Performance comparison of two fast food businesses

Performance comparison of deuce truehearted nutrition businessesThe purpose of this oblige is to measure the work of devil companies in the same atomic number 18a of business, which is luxuriant aliment effort. This study benchmarks two established ball-shaped fast forage for perspective sellers who stimulate expanded trading ope proportionalityns further afield all over their celebrated histories, displaying innovation, vision and success in the ope balancen.The companies bequeath be assessed using a range of pecuniary methods much(prenominal) as naiant, trend, vertical and proportionality analyses. This permit be done based on the troupes fiscal controversys for the run low tether long time. Non-financial performance measures, which ar based on evidence of business performance, give too be intaked. A SWOT abridgment will thence be done for each association in parliamentary procedure to develop the reader a concise picture well-nigh where some(p renominal) companies atomic number 18 now, and what they can do to improve their position in the market. Each telephoner will then be assessed to chew the fat how attr boutive it is to both investors and employees.The companies chosen for this report ar McDonalds and Burger nance. They be two of the biggest fast pabulum sellers that overtop the not lone(prenominal) the UK but to a fault the world fast nutrition sector. When deciding how to position a production, trade managers need to understand how product differentiation affects competition. Thus, this paper examines the relationship between product differentiation and legal injurys and sack up in the fast victuals industry. These companies were chosen as they be of divert to the author. The two fast food sellers are similar in nature as although they both have a substantial share of the UK market, either they are all famous the world. thitherfore their financial data is relatively comparable.Historical Back groundNames, addresses and logos of companiesAddressMcDonalds PlazaOak Brook IL 60523USAAddress5505 Blue Lagoon DriveMiamiFlorida 33126USA play along HistoryMcDonalds hatfulMcDonalds Corpoproportionn is the worlds heavy(a)st hamburger fast food eating houses, answer much(prenominal) than 58 million guests every day. McDonalds decoct on sells hamburgers, crybaby products, French fries, breakfast, soft drinks, shakes and deserts. It represents the trends of Western nations. period at the same metre, it faces the reproof over the wellnessiness of its products. McDonalds has modified its scorecard to include picks considered healthier such as salads, wraps and fruit. The business began in 1940, with a eatery opened by br opposites Richard and Maurice McDonald in San Bernardino, California. The site of the McDonald brothers original eating place is now a museum. With the expansion of McDonalds into many outside(a) markets, the political party has be come on a symbol of globalisation and the spread of the American way of life.The fellowship operates by dint of five subsidiaries (structured on a geographical recordic basis) McDonalds USA, McDonalds Europe, McDonalds AMEA (Asia, Middle East and Africa), McDonalds Latin America and McDonalds International. An spare subsidiary was created in McDonalds Ventures, which consists of the ac familys non-McDonalds brand.Burger big businessman Corpo rationBurger poof of ten reduce as BK, is a global image of hamburger fast food eating houses like McDonalds headquartered in unincorporated Miami-Dade County, Florida, United States. Burger mightiness Corporation banner operates the international business. The bon ton began as a Jacksonville, Florida-based restaurant cooking stove in 1953. After the order ran into financial difficulties in 1955, its two Miami-based franchisees, David Edgerton and James McLa more(prenominal), purchased the troupe and rechristened it Burger top executive. Over the n ext half century the community would trade hold four measure, with its third line up of owners, a partnership of TPG Capital, Bain Capital, and Goldman Sachs Capital Partners, taking the company public in 2002. The on-line(prenominal) ownership group, 3G Capital of Brazil, acquired a majority stake in the company in a struggle valued at $3.26 billion in late 2010.The companys business is convert integrity into three geographic segments the US and Canada Europe, the Middle East, Africa and Asia Pacific (EMEA/APAC) and Latin America. somewhat 7,512 Burger pansy Stores are situated in the US and Canada. Over 2,379 of the companys restaurants are located in Europe, Middle East and Africa (EMEA), 672 restaurants in Asia Pacific (APAC) and 1,002 restaurants in Latin America.Business activities and Product treeMcDonalds CorporationMcDonalds operates, franchises, and redevelopments a oecumenical chain of about 31,000 fast food restaurants in the world. Franchisee, Affiliate an d Corporation are three ways, which McDonalds operate the worldwide stores. About 25% of the companys tax revenues come from franchisee outlets. The company and its franchisees use special method to guarantee uniformity in both services and standards. McDonalds restaurants offer a substantially uniform board. It also