New Burger King owners to invest P1.5 billion for expansion

BY RUBY ANNE M. RUBIO, BusinessWorld Reporter The local franchise holder for the Burger King (BK) fastfood chain will spend P800 million to P1.5 billion for remodeling 21 outlets and adding 50 more restaurants. In October 2006, Ayala Corp. sold its Burger King franchise to a group of businessmen including Manuel V. Pangilinan, chairman of the country’s largest telecom firm, Philippine Long Distance Telephone Co. Ayala Corp. transferred majority ownership in PFN Holdings Corp. to BK Titans, Inc., a company organized by Mr. Pangilinan and his close associate Ricky Vargas, Tanduay Holdings, Inc. President and Chief Operating Officer Wilson Young, and businessmen Bert Lina and Lito Alvarez. The exclusive business of PFN is currently its 100% ownership of Perf Restaurants. Perf Restaurants, Inc. President and Chief Operating Officer Raul B. Nazareno told BusinessWorld that now that the holidays are over, the new Burger King owners will improve the existing restaurants. The branch in Robinsons Galleria was recently remodeled. Mr. Nazareno estimated the amount to be spent for improvements of the remaining 21 branches alone at P50 million. He said these stores will be "more upscale such as those branches in Makati" which is considered as one of the upscale commercial centers in Metro Manila. To increase its market presence, the company is also on the lookout for opportunities to set up stores in other strategic areas such as airports, malls and expressways with each store ranging from P15 million to P30 million depending on the size. "We think there is an opportunity for up to another 50 restaurants in Metro Manila. The big question is when. This is a matter of availability of right location," he said. He said the shareholders have the capacity to expand but won’t do so just for the sake of expanding. "It will be a careful and responsible expansion in markets where the brand is appropriate." "There is easily an opportunity to do 50 stores quickly for the brand as long as locations are available. That could be anytime now as they become available. In five years, we can do it," he added. "BK Titans did not buy this [franchise] to stay at 22 outlets. They will like to expand as fast and as profitably as they can. We are matching the brand with the target market. We are very careful where we position our location," Mr. Nazareno said. Ayala Corp. said earlier BK Titans "decided to acquire the business because it understands and appreciates the opportunities available to Perf, the quality and dedication of its employees, and the support of its business partners." COMPETITION In a separate interview, DA Market Securities, Inc. Chairman Nestor S. Aguila said Burger King would be in tough competition with the likes of homegrown fastfood leader Jollibee and rival US-based hamburger giant Mc-Donald’s. Jollibee Foods Corp. is listed in the Philippine Stock Exchange (PSE). Meanwhile the mother unit of the franchise holder of Mc-Donald’s in the Philippines, Alliance Global, Inc., is also listed in the PSE. "It will be good to have a charbroiled grilled hamburger. But in terms of penetrating market share, I wish them all the best. They may have a niche because it is strong in some countries such as Korea. What is positive is Burger King gives consumer choices but surviving the burger business is another story since you are talking of Jollibee and McDonald’s. It will take awhile," he added. Admittedly, Mr. Nazareno said Burger King is "too small right now" to put a dent on the sales of market leaders Jollibee and McDonald’s as the former has only a single-digit market share. While others would regard Burger King as more expensive, he believed otherwise since its product offerings are bigger. Take the case of its regular hamburger weighing 2.2 ounces of beef against competitor’s 1.8 ounces while drinks come in 16 ounces against competitors’ 12 ounces. "Our prices are very competitive. In terms of value for money, you are getting more. Because we give bigger products, the price is necessarily higher. But that doesn’t mean it is expensive," said Mr. Nazareno. He said Burger King is focusing on young adults and those "who graduated from McDonald’s or Jollibee" or the "more mature customers" who want their burgers in beef, chicken or fish. "The Whopper is what Burger King is known for. By being good at burgers, we also want to have the widest variety of good tasting burgers," he added. OPERATIONS US-based Burger King operates more than 11,100 restaurants in more than 65 countries and US territories. On its Web site, it noted that almost 90% of Burger King Restaurants are owned an operated by independent franchisees. Its subsidiary, BK AsiaPac Pte Ltd. recently awarded development rights for Indonesia to PT Sari Burger Indonesia, principally owned by PT Mitra Adiperkasa Tbk (MAP). The first Burger King restaurant in Indonesia is scheduled to open in Jakarta by June. "We have to focus on a target market that is more adult than the usual fastfood. Competition lies either in share of pocket and share of stomach. The lower you go in the socioeconomic strata, the more significant share of pocket becomes. But if you are targeting middle- to upper-class, there is the share of stomach. Of course, we want a share of stomach. While it is very competitive, we try to differentiate, we try to be the best so core customer will go back and become a portfolio of brands. Hopefully, they go back to you more often. But certainly, they will go to another concept when they like to eat something else," Mr. Nazareno said. Food and beverage giant San Miguel Corp. (SMC) excluded the fastfood franchise when it bought Ayala-owned Pure Foods Corp. in May 2001. Purefoods used to hold the Burger King franchise under Philking Restaurants Development Corp., a company jointly owned by Ayala Corp. (with 49.5%), US-based RY LLC (45%), and ELRO Commercial and Development Corp. of businessman Francisco Elizalde (5.5%). The Burger King franchise was not included in the Purefoods sale to avoid conflict of interest on the part of SMC since it serves the meat and chicken requirements of Burger King competitors Jollibee and McDonald’s Philippines. --Report from BusinessWorld