Burger King was founded as Insta-Burger King on July 23, 1953 in Jacksonville, Florida by Keith G. Cramer and Matthew Burns, inspired by the McDonald brothers' original store in San Bernardino, California. They achieved success with Insta Broiler oven. In 1959, Miami franchisees James McLamore and David R. Edgerton purchased the company, restructured and renamed it Burger King. The brand expanded to over 250 locations in the United States, when they sold it to the Pillsbury Company in 1967. Over the following decades, Burger King underwent multiple ownership changes, including acquisitions by Grand Metropolitan (1989), Diageo, and later 3G Capital (2010), Burger King merged with Tim Hortons, forming the foundation of the multinational Restaurant Brands International.
History
Insta-Burger King
Burger King was founded in 1953 in Jacksonville, Florida, as Insta-Burger King by Keith G. Cramer and his wife's uncle, Matthew Burns. Their first stores were centered around a piece of equipment known as the Insta-Broiler, which was very effective at cooking burgers. It proved so successful that, as they grew through franchising, they required all of their franchises to carry the device.
While the Jacksonville chain kept expanding, two friends named James McLamore and David R. Edgerton, both alumni of the Cornell University School of Hotel Administration were seeking an opportunity to open their own business. McLamore had visited the original hamburger stand belonging to Dick and Mac McDonald in San Bernardino, California, and sensing potential in their innovative assembly line-based production system, decided to open a similar operation.
McLamore and Edgerton acquired a license to operate an Insta-Burger King franchise and opened their first location on 4 December 1954 at 3090 NW 36th Street in Miami. By 1959, the pair had stores at several locations within the Miami-Dade area, and operations were growing at a fast rate. However, the partners discovered that the insta-broiler units' heating elements were prone to degradation from the drippings of the beef patties. The pair eventually created a mechanized gas grill that avoided the problems by cooking the meat patties in a different way inside the unit. The new cooking appliance, which they called a flame broiler, moved the patties over the flame vertically on a chain link conveyor over the heating elements, a design that imparted grill lines on the patties similar to those made on a charcoal grill. The new unit worked so well that they made the decision to replace all of their Insta-Broilers with the newly designed unit.
Even though the original Insta-Burger King had rapidly expanded throughout the state and its operations totaled more than 40 locations by 1955, the group ran into financial difficulties. McLamore and Edgerton purchased the national rights to the chain in 1959 and rechristened the company as Burger King of Miami. The company eventually became known as Burger King Corporation and began selling territorial licenses to private franchisees across the US by 1959.
Besides the creation of the company's signature piece of equipment, the flame broiler, the company added two more features during this period that have since become closely associated with the chain. The first to be created was its mascot, the Burger King in 1955. The character would become a staple of its advertising over the next 60 years. The second creation was the company's signature sandwich, the Whopper. It was created in 1957 by James McLamore and originally sold for 37 cents. McLamore created the burger after he noticed that a rival restaurant was having success selling a larger burger. Believing that the success of the rival product was its size, he devised the Whopper. The name was chosen because he felt that it conveyed "imagery of something big". Finally, the company made its first forays into advertising in the new medium of television with commercials for the chain in 1958.
Pillsbury Company
In 1967, the Pillsbury Company acquired Burger King and its parent company Burger King Corporation from McLamore and Edgerton. At the time of the purchase, BK had grown to 274 restaurants in the United States and had an estimated value of US$18 million With the acquisition, Pillsbury was faced with a lack of consistency within the franchise framework. The Burger King Corporation franchising system set up by McLamore and Edgerton allowed the company to expand a great pace, but the lack of contractual restraints and controls on its franchisee operation led to inconsistencies in its products that in turn were a drag on the reputation of the chain. Additionally, the agreements gave the company too little power to prevent its franchises from doing as they wished with the business.
Conflict with franchisees One of the prime examples of the deficiencies in its former franchise structure can be illustrated by the relationship between Burger King and a Louisiana-based franchisee. Chart House, owned by brothers Billy and Jimmy Trotter, opened its first BK franchise in that state in 1963. By 1970 the Trotters' company had grown to over 350 stores across the country, with its own purchasing system, training program and inspection system. In 1973 Chart House attempted to purchase the chain from Pillsbury for , but Pillsbury declined. The Trotters then put forth a second plan that would have Pillsbury and Chart House spin off their respective holdings and merge the two entities into a separate jointly controlled company, which Pillsbury also declined. After the failed bids, the relationship between Pillsbury and the Trotters soured. When Chart House purchased several restaurants in Boston and Houston in 1979, Burger King sued the selling franchisees for not respecting their contractual right of first refusal and won, preventing the sale. The two parties eventually reach a settlement where Chart House kept the Houston locations in their portfolio. In the early 1980s Chart House spun off its Burger King restaurants to focus on its higher end chains; its Burger King holding company, DiversiFoods, was eventually acquired by Pillsbury in 1984 and folded into Burger King's operations.
