The Challenges Facing Burger King Buyer 3G Capital

When it comes to the pitfalls of operating a fast-food chain, Burger King (BKC) has experienced them all: falling profits and sales, angry franchise owners, mediocre innovation, growing competition, and a razorlike focus on the very customers who have been hardest hit during the recession. So when a little-known investment outfit called 3G Capital said it would buy the Miami-based chain for about $4 billion on Sept. 2, an obvious question was: why?

Burger King may be the world's No. 2 hamburger chain, but it's a distant runner-up, with 12,174 restaurants worldwide vs. 32,466 for McDonald's (MCD). McDonald's averages about twice the sales volume per U.S. outlet, and its stock has far outperformed that of its rival on the strength of new products such as coffee drinks and smoothies. Burger King, in contrast, has seemed fixated on hawking a $1 double cheeseburger—now $1.29 following a bitter lawsuit with franchisees who claim it's a money loser. The chain has also narrowed its target audience, chasing young men with cheeky ads, while McDonald's has gone for broad family appeal.