tests a range of advanced products on an ongoing basis and sells a variety of other products during limited-time promotions.Source McDonalds websiteBurger world power CorporationBurger mightiness (BKC) is the worlds uphold largest chain of fast food hamburger restaurants. Burger King operates more than 11,565 restaurants in 71 countries and the US territories, of which 1,360 restaurants are company restaurants and 10,205 are owned by independent franchisees. Among of these, 7,207 restaurants are located in the US and 4,358 are located in international markets.Burger King offers a range of reasonably footingd food items, which content burgers, sandwiches, salads and breakfast items. The Whopper sandwich is its largest-selling product. Burger King was the first fast-food chain to introduce drive-through service, which now accounts for a majority of the companys business. But the development of drive-through stores is little than McDonalds. The company generates revenues from three sources gross revenue at company restaurants, royalties and franchise fees and lieu income from certain franchise restaurants that lease or sub lease keeping from the company.Source Burger King WebsiteFinancial outlineThe following financial abbreviation of both companies uses the data provided in the Annual reports of each company from Fame or prescribed website. Horizontal, trend, vertical and ratio analyses will be used as principle to benchmark performance between the firms.Horizontal analytic thinkingConducting a horizontal depth psychology allows us to compare different items in each companys financial statements. This can be done over a period of ti me so that any changes that have taken place can be noted. Therefore it is a useful tool for comparing the performance of two companies. The data below suggests the consolidated income statement of both firms between the socio-economic classs of 2007-2009. However, McDonalds financial report is calculated about in Europe, while Burger King is calculated in UK. Each companys performance will be analyse and compared and any notable differences will be discussed below.McDonalds there was an improver from 2008 to 2009 (3.2%) overdue to the world financial crisis. But there was also a substantial chastise from 2009 to 2010(11.9%), one reason is that the company is too large to operate.Burger King with 6.0% harvest-festival from 2008 to 2009, Burger Kings performance is better than its competitors. Following with financial crisis end, there was 8.4% harvest-festival between 2009 and 2010. arrant(a) Profits This is worked out by taking the represent of sales figure away from turn over.both companies even with eminent increases in operational cost for 2008, they ended up with a small increase in net income. This can be contributed to the exceptional gross loot compensation for the year. McDonalds gross pay for 2008 increased 3.2%, while Burger King only increased 1.3%. This can be attributed to the McDonalds grabbed the opportunity of financial crisis. However, McDonalds and Burger King also suffered a decline in 2009. The main reason is that companies with global operations show sales and franchise revenue from outside(prenominal) currencies into dollars. That can kick upstairs revenue and profit when the dollar is weaker but hurt results when the U.S. currency is knock-down(prenominal)er because foreign sales then translate into fewer dollars.Operating incomeThe pattern unmistakable for the direct income over the three-year period is different to the other indicators and causal eventors are difficult to establish.It shows a huge increase in 2008 , this could be attributed to the gigantic increase in gross profit compounded by the direct expenses macrocosm trimmed providing a much-improved operating income for the year. In 2008 however, operating income falls, apt(predicate) due to a combination of a gross profit come down and an operating expense increase.Net Profit this is the actual earnings of the company after all expenses and taxes have been paid and are usually referred to as the bottom line.Both companies are experiencing a small rate of original growth in the year of 2008. This is despite the economies financial difficulty during 2008 peck prefer to choose fast food as their daily food. It is apt(predicate) that during 2008-09, the rise in turnover is partly down to the high expenditure of fuel, caused by high oil. In Europe, two companies performance reflected Europes strategic precedentities to make headway the customer and employee sleep together, get up local relevance, and build brand foil. In add ition, McDonalds intensify customer trust in our brand through communications that emphasised the quality and origin of McDonalds food and our sustainable business practices, while Burger King did much better.Trend AnalysisBy conducting a trend analysis we can see the ways in which the companies have changed over the last three years. The year 2007 is taken as the base year and set at light speed%. Each following year is then uttered as a percentage of the base year using this parGross Profits Whilst both companies experience similar growth in their turnover, McDonalds experience a decrease in gross profits in 2009-10. Burger