is only present in the U.S. product
mix. However, there are more dessert options in Brazil than in the United States. Brazil was
also the first place where Burger King installed dessert kiosks, of which there are currently
12 in the country.
The importance of geographic distribution
All companies are constantly concerned about scale and the accessibility of their products
to consumers, and fast food chains are no exception. On the contrary, this factor is vital,
because it can mean the difference between success and failure, and this is true both for the
area developer and the franchiser. In the case of food retailing, accessibility and scale come
with the increase in the number of restaurants.
Burger King’s current priority in Brazil is to open new locations, since BKC is focused on
generating brand knowledge among Brazilians. This concern about presence is due to the
fact that the level of knowledge of the Burger King brand by spontaneous recall is only 14%
in Brazil. Despite this small number, the improvement has been significant compared to the
very beginning, when there was 0% spontaneous recall and 11% prompted recall. “Now our
priority is to consolidate the brand in Brazil by opening new stores,” says Afonso Braga.
The sector’s margins are narrow, as shown by the Profit & Loss (P&L) Statement for one
of the units (Exhibit 3). Franchisees have the potential to generate significant impacts on net
income through small increases in revenues and small reductions in expenses. Scale enables
the dilution of administrative costs and greater bargaining power for the acquisition of
inputs, the purchase of media space and negotiations for retail locations. Its benefits become
increasingly noticeable after exceeding the break-even point of the minimum number of
units.
Property expansion is crucial for the success of the business, not only for the franchisee
but also for BKC. Besides the increase in revenue from franchise fees and royalties, it also
leads to brand growth via its exposure to a larger number of people, leading to stock
appreciation for the parent company. In addition, despite not having a direct quantitative
commitment with regard to the net income obtained by the franchisee, the franchisee may
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not end up providing continuous unit growth if it is not financially sound. This would harm
the system’s business plan as a result.
Another important aspect to consider within the context of expansion is the type of
concept to establish. In Brazil, Burger King has typically built restaurants in mall food courts
(with or without interior seating), freestanding units (accessible from the street, with drivethrus) and kiosks offering desserts and beverages. On an international scale, the company
also has institutional units (in universities and hospitals), themed units (parks and stadiums),
transport units (airports, subways, highways and bus and railway terminals) and in-line
units (directed at pedestrians, generally located on “esplanades”). Each concept has distinct
investments and margins due to its unique traffic, customer, size and location profile.
Burger King’s entry in 2004 was marked by the opening of three restaurants, all of them in
malls in the city of São Paulo. They all followed an action plan that involved an opening
party with special invitees, a press conference and celebrity guests (Exhibit 8). The following
year, the first streetside location was opened, also in São Paulo, with parking, 260 seats and a
drive-thru. With a modern and sophisticated architectural style (Exhibit 9), the restaurant
was opened with events to gain coverage in various media (Exhibit 10). That same year
(2005), seven additional units were opened. The opening of new restaurants continued, with
16 units opened in 2006 and 13 in 20007 (Exhibit 4). The competitor McDonald’s closed 2007
with 533 locations, of which 18 were opened that year, with the expectation to open another
25 in 2008.
The target market and lower income segment
Burger King’s target market consists of youth aged 19 to 24 from the “A” and “B” income
groups. The strategy is to reach not only these youth, but also the children who aspire to
become them, as well as the adults who are often their role models (Exhibit 11). But this
target market might not be sufficient to support the projected growth in the years to come.
One of the options on the table has been to expand into Brazil’s lower-income segment.
The lower income market, also called the “C” and “D” income groups, encompasses the
share of the population with average monthly household income between R$480 and
R$1,1006. This segment has become visible to the competitive consumer market given that it
accounts for 85% of Brazil’s population (Exhibit 12). For each adult from the “A/B” income
group, there are 5.5 in the “C/D” group, and for every “A/B” child there are 10.5 children in
the “C/D” income bracket7. Additionally, in recent years this segment has shown significant
growth in average incomes. The lower-income segment spent close to R$512 billion in 2006,
encompassing sectors such as construction, food, domestic appliances and financial
products, among others. Between 2001 and September 2006, the performance of the poorest
6
7
Studies published on the website of Abep (Brazilian Association of Research Companies), 2007.
Studies published on the website of DATA Popular Institute, 2007.
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and richest workers in the country showed opposing trends. While incomes rose 32.5%
among those who earned up to a minimum salary (R$350/month), there was a 6.3% decline
in incomes among those who earned over five times the minimum salary (R$1,750).
