Burger King India could be a better treat than McDonald’s franchisee

Burger King India, which launched operations in the country five years ago, has generated 64 per cent revenue growth annually in the past three years, according to its draft red herring prospectus. Its closest peer Westlife, that runs McDonald’s chain in the western and southern India grew revenue at 19 per cent during the period.

Everstone backed Indian arm of Miami, US-based Burger King plans to roll out 700 restaurants by 2025 from 216 at present. In comparison to this, Westlife which started over 20 years ago had 304 restaurants until the end of September. The latter opened 19 stores in each of the past two years.

Apart from higher growth, several other parameters work in favour of Burger King India. For instance, it has a pan-India licence compared with Westlife, which operates in the West and South India. Burger King India’s royalty payment to the parent is capped at 5 per cent. For Westlife, royalty payment to McDonald’s is capped at 5 per cent until 2023 and will eventually rise to 8 per cent.

According to its DRHP, the average store size of Burger King India is 1,300-1,400 square feet, half or even lesser than the average store size of McDonald’s at 2,600-3,200 square feet. Until now Burger King has focussed more on having its stores in the malls; 60 per cent of its restaurants are in the malls. Lower store sizes, and better cost management has helped the company maintain several other financial ratios at par despite having cheaper average product prices. For instance, each of the companies has gross margin of around 64 per cent and negative working capital.

Burger King’s average capex for each store is ₹2-2.5 crore compared with ₹3.5-4 crore for McDonald’s.

Industry experts cite flexibility in terms of supply chain, store formats and menu as reasons for Burger King to stay one step ahead. For instance, globally Burger King has a tie-up with Coke, but its Indian arm has the flexibility to tie up with Pepsi.

Source:- https://retail.economictimes.indiatimes.com/news/food-entertainment/food-services/burger-king-india-could-be-a-better-treat-than-mcdonalds-franchisee/72879219