King does not have this problem and so they experience ripe about same level in gross profits over the three-year period. surgical incision Change in Gross ProfitOperating Profit Both companies experienced increases in their operating profit. This McDonalds plan is go awaying to the company fitting more efficient, which is reflected by this increase. Th rough this, the company has evidentiaryly reduced its judicial system expenses over the three-year period. They have also experienced a rise in other operating income pre operating profit, which has led to the rise in operating profit, despite the fall in gross profit. component part Change in Operating ProfitNet Profit Burger King net profit persists consistent for the first two years and then drops during the year 2009-10. This pattern is to be expected due to companies with global operations translate sales and franchise revenue from foreign currencies into dollars, which led to people nerve-wracking to spend less money. McDonalds Net Profit rocketed in 2008-09, due to the fact that people would like to choose fast food during financial crisis.Percentage Change in Net ProfitVertical AnalysisA vertical analysis shows us the relationship between each income statement item to the turnover. In other words, it shows all other figures as a percentage of the turnover or net sales, w hich is set at 100%. The following equation can be used in order to work this outBalance SheetA vertical analysis can also be conducted on the companys balance sheet, representing all items as a percentage of the summarise assets. In simple terms, this allows us to see where a business spend and receives its money.Fixed additions Fixed assets are those with a remaining useful life of over one year. Tangible fit(p) assets refer to physical assets such as creates land etc. and intangible assets refer to items such as goodwill and trademarks. McDonalds is much bigger than Burger King, which elbow room it has more stores in Europe and UK.Current Assets Current assets are those that are held for less than a year and can be realized quickly. They act as a source of funds for day-to-day activities (Investor Words, 2009). During the world financial crisis, two companies were under its influence in 2008. While in 2009, two companies had made a quick change. So their current assets suffer from a huge increasing.Total Liabilities This figure is made up of both current liabilities and long-term liabilities. Current liabilities are the debts to creditors and suppliers, which the companies are expected to pay at bottom a year, often in cash. Long-term liabilities are debts that do not need to be repaid within a year. Burger King has a land share of long-term liabilities than McDonalds does. This suggests that Burger King is in a better financial position when it comes to repaying debt, as the majority of their capital comes from Shareholders funds instead of loans.proportion AnalysisConducting a ratio analysis allows us to compare the ad hoc items in each companys financial statements over the three years period. There are four classifications of ratio analysis Profitability, Liquidity, Efficiency and Investment. Conducting a ratio analysis from each of the four classifications should give a good general picture of each companys performance.Profitability Gross Profi t MarginGross Profit Margin = Gross Profit x 100 disturbanceGross profit margin allows us to see the proportion of sales that is left over once the costs of sales have been accounted for. This gives us an idea about how much money the company is making on their sales alone, before accounting for other income, administration expenses, interest and tax. This is a particularly relevant measure for this industry as the vertical analysis showed that the cost of sales takes up a huge percentage of the total turnover. Generally, the high(prenominal) the gross profit margin is the better a company is performing.Liquidity Current proportionCurent Ratio = Curent AssetCurent LiabilitiesThe current ratio is used to test the liquidity of company. A high current ratio of over 2 to 1 suggests that a company would easily be able to pay off its debts using its current assets, putting them in a good financial position.Efficiency Asset TurnoverAsset Turnover = Sales (Turnover)Total AssetsThis ratio m easures how efficient a company is at utilizing their assets in order to generate sales. A high ratio indicates that a company is making good use of its assets.McDonalds is using its assets more efficiently than Burger King. Both companies experience utility in their asset power throughout the two year period which could a cook be attributed to the improvement programs that they are both currently running. While in 2009, two companies suffered from a small declining. However, McDonalds is much better than Burger King.Investment expenditure/Earnings RatioP/E Ratio = Market Earnings per SharePrice per ShareThis final measure is a clear indication to dominance investors, of the earnings they will be receiving. The ratio essentially indicates the impairment they are paying for a unit of income. If one company has a higher ratio than the other then the relative earnings received is for the price of the