With the effect of over a decade of currency stability, these consumers at the base of the
income pyramid are moving toward the consumption of products that were until recently
only accessible to higher income groups. According to a study conducted at the end of 2006
by Data Popular8 that interviewed 1,200 people, disposable income in the “D” and “E” income
groups currently stands at 2.5%, compared to negative 16.5% the previous year. According to
Datafolha, close to 20 million Brazilians joined income group “C” over the last five years.
Much of this movement originated in the “D” and “E” groups. For lower-income groups, this
means upward social mobility, with extra money left over after covering monthly expenses
(Exhibit 13).
Due to these factors, the low-income consumer profile has undergone a lot of change in
recent years, with more discriminating tastes and a desire for higher quality products with
better resources that offer status and prestige. These consumers have particular
characteristics. Among Brazilians in income groups “C” and below, 40% are functionally
illiterate, meaning they have difficulty beyond signing their own name, reading prices and
taking down phone numbers. They struggle to understand abstract arguments, have
difficulty with long texts and rarely share the more sophisticated points of reference of the
“A” and “B” income groups.
In the months leading up to the launch of Burger King in Brazil, the company’s
representatives in the country were concerned about the lack of existing knowledge of the
brand among consumers, particularly in the state of São Paulo. Many Brazilians from the
“A” and “B” socioeconomic groups have had the opportunity to travel abroad, from trips to
Disney World in Orlando to studies in London and travel for commercial and tourism
purposes in neighboring countries in the Southern Cone region. Studies have revealed that
BKC’s presence in these locations resulted in a positive first impression of the brand among
the aforementioned groups. This prior experience abroad would not be found among other
segments of society. However, product research among consumers from all income groups
revealed a significant preference for the taste of the traditional Whopper.
On the other hand, it would need to be taken into consideration that prices would need to
be slightly higher in relation to the McDonald’s rival in virtue of two factors; namely,
operational cost (due to the lack of base scale) and recognition of the value proposition. In
segments that are more sensitive to prices this can become a barrier. In families of more
modest means, visits to malls prioritize buying food for children, widely motivated by the
aggressive appeal of Happy Meal freebies. Restaurants with structures to accommodate
children (such as playgrounds) and groups benefit in this lower income segment. Despite
8
“Crescimento tira milhões das Classes D e E”, Folha de S. Paulo, Dec. 18, 2007.
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having strategic global alliances with big film producers, Burger King would not have
competitive freebie costs in Brazil due to the lack of scale.
Finding lower price solutions carries the risk of damaging the appeal of the concept before
it even reaches maturity among the “A” and “B” income groups (see the U.S. and Brazil price
table in Exhibit 14). This might occur if promotional products were sold in large quantities to
the “C” and “D” income groups, since, as special products, they would conflict with the
concept’s value proposition, which risked undermining the concept even before it became
well known. At the same time, a high number of transactions would be needed to overcome
the revenue losses from the potential reduction in the average ticket.
The challenge of expansion
Afonso Braga now needs to prepare a proposal that establishes the right time to promote
initiatives directed at lower-income markets and how to approach these markets without
damaging the brand, which is already consolidated among the “A” and “B” income groups.
He will need to:
Estimate the results of typical units and compare them with the purchase
potential of the lower-income market.
Prepare different restaurant formats based on important measures, such as traffic
and the capture rate of restaurants catering mainly to lower-income segments, or
even a combination of both markets.
Analyze the localization of restaurants in neighborhoods where this type of
consumer is concentrated, which could be a way of supporting the chain’s
expansion in the country over the long term.
The meeting will take place at headquarters in Miami in one week, and the corporate
director is awaiting Afonso’s proposal with anticipation.
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Exhibits
Exhibit 1 - The Mighty Whopper
Source: Burger King Website
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Exhibit 2 - Timeline
Founding of
BK chain’s 1st
restaurant
1954
South Florida Restaurants
changes its name to
Burger King Corporation
1956
Incorporation of
the South Florida
Restaurants chain
1963
1967
Burger King
Corporation is
purchased by
Pillsbury
Acquisition of Pillsbury
(along with 5,500 Burger
King restaurants) by
GrandMetropolitan
1988
Diageo sells Burger
King to group formed
by Texas Pacific Group,
Bain Capital and
Goldman Sachs Capital
Partner
1997
GrandMetropolitan
merges with Guinness
to create a new
company called Diageo
2002
2006
BK carries out IPO
with initial issue of
25 million shares
(close to 20%
interest)
Source: Data compiled from company reports
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Exhibit 3 – Profit & Loss (P&L) Statement for unit with 900 transactions per day (average)*
Total Gross Sales
Taxes
Net Sales
Cost of Goods Sold
Gross Profit
Fixed Costs:
Direct Labor
Lease + Occupancy Costs
Utilities
Maintenance
Office Supplies
Insurance
Sundry
Total Fixed Costs
Franchise Fees:
Royalties
Marketing Fund
Total Franchise Fees
Operating Profit (EBITDA)
%
of Net Sales
In R$**
(Monthly)
115%
13%
100%
40%
60%
300,000
39,000
261,000
104,400
156,600
19%
8%
3%
1%
1%
1%
2%
35%
49,590
20,880
7,830
3,842
2,610
2,610
5,220
92,582
5%
5%
10%
15%
13,050
13,050
26,100
37,918
* The values above refer only to the expenses of a single restaurant. They do not include expenses
incurred in the management of the franchisee network (e.g. restaurant general management office,
infrastructure for training restaurant staff, human resources, marketing).
