How Burger King lost second place to Wendy's

Burger King's bosses in the 2000s had never run restaurants. Greg Brenneman, a turnaround specialist, quit in 2006 after two years for Quiznos, and the CFO, John Chidsey, a veteran of rental cars and soda, was promoted to steady things before the IPO. His first orders followed the KFC route: franchise more, cut costs, grow overseas.

At home he needed an answer to McDonald's, and came up with the barbell: value items at one end as loss leaders, premium burgers at the other to make the money back. Above all he wanted the superfan, men aged 18 to 34 who averaged 15 fast-food visits a month, reportedly 18% of Burger King's customers and half of all fast-food traffic.

So the brand got loud and male: the Angry Whopper, blockbuster tie-ins, the Whopper Virgins campaign, and a $3.99 body spray sold as "the scent of seduction with a hint of flame-broiled meat." A health push of apple fries and grilled chicken tenders flopped, and to his credit Chidsey dropped it rather than chase it the way McDonald's did.

His real focus was price: a $1 Whopper Jr., a $1 double cheeseburger, two Whoppers for $4, and restaurants told to stay open around the clock wherever possible. The logic was simple, a cheap sale beats no sale, and in a recession that pushed unemployment among 18 to 34 year olds as high as 20%, it kept revenue up. The deals were better than anything McDonald's offered.

The deals also split the system. Royalties are a percentage of gross sales, so the franchisor wants volume while franchisees live on margin. A $1 burger only pays when the customer adds fries and a drink, and in the recession customers bought the $1 burger alone. Franchisees, barred from charging more, lost money on their bestsellers and sued Burger King for forcing unprofitable prices on them.

Chidsey's most disputed change was in the kitchen. Burger King replaced its open-flame broilers with enclosed machines that cooked patties in batches at preset times and temperatures, at the push of a button, and switched off between batches. He sold them on savings in gas, power and air conditioning, and on cooking ribeye or ribs someday. By 2011 every restaurant had one, and fans still say the taste went with the flame.

By 2011 same-store sales were falling, sales per restaurant had stalled, operating margin sat at 13 to 15%, and the franchised share was rising about a point a year. That year Wendy's overtook Burger King in US sales for the first time. 3G Capital, which had bought the chain for $4 billion in late 2010, let Chidsey go. In 2019 he became CEO of Subway, and has angered its franchisees with heavy discounting.

3G installed one of its own, Daniel Schwartz, a Cornell economics graduate who became CFO in 2011 and CEO in 2013 at 32, with no restaurant, operating or management experience. The plan was the one everyone knew: grow abroad, cut costs, become a pure franchisor with margins above 20%. Unlike Chidsey, he moved fast. He settled the value-menu lawsuit and promised franchisees a say in decisions.

The franchised share went from 88% in 2009 to 100% by 2014, and company restaurants from 1,500 to 52. Revenue shrank from $2.5 billion to $1 billion while royalties went from 10% of it to more than 90%. Operating margin climbed from 15% to 21%, 46% and then 69%. The jet, jobs and much of the menu went, and in 2012 3G relisted Burger King in New York.

Customers felt none of it. Sales across all Burger King restaurants rose from $14.3 billion in 2009 to $17 billion in 2014, about 3% a year, but the chain had gone from 12,000 restaurants to over 14,000. The average one sold $1.18 million in 2009 and $1.18 million five years later. The growth was new doors. Demand had not moved.

With every restaurant in franchisees' hands, the menu was designed for them. New items had to add as few steps and ingredients as possible, so most were old parts rearranged, like the Extra Long Jalapeño Cheeseburger: regular patties, lettuce and cheese on the chicken sandwich bun with jalapeños. Launches became fewer. The flat $1 value menu became a $1 to $2 ladder with franchisees setting prices, and the marketing was aimed at everyone.

Novelty filled the gaps: Froot Loops shakes, grilled hot dogs, and Mac n' Cheetos that arrived frozen and went straight into the fryer. They went viral and vanished. Taco Bell made creativity its identity; Burger King never committed to the gimmicks or the flame-grilled classics. "We believe in a balanced approach," Schwartz said. It was the peanut butter approach: spread evenly over everything, the effort was too thin to matter anywhere.

Growth abroad hid the decay. From 2011, master franchise joint ventures gave local partners exclusive rights to a country, freed from the cost-cutting at home, and their menus were more inventive than America's. Revenue and profit rose from 2014 to 2018, yet in 2018 a Burger King still sold what one had a decade earlier, in the depths of the recession. With royalties flowing, nobody minded.

José Cil, at the company for over 18 years, took over in 2019 and preached the same balance. $1 tacos were mocked and pulled. With the Impossible Whopper, Burger King became the first major chain to sell a plant-based burger; months later the $7 novelty was going two for $6. By 2020 he admitted, "The Whopper is a multi-billion dollar brand, and we need to treat it as such." It left the value menu in 2022.

The hangover was deep: a value menu triple the length of McDonald's, and, even in 2020, triple the paper coupons its rivals mailed. Average restaurant sales grew just 3% in total from 2009 to 2021. In the US, Burger King sold $9.9 billion to Wendy's $11.1 billion, from 700 more restaurants. Its new plan, Reclaim the Flame, puts $400 million into ads, kitchens, remodels and technology.

Wendy's started 2009 in third, with system sales 40% below Burger King's, half the restaurants and an $800 million loss, and chose quality anyway. It spread value over three small 99-cent sandwiches, raising prices on chili and baked potatoes to cover franchisees, made patties 40% thicker, and closed weak franchises. By 2014 it had passed Burger King in revenue. Only then did it franchise more, keeping at least 5% of restaurants itself.