share is less than the other company. When comparing two companies they can use as relative prices to determine which one delivers the greatest benefit for their price. In addition, the lower the value, the quicker the investment will be recovered through earnings.Both companies started in a similar position in 2009-10. This ratio does not necessarily mean the investor will receive less because the fluctuations in share prices paid by each investor whitethorn differ greatly, peculiarly in this three year period where the decline was drastic in 2008. However, upon analysis by a potential investor, it may indicate that at the end of 2008s financial year, Burger King looks to provide slightly better earnings per share relative to the price paid. However this is not rigid, prices fluctuate by the hour and do not always resemble financial performance.Non-Financial AnalysisIt is also important to factor in a variety of non-financial measures of performance in order to help us to assess the position of these companies. This may help to explain why one company is experi encing success over another. The fast food industry in the world is extremely agonistic and so a number of different performance measures which are thought to be relative to the industry have been used.Global operationsMcDonalds concentrate on globalization, sometimes referred to as the McDonaldization of society. The Economist tenderspaper uses the Big macintosh index to describe the McDonalds globalization. McDonalds was the first restaurant to consistently offer ashen restrooms, driving customers to demand the same of other restaurants and institutions. McDonalds wants to open a large number of drive-through stores in the world. McDonalds make a deal with the French fine arts museum, the Louvre, to open a McDonalds restaurant and McCaf on its premises, in November 2009.Burger King was successful in the US and then it brought Chicken burger to Europe. Consumers are urged to vagabond on beef, with the message that Burger King announces can offer more than solely beef burgers . The creative marketing is likely to engage consumers, while squawker may appeal to more health to customers. To assist in its global expansion, Burger King has established several subsidiaries to develop partnerships and alliances to expand into new areas. In Europe, Burger Kings subsidiary Burger King Europe GmbH is responsible for the licensing and development of BK franchises in the that market. At the end of 2010 year, Burger King is the second largest hamburger fast food company, which the first one is McDonalds (32,400 locations) and the fourth largest fast food restaurant chain overall after Yum(37,000 locations), McDonalds and Subway (32,000 locations).Success of Branding and Advertisingim lovin it is an McDonalds Corporations slogan. It was created by Heye Partner. The English part of the campaign was launched in the UK in 2003. With the music of tom turkey Batoy and Franco Tortora (Mona Davis Music) and vocals by Justin Timberlake is famous all over the world. In Sprin g 2008, McDonalds produce their new image and slogan What were made of. This was to promote how McDonalds products are made. furtherance was tweaked a little to feature this new slogan. In Fall 2008, McDonalds started new case, eliminating the previous design stated above with inspirational messages, the im lovin it slogan. McDonalds also updated their menu boards with darker, yet warmer colors, more realistic photos of the products featured on plates and the drinks in glasses. In 2009, McDonalds expects to have all of this nationwide.As to Burger King, Golden Age of Burger King advertising was during the 1970s when it introduced its Magical Burger King. And then several well-known and parodied slogans appear. In 2003, Burger King published new advertising with the hiring of the Miami-based advertising agency of Crispin hall porter + Bogusky (CP+B). They have reorganized Burger Kings advertising with a series of new factors. It concern on a redesigned Magical Burger King charac ter accompanied with a new online presence. A Burger King advertising running in young weeks declares the Kings gone crazy. It shows the burger manacles royal mascot running through a building and crashing through a plate glass window before being tackled to the ground by men in white coats. The advertising is speculate to trumpet Burger Kings new Burger King Steakhouse XT burger The kings insane for offerings so much beef for $3.99, said the advertising.Success of MenusMcDonalds decision to display nutritional information, including calorie and fat content and also on its product packaging well help restore faith in the brand by empowering customers menu options. However, the move does not represent a fundamental change to the companys overriding mission. It just provides cheap, flavorsome food, served quickly. McDonalds clearly wants this increased disclosure will restore trust in its products. Indeed, data monitor research shows that transparency is clearly needed 40% of UK c onsumers are skeptical about health claims made by food manufacturers, compared to 32% who are trusting. McDonalds healthier menu items that have this year helped promote sales in Europe. Consumers