** Monthly average over one year
Source: Public information and authors in reference to November 2007
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Exhibit 4 - Burger King units in Brazil*
Restaurant
Income
group Opening date
Franchise city
Type
Shopping Ibirapuera - SIB
A/B
11/23/2004
São Paulo-SP
Food Court
Shopping Interlagos - SIN
C
11/30/2004
São Paulo-SP
Food Court
Shopping Metrô Tatuapé - SMT
B/C
12/07/2004
São Paulo-SP
Food Court - 60 seats
Shopping Villa-Lobos - SVL
A/B
05/31/2005
São Paulo-SP
Food Court
Hélio Pelegrino - HIP
A/B
07/20/2005
São Paulo-SP
Freestanding - 260 seats
Shopping West Plaza - SWP
B
10/01/2005
São Paulo-SP
Food Court - 80 seats
Super Shopping Osasco - SSO
B/C
11/14/2005
Food Court
Pátio Brasil Shopping
A/B
12/07/2005
São Paulo-SP
Centro Oeste
Brasília-DF
ABC Plaza Shopping - SAP
B
12/072005
Shopping Barra
A/B
12/22/2005
Food Court - 200 seats
BH Shopping
A/B
12/27/2005
São Paulo
Nordeste 1
Salvador-BA
Minas Gerais
Belo Horizonte-MG
Shopping Morumbi - SMO
A/B
07/04/2006
São Paulo-SP
Food Court
Shopping Capital - SCA
B
07/18/2006
Food Court
Brasília Shopping
A/B
07/27/2006
Minas Shopping
B/C
08/10/2006
São Paulo-SP
Centro Oeste
Brasília-DF
Minas Gerais
Belo Horizonte-MG
São Paulo
Santos-SP
Shopping Praia Mar - SPM
A/B
08/22/2006
Shopping Central Plaza - SCP
B/C
10/31/2006
Shopping Mueller
A/B
11/10/2006
Shopping Aricanduva - SAR
B/C
11/14/2006
Shopping Recife
A/B
11/17/2006
Shopping Eldorado - SEL
A/B
11/21/2006
Shopping Midway Mall
A/B
12/04/2006
Shopping Parque Dom Pedro - SDP
A/B
12/05/2006
Shopping Curitiba
A/B
12/07/2006
Shopping Iguatemi
A/B
12/12/2006
Shopping Flamboyant
A/B
12/14/2006
Shopping Bougainville
A/B
12/15/2006
Shopping Guararapes
B/C
03/27/2007
São Paulo-SP
Paraná
Curitiba-PR
São Paulo-SP
Nordeste 2
Recife-PE
São Paulo-SP
Nordeste 2
Natal-RN
São Paulo
Campinas-SP
Paraná
Curitiba-PR
Rio Grande do Sul
Porto Alegre-RS
Centro Oeste
Goiânia-GO
Centro Oeste
Goiânia-GO
Nordeste 2
Recife-PE
Food Court
Food Court
Food Court
Food Court - 140 seats
Food Court
Food Court
Food Court
Food Court - 50 seats
Food Court
Food Court - 40 seats
Food Court
Food Court
Food Court
Food Court
Food Court
Food Court - 250 seats
Food Court - 90 seats
Food Court
15
MK-E0002
Exhibit 4 (cont.)
