Burger King Build-Up: Strange Partner Choice 汉堡王在华组建合资公司：奇怪的合作方

By newsdoug on June 18, 2012

China’s lucrative but increasingly crowded fast food market is about to heat up a notch, following a new announcement by Burger King that it will significantly ramp up its China business under a new joint venture. (company announcement) The size and rapidity of this build-up certainly caught my attention at first; but a closer look at the announcement reveals a strange choice of partners for this new initiative that raises doubts for me about whether this venture will really succeed, especially with the fierce competition in the market from much better run operations by sector leaders KFC (NYSE: YUM), McDonalds (NYSE: MCD) and a growing number of mid-tier players. (previous post)

Let’s take a look at the new announcement, which has privately held Burger King saying it plans to sharply boost its China store count from 63 at present to more than 1,000 over the next 5-7 years. The company will make the aggressive expansion through a new joint venture with the Kurdoglu family, a global partner that has successfully built up the Burger King operation in Turkey to some 450 stores. I’ll be honest in saying that even before this partnership, I had my doubts about Burger King in China. Despite opening its first China store in 2005, the company has managed to boost its count to just 63 stores in 7 years. I certainly understand this kind of go-slow approach, as it’s never smart to rush into a new market before understanding local conditions and setting up strong supply chains. But 7 years seems like a long time for gaining that kind of experience, and may reflect the company’s more conservative approach and also some hesitation at how committed it is to China. At the same time, a visit to any of the Burger Kings that do now exist in China also shows that the stores are significantly less popular than McDonalds or KFC, which have been far more aggressive in their marketing, advertising and development of localized products for the China market. But what I find strangest about this new tie-up is the choice of a partner from outside the region. Of course I mean no disrespect to the Kurdoglu family, which despite its big success in Turkey probably has little — if any — experience operating in China. This new partnership is already quite behind the market leaders in China, as KFC already has 3,500 stores in the country and McDonalds has 1,300 with plans to raise that total to 2,000 by 2013. While it’s easy to give big targets to try to impress investors and consumers, I have to be quite open with my assessment that Burger King’s strategy in China to date, coupled with this new joint venture announcement, don’t make me very confident that it will be able to achieve its aggressive targets in the next 5-7 years. A far more likely scenario would be to see this new partnership run into numerous problems as it tries to expand, with the result that its store count could be still be stuck in the 100-200 range over the time frame of its expansion — far short of the 1,000 figure the company has targeted.

Bottom line: Burger King’s aggressive new China expansion is likely to fall far short of its ambitious goals due to its lack of commitment and strange choice of joint venture partner.

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