Analytical report on Burger King and Jack in the Box

¶ … Burger King and Jack in the box

Analytical Report

The following pages focus on providing an analysis and comparison between two representatives of the fast-food industry: Burger King and Jack in the Box. The paper intends to discuss the similarities between the two companies, and the differences between them, in order to emphasize the advantages and disadvantages that interest investors.

The introduction intends to present the necessity, the reasons for the analysis that must be performed when dealing with a decision regarding an investment opportunity. The paper continues by presenting the two companies, in order to familiarize the readers with facts that help create an overview of the companies. The paper continues by comparing the strengths, weaknesses, threats, opportunities, strategies, and financial analysis of the two companies. The conclusions and recommendations section provides investment advice.

Introduction

This study was developed in order to identify certain aspects that could help investors make an informed decision about what company is most likely to provide significant profits. The decision making process regarding the investment in certain areas requires a series of data about the potential of the company in case, its financial requirements, and opportunities that the company can exploit on various markets.

Financial possibilities of a company represent only one of the aspects that interest investors. Growth opportunities in certain markets are also a factor that helps investors make a decision regarding the company or the market that best suits their interests. Given the economic and financial crisis that has affected the global economy, it is difficult to decide on what companies or business fields to invest in.

The restaurants industry seems to be one of the sectors that present a higher degree of security, in comparison with other industries that have been significantly affected by the financial crisis. Even so, investors should be very careful when investing in this industry, because not all companies in the restaurants industry can be considered profitable.

Given the characteristics of the industry, it has been observed that the fast-food sector is more profitable than the regular restaurants sector. Burger King and Jack in the Box are two companies in the fast-food industry that report profits able to attract investors. Both companies represent interesting investment opportunities, but the differences between them must be carefully analyzed.

Company Presentation

Burger King (BKC) was established in 1954 in Miami, Florida. The company is one of the pioneers in the fast-food industry. Since its establishment, the company significantly developed, becoming one of the world's leading fast-foods restaurant chains. The company owns more than 11,925 restaurants in 73 countries and in the U.S.

The most important products of the company are: sandwiches, hamburgers, cheeseburgers, salads, hash browns, coffee, juice, cookies, pies, shakes, fries, onion rings, soft drinks. The company's sources of revenues are: sales at company restaurants, royalties, and franchise fees (Datamonitor, 2010).

Jack in the Box (JACK) was established in 1951 in San Diego, California. The company is one of the most important hamburger chains in the U.S. The company owns 2,700 restaurants. The most important products of the company include: burgers, drinks, specialty sandwiches, salads, sauces and dressings, shakes and desserts, tacos and other Mexican specialties (Datamonitor, 2010).

SWOT Analysis Comparison

Strengths

The strengths of BKC, as identified by the company, include: distinctive brand with global platform, attractive business model, innovative marketing campaigns, creative advertising, and strategic sponsorship, experienced management team, strong market position, brand equity, greater franchises mix, and others.

Distinctive brand with global platform -- as one may observe, BKC and Whopper are two of the most well-known consumer brands in the world, which can be recognized in numerous countries. The large number of restaurants in several countries in the world acknowledges the company's ability to identify customer needs and to address them in a more than satisfactory manner.

Attractive business model -- most of the company's worldwide restaurants are franchises, a situation that does not characterize other competitors in the industry. The advantages of this strategy rely on the fact that having franchised restaurants allows the company to benefit from significant profits while investing limited amounts of capital in these restaurants and while reducing the company's expenses. As a consequence, the company is able to invest in brand growth and in increasing shareholder value. However, there are a series of disadvantages associated with having so many franchised restaurants. For example, the company has limited control regarding the franchised units and limited power of influence in restaurant ownership (Burger King, 2009).

Innovative marketing campaigns, creative advertising, and strategic sponsorship -- the company considers that these factors have proven to be quite important in increasing sales and restaurant traffic. The company's association with Facebook in a certain campaign reveals the innovation of BKC's strategy. The company has also initiated a series of sports partnerships, in order to address numerous aspects that interest the company's customers.

Experienced management team -- the company's management team members have significant experience in the field. Some of the company's managers have also worked for BKC's competitors, which increases their value within the company.

Strong market position and brand equity -- the company is the second largest fast-food restaurant chain in the U.S. The company owns approximately 14% market share. The advantages of having a strong position on the market are represented by the ability to entry international markets, the possibility to gain economies of scale, and the opportunity to increase its bargaining power.

Greater franchise mix -- this business model has proven to be successful one for the company, given the fact that it allows the company to gain important market share and to address a larger geographical area with limited financial investments.