Restaurant
Income
group
Opening
date
Shopping Brisamar - SBM
B
04/28/2007
Shopping Iguatemi
A/B
06/15/2007
Salvador Shopping
A/B
06/28/2007
Itaú Power
B/C
06/30/2007
Shopping Manaíra
A/B
06/30/2007
Shopping SP Market - SSP
B/C
06/30/2007
Av. ACM
A/B
09/14/2007
Shopping Plaza Sul
B
09/27/2007
Conjunto Nacional
B/C
10/11/2007
Santana Parque Shopping
A/B
10/25/2007
North Shopping
B
11/10/2007
Shopping La Plage Guarujá
A/B
11/29/2007
Franchise city
São Paulo
São Vicente-SP
Nordeste 2
Fortaleza-CE
Nordeste 1
Salvador-BA
Minas Gerais
Betim-MG
Nordeste 2
João Pessoa-PB
São Paulo-SP
Nordeste 1
Salvador-BA
São Paulo-SP
Centro Oeste
Brasília-DF
São Paulo-SP
Nordeste 2
Fortaleza-CE
São Paulo
Guarujá-SP
Type
Food Court - 30 seats
Food Court
Food Court
Food Court
Food Court
Food Court
Food Court - 260 seats
Food Court
Food Court - 40 seats
Food Court
Food Court
Food Court
Source: public reports by the company
Exhibit 5 - “Down with the Dictatorship” campaign - outdoor advertising
16
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Exhibit 6 - Burger King Billboards
17
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Exhibit 7 - Menu comparison: United States vs. Brazil
United States
Brazil
Source: Burger King Website
18
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Exhibit 7 (cont.) - Menu comparison: United States vs. Brazil
Brazil
19
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Exhibit 8 – Grand opening at the Shopping Ibirapuera location
Photo from the restaurant’s grand opening event - by invitation only
Grand opening press conference
Celebrities taking part in the grand opening
20
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Exhibit 9 - Modern style of the Hélio Pelegrino restaurant
21
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Exhibit 10 – Grand opening of the Hélio Pelegrino restaurant in São Paulo
22
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Exhibit 10 (cont.) – Grand opening of the Hélio Pelegrino restaurant in São Paulo
Theme-based initiative and first client
Initiatives with reference to the competition
Taking part in the Programa Pânico TV program
23
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Exhibit 11 - Burger King’s target market
Source: public reports by the company
Exhibit 12 - The purchasing power of Brazil’s income groups (2007)
Source: IPSOS
24
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Exhibit 13 - Disposable income of Brazil’s income groups
25
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Exhibit 14 - Price tables: USA vs. Brazil (Dec. 2007)
Flame-Broiled Burgers
WHOPPER
DOUBLE WHOPPER
WHOPPER JR
Chicken Whopper
Angus Steak Burger
USA
(in R$)a
BR
(in R$)b
5.35
6.96
1.79
5.89
7.00
9.00
5.50
9.50
-
Chicken Sandwiches
TENDERCRISP Chicken Sandwich
Spicy CHICK'N CRISP Sandwich
TENDER GRILL Chicken
Sandwich
Original Chicken Sandwich
7.14
7.14
4.25
-
7.14
6.24
7.00
Other Favorites
Crown-shaped CHICKEN
TENDERS
BK BIG FISH
BK VEGGIE Burger
5.88
5.88
5.35
8.00
-
Fries & Onion Rings
French Fries
Small
Medium
Large
King
Onion Rings
Medium
Large
King
2.49
3.38
3.56
2.80
3.50
5.50
-
2.49
3.38
3.56
5.50
6.00
-
a Manhattan location, New York (561 7th Ave.)
b Hélio Pelegrino location, São Paulo
* U.S. dollar exchange rate (in BRL): 1.79 (Dec. 2007)
26
Treats
Dutch Apple Pie
BK Banana Cake
Ice Cream Cone
BK Sundae
BK Sundae KING
HERSHEY'S Sundae Pie
USA
(in R$)
BR
(in R$)
1.77
2.66
3.75
3.75
1.50
3.75
3.90
5.75
BK Value Menu
WHOPPER JR
Crown-shaped CHICKEN
TENDERS
Spicy CHICK'N CRISP Sandwich
Small Soft Drink
Small French Fries
1.79
-
1.79
1.79
1.79
1.79
-
Small Onion Rings
Side Garden Salad
Dutch Apple Pie
1.79
1.79
1.79
-
Salads
TENDERCRISP Garden Salad
TENDERGRILL Garden Salad
Grilled Shrimp Salad
8.57
8.57
-
12.50
15.90
Kids
Hamburger
Cheeseburger
Double Hamburger
Double Cheeseburger
3.25
3.75
5.50
6.00
6.07
6.43
7.14
7.86
MK-E0002
Exhibit 15 – Subservient Chicken word-of-mouth campaign (2004)
Source: www.subservientchicken.com/
27
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Exhibit 16: If you make a promise, you have to deliver! The 101 burger patties
28
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Exhibit 16 (cont.): If you make a promise, you have to deliver! The 101 burger patties
29