Franchisee frictions fuel BK ouster rumors: chain said to be seeking replacement for CEO Blum

Nation's Restaurant News, July 5, 2004 by Amy Garber

MIAMI -- Despite Burger King's recent sales momentum, which critics attribute to deep discounting, speculation was rising in recent weeks that the owners of thE long-beleaguered chain were seeking a new leader to replace BK chief executive Brad Blum, who has been in his post for 18 months.

Meanwhile, a Wall Street restaurant analyst predicted that Burger King's ongoing struggles could force the chain to cede its No. 2 position in the billion-dollar burger segment to rival Wendy's as early as 2005.

Observers said one of the main challenges Blum faces is a strained relationship with leaders of BK's franchisee community, whose members own and operate 90 percent of the chain's nearly 7,700 U.S. outlets. Amid the apparent uncertainty about Blum, BK created a new human-resources post dedicated to franchise operations.

More than 320 Burger King units have been shuttered since Blum quit as vice chairman of Darden Restaurants to join BK in January 2003, but he recently dismissed reports that the chain could close up to 1,000 units this year.

As a list of potential successors to Blum began to circulate last month, published reports said one candidate for the job was John Chidsey, who joined the chain four months ago as chief financial officer and then last month was promoted to president of BK North America. Observers noted that several top chain executives who formerly reported to Blum now report to Chidsey.

Other purported contenders were Steven Heyer, Coca-Cola Co.'s departing president, and Paul Clayton, chief executive of Jamba Juice, who was president of Burger King North America in the late 1990s. Clayton's office referred calls to a Jamba Juice spokeswoman, who insisted: "There is no truth to any of the stories out there. Paul is committed to the continued success here at Jamba, and he is not exploring any opportunities at Burger King."

Still, BK owners and at least some members of the board of the privately held company have begun "informal" recruiting efforts to find candidates for the job, according to anonymous executives quoted by Advertising Age.

The industry's second-largest restaurant chain referred calls to Burger King's ownership consortium of investors, which is led by Fort Worth, Texas-based Texas Pacific Group and includes Goldman Sachs Capital Partners and Domino's Pizza parent Bain Capital. A spokesman for Texas Pacific declined to comment on the speculation about Blum.

The group purchased the struggling chain in late 2002 from London-based Diageo PLC, and then tapped Blum, a former Olive Garden president, to attempt the reinvigoration of BK, whose sales have been declining for more than four years. Burger King generated more than $7.5 billion in U.S. sales for the 12-month period ended May 31.

BK's sales remained depressed throughout 2003, a year during which its key rivals, including segment leader McDonald's and Wendy's, experienced robust sales growth. However, BK's comparable-restaurant sales turned positive earlier this year. The chain posted a 7.5-percent jump in domestic same-store sales in May, its biggest monthly gain since November 1999. The May results also marked its fourth straight month of positive same-store sales. But while BK officials attributed the improvement to new products and better marketing, detractors and some franchisees noted that a national direct-mail promotion offering $25 worth of coupons for some of the new menu items was fueling the jump in sales but doing little to help margins.

Blum's supporters have sought to deflect such criticisms.

"The turnaround in the company's numbers is nothing short of phenomenal, and I attribute all of that to Brad," said Peter Gibbons, Burger King's former corporate chef and senior director of product development. "The task of establishing momentum and reversing sales declines is enormously difficult."

Gibbons, who left BK in June to fill a newly created post as senior vice president, director of innovation for Noble & Associates, an advertising agency in Springfield, Mo., added: "Brad brought a new sense of exceeding expectations both within the company and with consumers. Brad will not rest until a product is as good as it can possibly be."

Although BK's sales turned positive in February, those numbers could begin to decline if the chain is hit with yet another management shakeup, observers said. Blum is Burger King's eighth chief since 1989.

Allan Hickok, who is managing director of Hickok McMillan Strategic Advisors in Minnetonka, Minn., said if Blum were to leave, it would perpetuate BK's "legacy of a revolving-door CEO." He added, "I don't think 18 months is long enough" for Blum to make meaningful change at the chain.

But Hickok pointed out that Blum walked into "a difficult situation" when he first joined BK, "considering the problems that this chain has endured over the last several years." Hickok went on to say the "hamburger business is intensely competitive," and "once you lose momentum, it is difficult to regain it, especially in a segment where the competition is white hot."