I just learned that since the last year or so Burger King has been run by a 33 year old former i-banker that went to 3G, the
Brazilian PE shop that bought BK in 2010. His name is Daniel Schwartz. From BusinessWeek, first some intro:
He’s Burger King’s 21st CEO since the company was founded in 1954. The chain has had six owners and suffered from years of neglect and strategic incoherence. Unlike his predecessors, Schwartz isn’t just competing with McDonald’s (MCD) and Wendy’s (WEN). He has to keep customers from straying to trendy newcomers such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA). Their sales in the U.S. last year grew 17 percent and 12 percent, respectively, according to Technomic, a food industry consultant. Sales were essentially flat for Burger King and its two primary rivals.
Schwartz is not the only unusually young person in BK's management:
Josh Kobza, the chief financial officer, is 28. He and Schwartz are usually joined on conference calls by Alexandre Macedo, Burger King’s ancient 36-year-old president for North American operations, and Sami Siddiqui, the head of investor relations, who’s 29. Only one of the four saw a day of the Seventies.
The company has gone through an insanely rigorous cost cutting operation:
After unloading more than 1,200 restaurants, the company’s corporate head count has fallen from 38,884 to 2,425 in 2013. Now its income flows almost entirely from royalty fees from franchisees, on average 4 percent of franchisees’ monthly revenue. That’s less money than before overall, but Burger King has become a cash machine.
The interesting part (which I'll paraphrase to declutter a bit), is that right now only 0.4% of BK restaurants are company owned, which is quite an extreme degree of franchising compared to peers (McD 19% / Wendy's 18% / Chipotle 100%). The big advantage of franchising from a PE perspective is that there's nothing leaner from a financial point of view and there is almost no capex making franchising companies highly cash generative. Obviously that's nice for a PE owner but that's not what I'm getting at and the company is relisted again anyway. Noteworthy however, BK is said to be preparing a dividend recap which I think is interesting under public ownership although probably not unique.
What I'm getting at is
1. How f**king awesome must it be to get the chance to prove yourself as the CEO of a company like BK at such a young age!! and what do you guys think: should more 'old' companies hire younger management teams?
2. What do you think of this low level of restaurant ownership for a franchising chain? Do you know of any precedent? How hard would it be to exercise a proper level of control over the franchisees? There are also companies, listed even (NASDAQ: TAST) that own hundreds of BK restaurants, a fact that was also new to me.
I saw this article today too, great read. I never realized BK was once owned by Pillsbury and Diageo, nor that they have 538 franchises under NASDAQ: TAST as you mentioned.
It will be very interesting to see if McD and Wendys try a similar strategy of dumping the stores owned by corporate. Especially in the case of MCD as they seem to have a serious growth problem as America has found a new love for fast casual and will pay up for it.
Wendy's is trying this exact same thing. Selling more corporate owned stores to franchisees.
Makes sense, it does seem like the "bro" company out of all the fast food joints.
And yes, I'm jelly.
This is like Enders Game but for companies. Get a bunch of kids with very minimal (relative of course) actual business/operating experience, let them drive the boat armed with excel and the non human experience of aggressive cost cutting measures/divesting and bam, success. Where do I sign up, sounds amazing.
I LOVE that they cut down their corporate head count by that much. Thinking about all those entitled middle aged men and women sitting at their desks playing solitaire for 7 1/2 hours a day, all getting a pink slip... Makes my heart warm
Does anyone else think that cutting more than 90% of your corporate headcount is unfeasible? I feel like the number is wrong, or at least not defined in the way we think of it.
They probably just outsourced it all.
They unloaded the vast majority of their franchises so those employees are now counted in the Franchise's individual headcount rather than corporate I'm guessing. So they didn't actually 'cut' 90% of people they just moved ownership to franchisees rather than corporate.
This guy got it. +1.
Very impressive. I used to work in the service industry and almost every time I walk into a poorly run place I've always wanted the chance to clean it up and turn it around.
When I found out you could do that in PE to some degree or help via consulting work that is what really sold me on finance.
That guy is awesome, I hope it turns out well for BK. Not that I've eaten there or any fast food joint in years but hey, It would be nice to see a turn around story.
Sting would be another person who's a hero. The music he's created over the years, I don't really listen to it, but the fact that he's making it, I respect that.
As to why Burger King is being run by a bunch of 20s and 30s years old, well they are all 3G employees who are assigned to work at this particular portfolio company by their bosses. It is not like BK itself hired them directly and it probably doesn't really have much say on this matter anyway. Daniel Schwartz in particular looks like he got into 3G on the ground floor in its very early days back in 2005 and was promoted quickly to partner in 08. Probably a family relative/friend with the Brazilian founders? Anyway, kudos to these 4. They are likely getting generous stock options from BK which can pay off really well if BK goes back public again.
Story is a little "too nice" in my view. Having only franchises when business is realtively stable is fine but it can become a nightmare if a few issues surface as it is very difficult to control these. Cost cutting approach always deliver benefits in the short term but you need to see further than that. Statistics about same sales stores etc... are more relevant. How much market share do they have and how is this changing is more important. All companies can cut and outsource, it's not terribly difficult...
It's going great for 3G, but the business is still fundamentally weak. Domestic sales flat y/y... the fast food space is clearly shifting.
What happens when the franchises start going bankrupt because there is no oversight....seems like a weak model.
Also hes a baller
BK is a thing of the past. The fast-casual industry (Chipole, Panera Bread, ABP, etc.) is taking over. On another note, being a CEO at 33 is pretty awesome.
BK was shitty and is still shitty from my experience.
Burger King is one of the most inefficient fast food chains out there. Every time I go there, I have to wait at least 5 minutes to get my food, even when like no one else is there. I hope these guys turn things around.
Being CEO at 33 is pretty fucking sweet. Schwartz could score tons of chicks if he so wanted.
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