Burger King 2012 Annual Report Download - page 10

Table of Contents

As part of our Four Pillars strategy for the U.S. and Canada, we have implemented a re-imaging program to enhance our customers’ restaurant
experience. We have developed a modern “20/20” restaurant design, which draws inspiration from our signature flame-grilled cooking process and incorporates
a variety of innovative elements to a backdrop that evokes the industrial look of corrugated metal, brick, wood and concrete. Rigorous consumer testing
confirmed the 20/20 image was the right one for . Re-imaged restaurants have experienced a sales uplift of approximately 10% to 15%, on average.
The average cost to re-image a restaurant is approximately $300,000, down from approximately $500,000-$600,000.
Our goal is to have 40% of U.S. and Canada restaurants on a modern image by 2015. As of December 31, 2012, 19% of the restaurants
in the U.S. and Canada are on a modern image, up from 11% as of December 31, 2011. During 2012 we instituted an initiative in the U.S. to accelerate the
pace of re-imaging by offering temporary financial incentives to franchisees. We also introduced a third party lending program to provide financing to U.S.
franchisees to facilitate their remodeling efforts. We believe that our lower-cost 20/20 image remodel, coupled with favorable financing terms offered by the
third party lending program, is a cost effective solution that will drive meaningful sales uplifts and provide an attractive return on investment for our
franchisees.

Our company restaurants and our franchisees make monthly contributions, generally 4% to 5% of restaurant gross sales, to managed advertising
funds. Advertising contributions are used to pay for expenses relating to marketing, advertising and promotion, including market research, production,
advertising costs, sales promotions and other support functions. In addition to the mandated advertising fund contributions, U.S. franchisees may elect to
participate in certain local advertising campaigns at the Designated Market Area level by making contributions beyond those required for participation in the
national advertising fund.
In the U.S. and Canada and other markets where we have historically owned Company restaurants, the Company manages the advertising fund. In
other international markets, franchisees make contributions into franchisee-managed advertising funds. As part of our global marketing strategy, we provide
franchisees with advertising support and guidance in order to deliver a consistent global brand message.
In the United States and in countries where we have Company restaurants or manage the advertising fund, we coordinate the development, budgeting
and expenditures for all marketing programs, as well as the allocation of advertising and media contributions, among national, regional and local markets,
subject in the United States to minimum expenditure requirements for media costs and certain restrictions as to new media channels. We are required,
however, under our U.S. franchise agreements, to discuss the types of media in our advertising campaigns and the percentage of the advertising fund to be
spent on media with the recognized franchisee association, currently the National Franchisee Association, Inc. In the United States and certain other markets,
we typically conduct a non-binding poll of our franchisees before introducing any nationally- or locally-advertised price or discount promotion to gauge the
level of support for the campaign.
In 2012, the advertising fund in the United States was impacted by a temporary reduction in advertising fund contributions paid by the Company and
U.S. franchisees associated with incentives to accelerate implementation of restaurant equipment initiatives, and we expect that the reduction in advertising
contributions will continue until 2016.

New product development is a key driver of our long-term success. We believe the development of new products can drive traffic by expanding our
customer base, allow restaurants to expand into new day parts, and
9
Source: Burger King Worldwide, Inc., 10-K, February 22, 2013 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this
information, except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.