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Get Four
|  | JULY 7, 2004
By Brian Grow Burger King's Whopper-Size Woes With the abrupt departure of its latest CEO, optimistic talk of a quick turnaround is fading fast Burger King seems to be gagging on sales and management turmoil. On July 2, the Miami-based fast-food chain announced that CEO Bradley Blum had abruptly resigned after just 18 months on the job -- making him the ninth Burger King chief in the last 15 years to say sayonara. Now, analysts are speculating that Wendy's (WEN ) is poised to overtake Burger King in the burger business, underscoring the depth of the company's Whopper-size problems -- and how hard a job its new owners face in fixing them. It wasn't supposed to be this difficult when Texas Pacific (TPL ) and a group of investors that includes Bain Capital and Goldman Sachs Partners snapped up Burger King for $1.5 billion in late 2002. Known for scoring big returns on difficult turnarounds at Continental Airlines (CAL ) and J. Crew, Texas Pacific execs insisted they had a three-year plan to right Burger King -- and the confidence that Brad Blum was the right leader for the job. DULL AND DIRTY. Indeed, Blum's turnaround strategy appeared to be gaining traction as recently as last month. Same-store sales (those at stores open at least one year) at Burger King restaurants in the U.S ticked up 7.2% in May, the biggest gain since November, 1999. A new ad campaign that revived Burger King's "Have It Your Way" slogan from the 1970s was credited with spicing up the corporate brand for the first time in years. And a wave of new menu items such as a TenderCrisp chicken sandwich and fire-grilled chicken salad launched in March, as well as a hefty Angus burger rolled out in April, were credited with coaxing more BK fans back into the serving line. The prospect of better days at Burger King may have been a mirage. Years of neglect under former owner Diageo (DEO ) had left Burger King in poor condition to compete with the revivals at archrivals McDonald's (MCD ) and Wendy's. With store sales averaging $1 million per year, Burger King franchisees were earning less than counterparts with Jack-in-the-Box -- the fourth-largest fast-food chain -- (JBX ) at the end of 2002. After same-store sales sank 11 out of 12 months last year and a new chicken baguette flopped early this year, Texas Pacific executives were forced to acknowledge that fixing the dull menu, dirty stores, and debt-laden franchisees at Burger King's 11,300 restaurants was proving tougher than expected. THIN BENCH. Blum had little experience cajoling prickly franchisees to cut costs and clean up stores -- a skill crucial to Burger King's turnaround hopes. Today, franchisees controlling more than 600 restaurants are in financial distress or have filed for bankruptcy. And Blum was expected to cull as many as 1,000 unprofitable restaurants from the chain's 7,904 U.S. outlets in the next 18 months. That set the stage, analysts say, for franchisees to orchestrate his ouster last week. Now, the task of fixing Burger King will grow harder. With sales of $7.35 billion last year, Wendy's could oust Burger King as the nation's second-largest burger chain as soon as the end of this year. And the fast-food chain's bench remains thin after years of executive upheaval. In February, then-President Robert Nilsen abruptly resigned. Now, Robert Chidsey, who joined the company as chief financial officer in February and was named head of North American operations on June 8, will oversee operations in the interim. Burger King expects to appoint a new CEO by Aug. 1. While it's not clear who's running the outfit today, one thing's for sure: It's tough having it your way at Burger King these days.  Grow is a correspondent in BusinessWeek's Atlanta bureau
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