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How Burger King Lost Its Crown

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The fast food chain, which has never been able to fully compete with McDonald's, was sold to 3G Capital for $3.26 billion.

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When you're number two, you try harder. At least that's what all those ads from Avis Budget Group (CAR) have us believe, and judging by today's surge in its shares such extra effort has reaped the car rental company ample rewards. (Certainly, its commercials have aged better than some from industry heavyweight Hertz Global Holdings (HTZ).) If only life was so simple for Burger King (BKC), seemingly forever destined to play second fiddle to McDonald's (MCD) in the fast-food sweepstakes. The home of the Whopper today confirmed its sale to private-equity outfit 3G Capital for $3.26 billion. This $24 per share tender offer is approximately 46% higher than where its stock stood before deal speculation started to circulate and comes after five consecutive quarters of declining same-store sales comparisons at a company that's constantly attempting to reinvent itself to little apparent avail.

Founded in 1953, Burger King's checkered history includes a 1967 sale to Pillsbury Company, acquisition 22 years later by England's Grand Metropolitan -- which itself later morphed into drinks firm Diageo (DEO) -- another private-equity buyout in 2002, and an IPO four years ago. Since then its stock has barely budged while McDonald's has better than doubled. Little surprise then that brand focus, critical to any corporation, has been less than laser-like, a situation not helped by having had an astonishing 20 or so CEOs pass through its revolving doors since 1970. Not to further indulge in Brit-bashing in this summer of BP Plc (BP), but over a pint of its Guinness, executives at Diageo would be the first to admit they regarded the burger company as small fry from across the ocean, irrelevant to their core liquor brands.

Although understandable, such an approach left Burger King orphaned and unloved. If anything, and with all due respect to Avis, it tried too hard. Employing a kitchen-sink approach to attracting customers, it attempted everything from cologne to cold brewskis while waiting in vain for something to stick. The former, a body spray called Flame and advertised as "the scent of seduction with a hint of flame-broiled meat," sounded like a Saturday Night Live parody. (Even if I can't yet find evidence indicating Chuck Fallon, who heads up its North America region, is Jimmy's older brother.)

More recent missteps only exacerbated the matter. While McDonald's successfully expanded into salads and smoothies, Burger King never quite branched out beyond its stomach-expanding flame-broiled cash cow, which has spawned a whole host of imitators. Its bigger brother also ate its lunch in a myriad of other areas, including breakfast offerings and international expansion. Moreover, the firm's recent fixation on a hard core 18- to 34-year-old male demographic -- a group not known for its lifelong commitment -- left it vulnerable to this fickle clientèle leaving for a better deal when the recession really started to bite. In subsequently offering a double cheeseburger for a dollar, its franchisees, a famously feisty bunch, flipped out and sued, saying the price cut hurt profit margins.

There's no innate shame in being number two. John Gielgud was an outstanding actor, Pepsi (PEP) can quench any thirst, Yale provides an impeccable education, and Maradona weaved magic on a fútbol field. But, deep down, admit it. Laurence Olivier, Coca-Cola (KO), Harvard, and Pelé will always stay just one step ahead in the public's imagination. Thus Burger King, even with 2009 revenue north of $2.5 billion, looks eternally doomed to be a silver medalist up against Mickey D's golden arches.
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