will briefly be able to read that the Cheese, Ham and Pepperoni Deli Brown straddle contains 616 calories, compared to 493 in a Big Mac, along with al about 10% more fat and more than double the amount of salt. Nonetheless, as the worlds leading fast food company, McDonalds will always perform better.In contrast to other industry players, Burger King has not snaped on making its food healthier in the past, believing that the Superfan values taste over health when making food choices. In 2005, for example, the company invested a lot on fast foods to make them less unhealthy, with less salt, sugar and fat, stating it wanted to focus on providing tasty foods. By focusing on taste, Burger King aimed to gain a competitive advantage and achieve a reputation for producing tastier burgers. Whi le this focus on taste is appealing to the Superfan, health is an issue of ontogeny importance to a large sector of society. Therefore, in order to remain competitive, the company has had to respond to this growing demand for healthier foods. Its rivals have already made health changes to their menus and, with this in mind, Burger King has reformulated some of its menu items. Consumers are urged to cheat on beef, Burger King announces that it can offer more than just beef burgers. The creative marketing is to tall consumers, while chicken is more health. Burger King has announced that it will be provided new hamburger named the entreat crisp Premium Chicken burger in the UK, Ireland, Sweden and Denmark. At the same time, Burger King wants to create new imagine that consumers go to fast food stores feel for health beneficial products, which will makes them feel better about their choice in turn.Market shareBurger King has around 7,800 restaurants locally, while McDonalds has humo ngous 13,000 locations locally. Burger King has approximate 21.9% of the market share, while McDonalds has more than double that, a whopping 44% market share of the fast food industry. Comparatively, McDonalds has been expanding cursorily into the international market in fact McDonalds has expanded in many third world countries, which include India, China, etc. Although Burger King also has international reach, its nowhere near McDonalds reach. Burger King has managed to expand in only a handful of international markets.Company PotentialMcDonalds SWOT AnalysisMcDonalds SWOT AnalysisStrengthsMarket-leading positionRobust all-round growthStrong brand lawOpportunitiesAlliance with Warner Home VideoInnovations in the MenuRising Hispanic population in USStrengthsMcDonalds is the worlds largest foodservice retailing chain. McDonalds serves one of the worlds favorite and close well known menus. The company has shown a strong growth in revenues. Its consolidated revenues have increased at a compounded annual growth rate. All segments of the company have witnessed strong growth. Europe, McDonaldss largest geographical market, sawing machine revenues increase by 14.7%. McDonalds has a well-established brand that appeals to varied age groups and customer profiles. The Business Week magazine has ranked McDonalds as one of the ten most recognized brands in the world, a position that creates significant opportunities for the company. The company makes some of the largest selling fast foods in the world.WeaknessesThe company witnessed an operating mischief from its non-McDonalds brand restaurant operations. Operating losses from both these segments have move McDonalds overall profitability. McDonalds revenue per employee compared quite poorly with the average figures in the foodservice and restaurants industry. This indicates that the companys per employee productiveness and profitability is lower than that of its competitors, a disadvantage in a ferociously competitiv e marketplace. During 2007-2009, McDonalds selling, general and administrative (SGA) expenses for Europe region increased substantially. change magnitude SGA expenses in these segments have adversely affected the overall profitability of McDonalds.OpportunitiesA popular live-action series featuring Ronald McDonald will help further McDonalds popularity, especially amongst children. The company can cash in on this and boost its revenues. McDonalds continues to evolve its menu in order to maintain its leading market position. New products and mark everyday value remain a focus for McDonalds, as the company continues to refresh its offerings with its Euro Saver Menu in several European markets.ThreatsThe company is facing pressures due to an increase in raw material prices. owe to various import restrictions and higher demand, prices of beef. Further, the prices are expected to remain high during 2010 also. Beef is the major raw material for the companys products. A further wage hik e in beef prices can have a negative bear on on companys profitability. Over the past few years there has been a newfound emphasis on healthier eating. With a change in lifestyle, people are becoming more aware of the negative cause of unhealthy eating habits. This has a direct effect on the sales of the fast food chains that are associated with unhealthy food. Consumers are video display increased preference for fat-free and healthy food products. Food items containing