Flipping Burger King

Greg Brenneman Cut Costs And Boosted Sales; 'Indulgent Food'

By STEVEN GRAY
Staff Reporter of THE WALL STREET JOURNAL
April 26, 2005; Page B1

MIAMI -- One year ago, the Home of the Whopper housed a pretty dysfunctional family.

Sales at Burger King Corp. had plummeted, hundreds of its U.S. restaurants had closed, and four of its 10 largest franchisees had filed for bankruptcy protection. After being run by 11 chief executives and four parent companies over two decades, Burger King was in danger of losing its place as the nation's second-largest hamburger chain after McDonald's Corp. to Wendy's International Inc.

Then last summer, Burger King's new private owners -- Texas Pacific Group, Bain Capital and Goldman Sachs Partners -- replaced Chief Executive Brad Blum with Greg Brenneman, a Harvard M.B.A. who had led turnarounds at Continental Airlines and PricewaterhouseCooper's consulting unit.

At Burger King, Mr. Brenneman, 43 years old, moved quickly to boost morale at headquarters here and improve relationships with franchisees, who own about 90% of the company's U.S. restaurants. He cut costs, increased sales and introduced a slew of products, including the popular Enormous Omelet Sandwich -- 760 calories of eggs, bacon and sausage on a bun. Burger King now has posted 14 consecutive months of sales growth in stores open more than a year. Customer traffic is up 7% since the fiscal year begun July 1, for the first time since 1997.

With characteristic ambition, Mr. Brenneman -- who says he reads three newspapers while jogging on a treadmill in the company gym each morning -- has set out to help his restaurants push average annual unit revenue to $1.3 million from last year's $970,000. He is experimenting with smaller restaurants on the theory that most fast-food units are inefficient, while setting the pace for vigorous expansion abroad, particularly in Europe and Latin America -- all of which could lead as early as next year to an initial public offering.

"I'd like to see Burger King go from a great brand into a great business," Mr. Brenneman said in a recent interview in his office overlooking runways at Miami International Airport. In a series of interviews, he talked about corporate rescues, American eating habits and how he has lost weight even as he gobbles Double Whoppers.

Excerpts:

WSJ: Did you set out wanting to be a turnaround specialist?

Mr. Brenneman: (He laughs.) I didn't walk out of school and think, this is my highest and best use. My background [prepared me for] recognizing and understanding the value of individuals...and working as a team. The company becomes a family. I got addicted to that.

WSJ: What were the first things you noticed?

Mr. Brenneman: The first surprise was how good a start I had. Normally, when I walk into some of these situations, it's just a flat-out disaster. There were some new products launched [including the Angus Steak Burger, the Spicy Tendercrisp Chicken Sandwich.] I looked at the culture in here, and it was very siloed. People didn't talk to each other. I said, we can't be having a civil war. We started treating franchisees with dignity and respect.

WSJ: Where did you get the idea to build smaller restaurants?

Mr. Brenneman: I walked around the restaurants, and found out Burger King had forced [franchisees] to build restaurants so big you could play racquetball in the back. How many times have you seen those dining rooms full? It's 85% empty. It's like building a church for Easter Sunday....

We targeted the savings, some in the kitchen, and some on the finishings in the restaurant. We were spending money on things like tile that the customer didn't value. We're doing things in these restaurants like putting flat-panel monitors so you can put product-placement ads. We were putting in four 10-ton air-conditioning units, so we now we put in two 20-ton units to save money.

We're just in the process of putting these up and experimenting. I wouldn't say 100% of the new units will be this. We want to say to our franchisees, this is the minimum you can do. We've got a building and a concept that, if you build it, your costs will be very, very competitive. If you want to do more, OK by us, it's your money. My guess is a huge percentage of the new units will be lower-cost builds.

WSJ: Your turnaround formula includes boosting a restaurant's average annual sales from $970,000 to about $1.3 million. How will you do this, and sustain it?

Mr. Brenneman: It's the million dollar question. We knew Wendy's was at $1.3 million. McDonald's was at about $1.9 million. I said, what's a good interim goal? If you said $1.9 million, everyone would look at you like you're on drugs. We said, we can get at least as good as $1.3 million. That doesn't happen in a year. You can only develop things so fast.... There were a ton of gaps that existed in our offerings versus our competitors. The pantry was fairly bare. There was no thick burger. No whole-muscle chicken sandwiches. No salads. No chicken strips. No limited breakfast menu.

WSJ: You brought back several brand icons, including the King and the 'Have it Your Way' slogan. Why?

Mr. Brenneman: The advertising was boring. It's about going back to the core....[The company] went through 30 ad slogans, and the second one ever picked was 'Have it your way.' Then they abandoned it. But, you kind of say, The only thing I could ever think of when I thought 'Burger King' was 'Have it your way.' We had one of the most recognized slogans in business and weren't using it. So there's been a lot of back to the core, back to the basics -- absolutely terrific, indulgent food that customers love.

WSJ: Speaking of indulgent, you call your best repeat customers "Super Fans" -- the 18-to-34-year-old males who come in three to four times a week. How are you strengthening efforts to appeal to them?

