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Burger King forced to close 400 stores

By Jimmy Adeel
|
May 7, 2023

Burger King announced plans to close as many as 400 stores across the United States by the end of this year.

Two of the fast food giant's franchises have already declared bankruptcy as the company struggles to keep up with fast-casual competition.

Struggling with Competition

Burger King's CEO Joshua Kobza revealed that between 300 and 400 locations are slated for closure in 2023, a historic high for the company.

In the first quarter, Burger King closed a net 124 US locations (1.7%), leaving just under 7,000 restaurants nationwide, as reported in the earnings release from parent company Restaurant Brands International.

However, not all of the locations to be closed have been revealed, as Kobza admitted there is "a fair degree of uncertainty" around the plans.

The company has long lived in the shadow of McDonald's, and in 2020, it lost its No. 2 spot to Wendy's.

Franchise Bankruptcies and Closures

Earlier this year, two Burger King franchisees declared bankruptcy. Meridian Restaurants Unlimited filed for bankruptcy in March, struggling with rising food costs and poor sales at over 100 locations.

It will close 27 locations across seven states, including Minnesota, Montana, and Utah, having reportedly racked up $14 million in debt. The franchisee said it was "possible, if not likely," they would be pressed to close more stores as they negotiated rent and operational improvements with landlords.

EYM King of Michigan, another franchisee, also announced closing 26 restaurants across the state in March after the chain missed a deal with the Department of Labor. The fast food giant announced it would lay off 424 members of staff as it geared up to close the restaurants through April.

Looking for New Franchisees

Burger King is seeking additional franchisees with stronger finances this year. Chairman Patrick Doyle stated that there is no room for franchisees who are not willing or able to work hard to operate restaurants that are better than the system average over the long term.

Some struggling locations are expected to be bought out. According to Restaurant Business, 37 stores in Virginia are expected to be bought for $22 million by DC Burger. Meanwhile, Karali Group is reportedly set to pay more than $7 million for 27 spots in Ohio and Pittsburgh, Pennsylvania.

"Reclaim the Flame" Turnaround Plan

The company reported an 8.7% growth in comparable sales despite closures in the first quarter. The brand hopes its $400 million "Reclaim the Flame" turnaround plan, launched in September 2022, may start to work. The plan aims to accelerate sales growth, drive franchisee profitability, revive run-down restaurants, and streamline overly complicated menus and operations.

Despite the US closures, Restaurant Brands International exceeded Wall Street's first-quarter revenue and profit estimates, driven by higher traffic and prices at Tim Hortons restaurants in Canada. The company's global comparable sales increased by nearly 10% in the March quarter, compared to analysts' estimates of 6.5%, according to Refinitiv IBES data.

Strong Sales Amid Rising Inflation Concerns

Large restaurant chains have reported strong sales in the first quarter despite growing concerns about consumer spending power due to stubbornly high inflation.

McDonald's Corp and Chipotle also exceeded quarterly sales and profit expectations, as they introduced new menu items and raised prices over the past year to protect margins from increased raw materials and labor costs.

The challenges that Burger King faces in the United States have led the company to a critical moment in its history. As the fast-casual market continues to grow and store closures become imminent, the company will need to adapt and innovate to remain successful.

The company's efforts to secure new franchisees and the success of its "Reclaim the Flame" turnaround plan will determine its future in an increasingly competitive market.