Exclusive – Burger King secures £35m of new funding, agrees new RBI deal, FY lfl sales up 11%, signs up former largest UK McDonald’s franchisee: Burger King UK, the Alasdair Murdoch-led, Bridgepoint-backed business, has secured £35m of new funding to support its growth strategy, which will include adding 60 new sites over the next 24 months, as it saw a 11% increase in like-for-like sales for the year to 31 December 2022. It comes as the business, which has 553 restaurants, 279 of which are directly owned and the remainder sub-franchises, has signed up Atul Pathak, formerly the UK’s largest McDonald’s franchisee, as a new franchisee to aid its continued growth. The group has agreed the additional £35m of funding from Bridgepoint, which will support continued expansion of the company through the opening of new restaurants and investment in the existing estate. At the same time, it has agreed a new long-term deal with Restaurant Brands International (RBI), the US-based owner of the Burger King brand. For the year to the end of 2022, the business reported total revenue up 39% to £294.5m (2021: £211.7) and like-for-like sales growth of 11%, as it said it continued to outperform the wider quick service restaurant (QSR) market. While the business said trading was resilient, underlying Ebitda of £15.2m was down versus 2021 (£33.1m), with margins impacted by the “significant rise in food inflation experienced across the industry during 2022 as well as higher utility prices”. However, the group said it was encouraged by early signs of margin improvement into 2023 as the rate of food cost inflation falls, with margin recovery also underpinned by an “increasing focus on cost discipline”. An operating loss for the year of £20.6m (2021: profit of £33.5m) was attributed to non-recurring costs and includes those associated with the acquisition of the 74-strong Karali Group – its then largest franchisee – in addition to one-off, non-cash impairments on leases and goodwill linked to the challenging market environment. Burger King UK added 106 new owned restaurants to its portfolio during 2022, with the opening of 32 new restaurants across the UK and the acquisition of all 74 Burger King restaurants from the Karali Group, following its acquisition in September 2022. The business said it had also made strong progress with its remodelling programme, with 32 restaurants upgraded in 2022, including its Leicester Square flagship, and a further ten to be completed by the end of 2023, including Manchester Piccadilly and Thorpe Park, delivering improved customer experience through digital investment and restaurant environment. It invested more than £1m in its Leicester Square restaurant, which it said led to double-digit sales growth. The company said it had also made progress on its “Burger King for Good” ESG strategy – with a 25% decrease in Scope 1 and 2 emissions and a commitment to remove all plastic lids for dine-in transactions, saving more than 30 tonnes of plastic a year. The company said it also continued to invest in digital transformation alongside its customer offering, with the launch of its UK-wide loyalty scheme within the Burger King UK app. It said the scheme’s personalised and digitally led offers have driven strong customer engagement, with more than two million users of the Burger King UK app, helping drive growth in click and collect services. Alongside this, the business said it continued to expand its home delivery offering through partnerships and new agreements with the likes of Deliveroo, Just Eat and Uber Eats. It said digital sales, which includes home delivery and click and collect, now “represent an important and significant sales channel”. Murdoch, chief executive of Burger King UK, said: “I am pleased to announce a resilient full year performance and strong strategic progress in 2022 as we announce ambitious plans to open 60 new restaurants over the next two years. We have continued our rapid expansion in the UK and delivered good growth during the year, despite industry-wide headwinds. Alongside new restaurant openings and the acquisition of our largest franchise partner, Karali Group, we continued our strategic focus on growing digital sales, including home delivery and the introduction of our loyalty scheme on the Burger King app. We also continued to invest in our customer proposition – our remodelling programme is well underway, with 42 restaurants being upgraded during 2022 and 2023, and we are progressing our menu innovation to cater to all preferences. Looking ahead, we see significant opportunity for further growth and are encouraged by the strong pipeline of new openings, supported by additional funding from Bridgepoint.” Burger King features in the Propel Turnover & Profits Blue Book, the next edition of which will be released to Premium subscribers today (Friday, 13 October) at 12pm. Its turnover of £294.5m for the year to 31 December 2022 is the 31st highest in the database. The Blue Book ranks companies by turnover, profit and profit conversion, listing directors’ earnings for the past five years. Companies can now have an unlimited number of people receive access to Propel Premium for a year for £995 plus VAT – whether they are an operator or a supplier. The single subscription rate is £495 plus VAT for operators and £595 plus VAT for suppliers. Email kai.kirkman@propelinfo.com to upgrade your subscription.