Mr. Brenneman: If you think about what drives our business, "Super Fans" are something like 25% of our customer base, but 50% of spending. If we just get one more visit out of the Super Fan, it's like a 10% increase in comparable sales. It's about understanding who the core consumers are and getting the kind of indulgent products they want. You can't be everything to everybody. If you look at the Enormous Omelet Sandwich, we didn't beat around the bush with the name. It's an indulgent breakfast sandwich, and it's absolutely geared at the Super Fan.

WSJ: What about healthier products?

Mr. Brenneman: We're the only fast-food restaurant to offer a veggie burger. We sell three a day per restaurant and we sell over 300 Whoppers per day per restaurant....With the kids meals, you can substitute apple sauce for fries. You can substitute milk for Coke. [But] most people don't take that substitution.

You have to have those products, to take away the 'veto vote,' so if mom wants a salad, there's something for her. But you don't want too much of that on your menu because it's not what the customer wants....I just really want to offer what the customers will buy, and what they want to eat.

WSJ: Do you feel the need to change the menu to appease fast-food critics?

Mr. Brenneman: No pressure at all. You should be able to come to Burger King and get a healthy, low-calorie, low-fat meal. You can. Beyond that, I don't think it's my job to tell Americans what they should eat. We might as well go back to communism.

WSJ: Do you think fast-food makes people fat?

Mr. Brenneman: Life is about everything in moderation. But you can eat at Burger King at every single meal, every single day and actually have a moderated diet, depending on what you eat. Or, you can eat at Burger King or McDonald's or Wendy's or Subway and not have a moderated diet. It's choice.

WSJ: When do you expect to have a trans-fat-free product mix?

Mr. Brenneman: The trans-fat-free issue is an interesting one, and one we're working on, both in Europe, which is a little ahead of the US, and here. The real question is: How do you do that? Do you come up with a trans-fat-free oil? Or do you have a substitute product that's trans-fat-free? I think us and most of our competitors have found it's hard to do something trans-fat-free that tastes good. We're working on a trans-fat-free oil. I don't think we'll get left in the dust on this one.

WSJ: What do you eat?

Mr. Brenneman: I'm a Double Whopper fanatic. What I go in for on a regular basis is the salad. With chicken on it, it's terrific. You can put reasonable dressing on it and have a terrific meal if you need to watch your girlish figure.

WSJ: Haven't you lost weight since you've been at Burger King?

Mr. Brenneman: I've lost about 25 to 30 pounds. If you eat Burger King three times a day, it's amazing, it's great dieting [laughs]....A few months back, after I gained my Burger King 10 [pounds], sampling products...I just started cutting back and eating the salads a lot.

WSJ: You've described Burger King's culture as having had an "entitlement attitude." What do you mean?

Mr. Brenneman: We were part of Diageo. This was a subsidiary of a British business. Because no one told people how they were doing, no one knew if they were making money or losing it. People just began to think of it as something they were entitled to -- this salary, these benefits. It was coming from a booze business that made 80% margins. So we started telling people...we're making this much money, we got bonuses tied to profitability. We're just ourselves now. The guy who's saving us is the guy who's looking in the mirror.

WSJ: How have you boosted morale at headquarters?

Mr. Brenneman: The key was culture, and fixing how people perceive each other. I do restaurant visits every week. Every new employee has to learn how to do the Whopper Board [menu]....If they don't, they have to come to me for their first paycheck. There's a voicemail from me every Friday. A few company managers called me at Christmas. They said, 'Greg, I can't believe you left me a voicemail.'

WSJ: Before Burger King, you ran a private-equity firm. Why did you take this job?

Mr. Brenneman: You can go do deals all day long and make a lot of money, but sitting in this job, I can influence about 340,000 people's lives for the better, hopefully. There's a magic that happens that's like a drug. That adrenaline rush, to see the pride people can have in their company, is why I came back. I missed that.

WSJ: How does your relationship with Burger King's owners help, since you answer to them rather than to public shareholders?

Mr. Brenneman: W e have a great relationship... because they're friends, they're business partners, they're incredibly smart businessmen and women, and they're a phone call away. Sales are up. Profits are way up. They go work on whatever else is troubling them in their portfolio.

WSJ: You've got about 11,000 restaurants globally. How many do you think you can reach in the next five years?

Mr. Brenneman: I don't have a number. The thing in the past was, let's just grow. I'm more concerned about profitable growth. As the cost of building the restaurant comes down, the return on capital changes dramatically...that will drive how many restaurants will get built.

There are many places where we want to put more Burger Kings. Internationally, we are in 65 countries around the world. Not one of those 65 countries [is] totally built out. We entered Brazil this year, it's growing like gangbusters. We'll enter China later this year. We have many markets where we can grow our presence without over-saturating or cannibalizing our own sales.

WSJ: How soon might we see an IPO?

Mr. Brenneman: If we do an IPO -- and that'll be up to the sponsors how they want to exit. I don't think they're in any hurry, but everybody knows these guys don't hold onto things forever. My guess is not in calendar year '05, maybe in calendar year '06. To do an IPO you need company performance, and it's good right now. You also need the market to be solid. I think it'd be a great thing for our system. Being able to read about yourself in the stock exchange everyday is something our franchisees look forward to. But it's by no means critical to us.

Write to Steven Gray at steven.gray@wsj.com