Burger King 2013 Annual Report Download - page 17

Table of Contents

Our revenues are heavily influenced by brand marketing and advertising. Our marketing and advertising programs may not be successful, which may
lead us to fail to attract new guests and retain existing guests. If our marketing and advertising programs are unsuccessful, our results of operations could be
materially and adversely affected. Moreover, because franchisees and Company restaurants contribute to our advertising fund based on a percentage of their
gross sales, our advertising fund expenditures are dependent upon sales volumes at system-wide restaurants. If system-wide sales decline, there will be a
reduced amount available for our marketing and advertising programs. In addition, we have emphasized certain value offerings in our marketing and
advertising programs to drive traffic at our stores. The disadvantage of value offerings is that the low-price offerings may condition our guests to resist higher
prices in a more favorable economic environment.

The support of our franchisees is critical for the success of our marketing programs and any new capital intensive or other strategic initiatives we seek
to undertake, and the successful execution of these initiatives will depend on our ability to maintain alignment with our franchisees. While we can mandate
certain strategic initiatives through enforcement of our franchise agreements, we need the active support of our franchisees if the implementation of these
initiatives is to be successful. In addition, our efforts to build alignment with franchisees may result in a delay in the implementation of our marketing and
advertising programs and other key initiatives. Our franchisees may not continue to support our marketing programs and strategic initiatives. The failure of
our franchisees to support our marketing programs and strategic initiatives could adversely affect our ability to implement our business strategy and could
materially harm our business, results of operations and financial condition.


We receive revenues in the form of royalties and fees from our franchisees. As a result, our operating results substantially depend upon our franchisees’
sales volumes, restaurant profitability and financial viability. However, our franchisees are independent operators and we cannot control many factors that
impact the profitability of their restaurants. Pursuant to the franchise agreements, we can, among other things, mandate menu items, signage, equipment,
hours of operation and value menu, establish operating procedures and approve suppliers, distributors and products. However, the quality of franchise
restaurant operations may be diminished by any number of factors beyond our control. Consequently, franchisees may not successfully operate restaurants in
a manner consistent with our standards and requirements, such as our cleanliness standards, or standards set by federal, state and local governmental laws
and regulations. In addition, franchisees may not hire and train qualified managers and other restaurant personnel. While we ultimately can take action to
terminate franchisees that do not comply with the standards contained in our franchise agreements and our Manual of Operating Data, we may not be able to
identify problems and take action quickly enough and, as a result, our image and reputation may suffer, and our franchise revenues and results of operations
could decline.
If sales trends or economic conditions worsen for franchisees, their financial results may deteriorate, which could result in, among other things,
restaurant closures, delayed or reduced payments to us of royalties, advertising contributions and rents, and an inability for such franchisees to obtain
financing to fund development, restaurant remodels or equipment initiatives on acceptable terms or at all. Furthermore, franchisees may not be willing or able
to renew their franchise agreements with us due to low sales volumes, or high real estate costs, or may be unable to renew due to the failure to secure lease
renewals. If our franchisees fail to renew their franchise agreements, our royalty revenues may decrease which in turn could materially and adversely affect our
business and operating results.


We believe that our future growth and profitability will depend on our ability to successfully accelerate international development with strategic partners
and joint ventures. Internationally, we have moved to a business model in which we enter into relationships with “master franchisees” to develop and operate
restaurants in defined geographic areas. Over the past two and a half years, we have entered into master franchise and development agreements with
franchisees in Brazil, China, Russia, South Africa, Mexico, India, France, Singapore, Malaysia, South Korea, the Nordic countries, Canada, Finland, the
Netherlands, Pakistan, Japan and Sri Lanka, and we are actively seeking strategic partners for new joint venture and master franchise relationships as part of
our overall strategy for international expansion. These new arrangements may give our joint venture and/or master franchise partners the exclusive right to
develop and manage Burger King restaurants in a specific country or countries. A joint venture partnership involves special risks, such as our joint venture
partners may at any time have economic, business or legal interests or goals that are inconsistent with those of the joint venture or us, or our joint venture
partners may be unable to meet their economic or other obligations and we may be required to fulfill those obligations alone. Our master franchise arrangements
present similar risks and uncertainties. We cannot control the actions of our joint venture partners or master franchisees, including any nonperformance,
default or bankruptcy of joint venture partners or master franchisees. In addition, the termination of an arrangement with a master franchisee or a lack of
expansion by certain master franchisees could result in the delay or discontinuation of the development of franchise restaurants, or an interruption in the
operation of our brand in a particular market or markets. We may not be able to find another operator to resume development activities in such market or
markets. Any such delay, discontinuation or interruption could materially and adversely affect our business and operating results.
15
Source: Burger King Worldwide, Inc., 10-K, February 21, 2014 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.