With the ongoing conflict with Chart House on the mind of the company's board in 1978, Burger King hired McDonald's executive Donald N. Smith to help revamp the company. Smith initiated a restructuring of all future franchising agreements. New owners were barred from living more than an hour's drive from their restaurants, corporations were not permitted to own franchises, and franchisees could no longer operate other chains. This new policy effectively limited the size of franchisees and prevented larger franchises from challenging Burger King as Chart House had. It also became a requirement for the corporation to own the properties of any new store and lease them to franchisees. This policy would allow the company to take over the operations of failing stores or evict those owners who would not conform to the company guidelines and policies. Beyond the changes to the franchise system, Smith also restructured Burger King's corporate operations to better compete against his former employer as well as the then up-and-coming chain Wendy's. He broadened the product offering by adding the Burger King specialty sandwich line in 1979, and also added many non-hamburger sandwiches, including new chicken and fish offerings. The new line was one of the first attempts by a major fast food chain to target a specific demographic, in this case older teenagers and young adults aged between 18 and 34 years, members of which were presumably willing to spend more on a higher-quality product. The new products were successful and the company's sales increased by 15%.
After Smith's departure from the company for soft drinks producer PepsiCo in 1980, the company began to see a system-wide decline in sales. Pillsbury executive vice president of restaurant operations Norman E. Brinker was tasked with turning the brand around and strengthening its position against its main rival, McDonald's. One of his first acts was to initiate an advertising plan emphasizing claims that Burger King's flame-broiled burgers were better and larger than its rival's. The program, arguably the first attack ads on a food chain by a competitor, was controversial in that before it fast food ads only made allusions to the competition without ever mentioning them by name. McDonald's sued Burger King, their ad agency at the time J. Walter Thompson. The child actress Sarah Michelle Gellar was also implicated in the lawsuit because of her appearance in these television commercials. The suit was settled the following year on undisclosed terms. Despite the controversy, the ad plan, dubbed the Burger Wars, boosted same store sales. Brinker continued working for the company in this capacity until 1982 when he was promoted to president of Pillsbury's food service division, which included the company's other chains beyond Burger King. Brinker left the company in 1984 to take the helm at Dallas-based gourmet burger chain Chili's.
With the departure of Smith and Brinker, Pillsbury allowed many of their changes to be relaxed, as well as scaled back on construction of new locations which had the effect of stalling corporate growth. By failing to follow through on the changes of the two men, Pillsbury caused its own value to diminish as it derived more than one third of its sales and two thirds of its profits from the burger chain. When the British alcoholic beverages company Grand Metropolitan PLC made a hostile bid for Pillsbury, the company devised a plan to spin off the financially flailing restaurant unit in hopes to raise an estimated US$2 billion that could be used to fend off the unwanted suitor. The complex potentially tax-free stock split plan would have led to the chain, along with its distribution system Distron, becoming a separate entity for the first time in over twenty years.
Hoping that the special dividends created by the spin-off would have convinced shareholders not to accept the hostile bid, Pillsbury had its plans partially scuttled when the company's franchisees rejected the plan despite parts of which that would have given the franchises part ownership in the company and a seat on its new board. In a letter to Pillsbury chairman Phillip L. Smith, franchise representative Bill N. Pothitos stated that franchisees disapproved of the transaction on the grounds that they "strongly oppose this proposed course of conduct for one reason and one reason alone: It so restricts the ability of the Burger King Corporation to engage in future competitive growth and reinvestment in the Burger King system that our economic interests and investments will be placed in jeopardy." Another option floated by the company in December 1988 was to sell Burger King to a third party, a proposal that drew a favorable response from its franchises, never came to fruition.
On top of the failure of the franchises to approve the spin-off, a series of lawsuits complicated the divestiture. Two legal challenges to the parent company were filed by investors, one in Pillsbury's home state of Minnesota and another in the state where it was incorporated, Delaware, in which the legality of the stock tender plan was questioned. These three events eventually forced Pillsbury to give up its bid to fend off Grand Metropolitan and agree to be acquired in November 1988 for a sum of US$5.7 billion.
Grand Metropolitan