Murdoch told Propel that 2022 had been another good year of “consistent, solid, robust growth” for the business. He said: “It’s been a mixture of leveraging both new store openings, acquisitions – we did a great acquisition in the year (Karali Group) – and also a good core like-for-like performance. This year’s like-for-likes have been positive, we have had transaction growth, and we were ahead of the QSR market for the first three quarters.”

Murdoch said the new £35m funding from Bridgepoint is expansion capital. He said: “We are going to open 30 restaurants this year, we’ve got another four or five to go between now and the end of the year. We will open another 30 next year, and 30 the year after. And on top of that, as you can imagine with an estate like Burger King, there is a big opportunity on the remodels and the refurbishments, and we get great paybacks on those, but again, it’s quite capital intensive. We’ll do 20 of those next year. Bridgepoint has been with us since 2017, and they are showing their commitment by backing us again.” 

Drive-thrus will play a significant part in the group’s expansion plans. Murdoch said: “We’re very keen on opening drive-thrus and we get good returns from them. We’ve been in this game now for six years and we’ve got a very decent pipeline of drive-thrus over the next couple of years. A lot of the new American brands that are coming in don’t have that. So, we have that head start, but planning takes a fair amount of time. We like drive-thrus, and ideally on a mix of retail and leisure, they work well for us. Of the 30 sites we would like to open next year, we would aim for 20 of those being drive-thrus, and there’s still plenty to go after in that drive-thru market. It takes time to develop those opportunities. So, you need to be having lots of conversations at the same time just to go through that process. We’ve had deals with a number of landlords that have multiple sites with us. That works well and they like our covenant.”

Murdoch said the business was gaining good traction from the “urban box-style” format it launched last year. He said: “We started with two – in Norwich and Sutton – and we’ve opened a few more of those. They trade well, they are strong on delivery. One of the works in progress that we have to do, because when we invest in our restaurants we invest quite heavily, is trying to get the capex number down on some of those, because of the well-known inflationary causes over the last two or three years.”

In terms of the overall potential of the business in the UK in terms of expansion, Murdoch said: “We're at 553, we’ve got a lot in what we would call captive locations, so that’s travel – be that railway stations, be that airports, be that motorway. McDonald’s has 1,000 more sites than us. I’m not suggesting that we’re going to add 1,000, but we see a good runway, well over 500/600. Even when you get to that point, my experience of this in other roles is that you’ll then see more as well. KFC has 600/700 drive-thrus, we’ve got around 200, so there’s big opportunity in all areas. You would imagine that over the next ten years, formats will evolve too, so I think from a white space point of view, that’s quite exciting.” 

Of the group’s circa 280 franchise sites, 175 are travel franchises with the likes of Moto, Welcome Break, Euro Garages, and Motor Fuel Group (MFG). Murdoch said: “We’ve got a great partnership going with the latter. They’ve got four restaurants open, they are about to open their fifth, and they got a few more slated for next year. And then the balance is traditional franchisees.” The business has recently secured the Scoffs Group (Costa’s largest UK franchisee) and Atul Pathak, formerly McDonald’s UK largest UK franchisee, who owned the 43-strong Appt Corporation, as new franchise partners. Murdoch said: “With the likes of Scoffs and Atul, we are looking to bring in well-capitalised, great operators that have the ability to open a number of restaurants. If we can share that growth, it helps us all, it helps the system, it drives more ad funds, drives more revenue, brings more scale etc. We feel that we can learn a lot from Atul, he’s got a lot of good practice. We’re very excited by what he will bring and open over the next few years. We would hope he opens a couple next year. There’s one coming relatively imminently, probably in the early part of next year.” 

On the prospect of buying in more of its franchisees, Murdoch said: “Because we’ve taken out most of the larger franchisees and most of the ones that were perhaps looking to exit at a certain point, it will be more opportunistic going forward, tucking the odd one in here or there. I expect you’ll see a few a year, but no major acquisitions in the foreseeable future. Certainly not that we’re planning at the moment.” On its relationship with the brand’s owner RBI, Murdoch said: “We have struck an agreement with RBI. We can all see what’s happening out there in the marketplace with both interest rates and inflation. RBI has been very understanding, we’re in a good place and looking forward to working with them over the next few years.” 

On the where the business is currently at, he said: “We feel we’ve consolidated the business. We’ve got a critical mass of drive-thrus, and geographically, we’re quite well placed. The Karali acquisition gave us a lot of exposure to the north west, where we think there’s a lot of opportunity. We weren’t there before. There’s a big bit of work to be done in terms of the remodelling and the refurbishing, and we get really good returns on that. So, we’re quite excited about what comes next. We’ve made significant operational improvements over the last six years, and let’s keep doing that, keep that journey going and keep trying to outperform the QSR market.”