NEW YORK (AdAge.com) -- The $4 billion sale of Burger King to 3G Capital Management this week doesn't mean flip for McDonald's firmer-than-ever position as the No. 1 burger chain. But it does present an opportunity to steal back at least some of the share ceded in the past couple of years to the Golden Arches as well as fast-feeders like Wendy's , Subway and Domino's.
Provided 3G plays its cards right, the move to take the chain private for the second time this decade (and for double the amount a trio of private equity investors paid for BK in 2002) could allow BK's management and franchisees to stop fretting about Wall Street and focus on innovative product offerings and delivering more effective marketing, restaurant analysts say.
"The iconic Burger King brand, its solid franchisee network and great product offerings make this a perfect fit for 3G Capital," Alex Behring, managing partner at the New York-based private equity firm, said in a statement announcing the transaction Thursday. BK Chairman-CEO John W. Chidsey said he was "pleased that 3G Capital recognizes the value we have created in revitalizing the brand and enhancing operations over the past seven years." He also promised a "superior guest experience" as the chain transitions to new ownership.
Since opening its doors in 2004, 3G's most publicized investments have largely been in non-food industries such as auto and railway parts, a home-alarm company and banking giant Wells Fargo. But it has some category experience from small stakes previously held in Wendy's and an investment in Sara Lee, and Burger King could also benefit from some of 3G's notable associates, such as Chelsea Clinton's husband, Mark Mezvinksy, and, more important, Brazilian beer magnate Jorge Paulo Lemann, who was central to the merger that created A-B InBev.
"From a corporate history standpoint, it's not surprising the company would be willing to go private again, and I can't think of a reason why, from a franchise standpoint, this would be negative," Tom Forte, a restaurant analyst at Telsey Advisory Group in New York, told Ad Age. "It gives an opportunity to focus more on their long-term strategy and worry less about quarterly results, given the pressure Wall Street puts on."
That, presumably, means spending more. Burger King spent nearly $402 million in the U.S. in 2009, less than the $497 million Wendy's /Arby's Group spent to market its quick-service brands in that period, and less than half of what McDonald's spent. The Golden Arches ranks as the 25th biggest national advertiser, according to Ad Age's DataCenter, with spending of $1.23 billion in 2009.
Darren Tristano, exec VP at Technomic, said, "What we're seeing in the fast-food burger segment is a one-horse race with McDonald's ahead by quite a distance. McDonald's has been raising the bar, not just for fast food, but for everyone," while Subway has also been a strong performer and players like Wendy's have managed to make some gains, Mr. Tristano said.
"Over the past four years since they went public, their stock price hasn't changed dramatically," noted Mr. Tristano. "Given the fact that, over the past four years, they have underperformed in many ways, there's a very good chance someone else may have a way to grow the business."
That's one reason why the BK deal comes on the heels of a similar deal earlier this year by CKE Restaurants, the owner of Carl's Jr. and Hardee's, to accept a takeover bid.
Burger King has changed hands time and again in its 56-year history, going from private to public and back to private again. The Miami-based chain was sold to Pillsbury in 1967, which in turn was bought by a spirits conglomerate, Grand Metropolitan, in 1987 before that company merged with brewer Guinness to create the British giant Diageo. It shed Burger King to focus on its alcohol business in 2002, selling it to Texas Pacific Group, Bain Capital and Goldman Sachs Group for $1.58 billion; the investors filed BK's initial public offering in 2006.
When marketers are subject to that level of tumult, it usually spurs instability for ad agencies too, making it interesting to see what ensues for Burger King's lead creative shop, Crispin Porter & Bogusky, the maker of The King character and campaigns such as "Whopper Freakout" and "Whopper Sacrifice."
It's worth noting that Crispin has survived ownership changes before; it has been BK's global lead creative shop since January 2004, when former CMO Russ Klein dumped WPP's Y&R advertising without a review.
Mr. Klein and other top marketers like VP-Marketing Impact Brian Gies have since departed the company, to be replaced this year by former Coca-Cola marketer Natalia Franco, new North American CMO Mike Cappitt and Leo Leon, who's has handling BK's marketing in Latin America and the Caribbean.
A few months into her job as global CMO, Ms. Franco has already begun putting her stamp on the company, as Minneapolis' Campbell-Mithun, which was responsible for kids marketing, was cut from the roster. Thus far, Crispin has benefited from Ms. Franco's streamlining of the agency roster, winning Hispanic and African-American marketing work that was formerly at Latinworks in Texas and Uniworld Group in New York, respectively.
Crispin representatives declined to comment on the 3G deal or any new marketing initiatives for the fourth quarter, and Burger King representatives didn't return requests for comment.
"I love their advertising, but I'm not a mom," said Gary Stibel, founder and CEO at the New England Consulting Group. "They have done a good job of marketing to the niches, but they are missing the critical middle of the business. They are missing that entirely in terms of their in-store experience, the products and the advertising. Most moms see their advertising and think their little kids will be scared by it."
Said Mr. Tristano: "There's been a lot of criticism about The King and how they've marketed to younger audiences and not to families. Now, they've got the Whopper Bar, they're trying to invest in and make a more sophisticated version of Burger King, so that's an opportunity to grow the brand." He added BK's international expansion efforts will also be key to re-cementing its position as the No. 2 burger chain. To that end, the involvement of Mr. Lemann in the 3G buyout is expected to help Burger King grow in the South American market.
Telsey's Mr. Forte believes Burger King's product pipeline is improving, with new coffee offerings from Seattle's Best, the Whopper Bar and an upgrade in the broiler used in restaurants that's allowing the cooking of thicker proteins, like its limited-time bone-in rib sandwich. "I think their performance will begin to improve. ... It may take a little time for us to observe some of [Ms. Franco's] marketing ideas, but she'll have a good story to tell," said Mr. Forte.