The strengths of JACK include: wide restaurants network, sale of certain stores, SG & a reduction.

Wide restaurants network -- this helps the company increase its bargaining power. The company also owns a series of franchised restaurants, but in a smaller proportion than in the case of BKC. The company's wide network of restaurants allows JACK to expand its market entry opportunities.

Sale of Quick Stuff convenience stores and fuel station -- the sale of this brand allows the company to focus on its established brands and to significantly increase its cash flow.

The selling, general, and administrative expenses reduction -- this helps the company increase its earning power.

Weaknesses

The weaknesses that affect BKC's activity are: declining comparable sales growth, and concentrated operations.

Declining comparable sales growth -- the comparable sales growth in 2009 reached the lowest level in comparison with previous fiscal years. This situation can be attributed to factors like unemployment, reduced number of customers because of the economic and financial crisis, discounts offered by competitors, and others.

Concentrated operations -- the company's operations are concentrated in the U.S. mainly, which determines the company to depend on the revenues on this market. The fact that BKC's activity is concentrated in the U.S. makes the company vulnerable to certain factors. In addition to this, the company depends on the supplies of a few distributors, which reduces the company's bargaining power.

The most important weakness that influences JACK's activity is represented by the concentration of operations in California and Texas. Same as in the case of BKC, this situation exposes the company to a series of factors that influence its activity. It also increases the company's dependence on some distributors.

The opportunities of BKC include: expansion in existing and new markets, a series of initiatives, customers' preference regarding quick service restaurants.

The opportunities of JACK are represented by: the brand reinvention program, stronger franchising operations, the company's geographical expansion.

The threats that BKC must take into consideration are represented by: competition, legal regulations, unemployment and low consumer confidence in the U.S.

The threats that JACK should address in its strategy are represented by: competition, dampened discretionary spending, and rising beef prices.

As one may observe, there are several similarities between the SWOT analyses of the two companies. Therefore, it is the differences between them that should interest potential investors. Although the two companies were established in the same period and address the same customer segments, Burger King's number of restaurants is significantly higher than that of Jack in the Box. This reflects the financial power and the strong position on the market of BKC in comparison with JACK.

The two companies present similar weaknesses. However, the strengths of BKC allow the company to counteract these weaknesses more efficiently than JACK. Some of the weaknesses that characterize both companies can be attributed to the economic and financial crisis that has affected the global economy. It is quite unlikely that these companies can influence the factors that are connected with the crisis.

The opportunities are also similar to both companies, given the fact that they represent the same industry sector and address the same customer segments. Investors should therefore determine which company has the ability to better exploit these opportunities.

The same situation is applied to the threats that affect these companies. The threats in case derive from the weaknesses of these companies.

Strategy Analysis Comparison

The strategy of BKC relies on increasing sales growth, enhancing restaurant profitability, developing innovative marketing strategies, improving value and quality, expanding the international platform, improving the restaurant development and expansion, using proactive portfolio management in order to influence growth, and others.

BKC's management understands that it is important to develop and implement strategies that influence the growth of the company. The growth rate of the company has reduced, which means the company must develop different strategies that reach this objective. The company must adapt its strategies to the modified behavior of customers.

Burger King also intends to increase the profit of each operating unit. By increasing restaurant profitability, BKC expects to improve its position on the market, which can further help the company expand its activity to other markets. The profitability of restaurants is a complex issue that requires strategies able to address several sides of the business at the same time.

Regarding marketing strategies, the companies understands that consumers require innovative marketing strategies in order to be convince to remain loyal customers, when the competition offers significant discounts for similar products. Therefore, the company invests in such marketing campaigns that address a series of aspects, like sports sponsorships.

Also, the financial crisis has determined consumers to modify their buying behavior. Most of them are not willing to spend their money on products and services that they do not necessarily require. Therefore, when purchasing a product, they expect the highest quality level for the product in case. Burger King has decided to make investment efforts in improving the quality of its products.

The company has identified a series of international markets that present potential that can be efficiently exploited. The company is present in several countries, but there is still room for expansion of its activity in other geographical areas also.

The strategy of JACK focuses on the growth strategy, brand reinvention, improving the business model, and franchising expansion (Jack in the Box, 2008).

The similarity between the strategies of the two companies is represented by the fact that they are both interested in company growth. Jack in the Box intends to increase the growth rate of its business, although the size of the company does not allow for a growth rate similar to that of Burger King. However, given the fact that Jack in the Box is concentrated on a reduced area, the company has the opportunity of expanding its business on markets that are not saturated.