trans-fat are losing market share as they are linked to cardiovascular diseases. around negative publicity could adversely squeeze the revenues of the company, especially as consumers and judicature bodies all over the world get more conscious about health effects of fast food.Burger King SWOT AnalysisBurger King SWOT AnalysisStrengthsStrong market position and brand loveliness signifying customer acceptanceGreater franchise mix-an attractive business mannikinInnovative marketing campaigns and advertising to provide greater visibilityOpportunities enlargement in animate and new markets-the rate of expansion in 2009 was 28% higher than the prior yearInitiatives such as remodeling and usage if Bluetooth to enhance operational efficiencyPositive outlook for quick service restaurant segmentStrengthsBurger King enjoys a strong market position with 11,925 restaurants operating in 73 countries and US territories. It is the worlds second-largest FFHR chain as measured by the total number of restaurants and system-wide sales. Additionally, BKCs Burger King and Whopper brands are two of the most widely recognized consumer brands in the world. Overall, the companys established brand image has enabled it to cut across various global markets. The company leverages its strong market position to gain economies of scale and increase its bargaining power. BKC utilizes innovative marketing, advertising and sponsorships to drive sales and generate restaurant traffic. Strong and innovative marketing effo rts will provide better visibility to the company, which will in turn have an impact on the revenue generating capacity of the company.WeaknessesDeclining comparable sales growth-2009 recorded the lowest rate in three years BKC recorded a decline in its comparable sales growth in the recent past. contempt positive comparable sales growth across all reportable segments during 2009, comparable sales for the period were negatively impacted by significant traffic declines during the third and fourth quarters across many of the markets in which BKC operates. This was primarily driven by the continued adverse macroeconomic conditions, including higher unemployment, more customers eating at home, heavy discounting by other restaurant chains and the H1N1 flu pandemic. Declining comparable sales growth indicates the necessity of the direction to focus on various product offerings that caters to the value conscious customers during times of poor economic conditions.Concentrated operations in terms of geographic presence and dependence on selected distributors-increases business risks.OpportunitiesExpansion in existing and new markets-the rate of expansion in 2009 was 28% higher than the prior year. Burger King is focusing on expanding its presence in existing and new markets. Expanding presence in existing and new markets will allow the company to establish a global footprint and favorably impact its revenue generating capacity. Initiatives such as remodeling and usage of Bluetooth enhance operational efficiency.ThreatsThe fast food industry is intensely competitive and Burger King competes with many well-established food service companies on the basis of product choice, quality, affordability, service and location. As the restaurant industry has few barriers to entry, the company competes with large competitor base including restaurant chains and individual restaurants that range from independent local operators to well-capitalized national and international restaur ant companies. McDonalds and Wendys are BKCs principal competitors. The company also competes against regional hamburger restaurant chains. The company also competes against national food service businesses offering alternative menus, such as Subway, PaPa Jones and Pizza Hut. Some of the Burger King competitors have greater financial, non-financial and other resources, which may help them to react to changes in pricing, marketing and other segment in general better than Burger King.Investor PotentialThis section will examine the attractiveness of investment into McDonalds and Burger King. The following two graphs show the variations in each companys share price over the three financial periods looked at throughout this reports. Both companies graphs are taken from Yahoo finance as this website showed the fluctuations during the three years that the financial analysis was conducted, allowing the share price to be compared to the businesses financial success. Share prices vary dependi ng on how a company is performing with more investors buying shares when they think the company is about to experience success. Success leads share prices to rise, due to the laws of supply and demand.McDonalds share priceThis graph shows that McDonalds experienced an overall increase in share price during 2006 to 2010. This could be due to the success of the McDonalds strategies, suggesting that the company has adopted a successful growth strategy and encouraging people to invest.Burger King share priceBurger King have seen a steady drop in their share price relative to their drop in net profit in 2007-08, which could lead investors to become less attracted to the company. However, Burger King does have quite a strong growth strategy