October 22, 2008 / 8:24 AM / 10 years ago

Burger King worries over credit crunch impact

TAIPEI (Reuters) - The global downturn is pushing consumers to Burger King’s (BKC.N) stores in search of cheaper dining, but the company is worried that a prolonged credit crunch could hurt its franchisees’ borrowing ability.

A person walks in a Burger King restaurant in Taipei October 22, 2008. Burger King said the global downturn is pushing consumers to its stores in search of cheaper dining, but it worries that a prolonged credit crunch could hurt its franchisees' borrowing ability. REUTERS/Pichi Chuang

“In the short run, we’ve been somewhat of a beneficiary” of the downturn, Burger King CEO John Chidsey told Reuters in an interview in Taiwan on Wednesday. The company announced a new partnership and expansion plan in Taiwan.

“People who can’t afford to go to (mid-priced restaurants) but still want to go out — we’ve benefited from that. The question is if things get worse, do people decide at some point they should just stay at home?”

Chidsey said that if global credit markets remain frozen, a bigger longer-term concern for his company could be financing for Burger King’s franchisees, which operate many of the company’s restaurants.

But he added that Burger King, the world’s second-largest hamburger chain, had yet to see such credit problems.

Tumbling commodity prices due to falling global demand also led Chidsey to say his company was likely to revise downward its previous forecast for 5-7 percent food inflation for the 12 months through June 2009.

“It’s going to be less,” said Chidsey, who has been at the helm of Burger King since it went public in 2006. “I don’t know if it’s 1 percent or 2 percent. But it could only be lower.”

Bucking a global downturn, Burger King is sticking with an aggressive expansion plan in Asia, one of its fastest growing regions and where Chidsey came to announce the formation of a Taiwan joint venture with local partner Dachan Great Wall Group.

The joint venture, 30 percent owned by Burger King, will take over operation of the existing 33 Burger King outlets in Taiwan, and will aim to open another 100 outlets on the island over the next two to three years, said Peter Tan, Asia Pacific head.

Burger King had previously said it aimed to double its Asia Pacific region store count to about 1,400 over the next five years, as it plays catch-up to larger rivals Yum Brands (YUM.N), owner of the KFC and Pizza Hut chains, and McDonald’s (MCD.N).

As part of that, it is planning to open 250-300 new stores in China, one of the fastest growing markets, over the next five years, mostly in conjunction with regional franchise partners.

“Asia is the fastest growing region in our portfolio,” said Chidsey.

He added that Asia had posted the company’s best same-store sales growth, a widely watched industry barometer, of Burger King’s major regions in the last two years, averaging low double-digits versus mid- to high-single digits in other areas.

“If you look at how young the market is for us, we should be doing this for a while,” Chidsey said. “For the near term we should be seeing fairly strong numbers in terms of same-store sales growth.”

Reporting by Doug Young; Editing by Ken Wills and Anshuman Daga

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