Investor wanted

Burger King Reorders After Scandal

Source: Reuters
  • Why it matters

    Why it matters

    Burger King Germany is the company’s second largest market after the U.S. and the fallout from the scandals is badly hitting revenues.

  • Facts

    Facts

    • In April, TV reporters uncovered serious health and labor problems at a Burger King franchisee’s restaurants.
    • The fast food chain was forced to close 89 of its 688 restaurants in Germany.
    • The stores are currently in administrastion and a new investor is being sought.
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The U.S fast-food chain Burger King is on the hunt for a new investor after its German business was badly hit by a scandal over food hygiene and staff mistreatments earlier this year.

The German division, the company’s second largest after the United States, was forced to close 89 of its 688 branches after TV reporters uncovered serious health and labor problems. The closed restaurants were owned by a single franchisee and were put into administration.

But the scandal seemed to have a purging effect on the business as a whole, and now, following the appointment of an administrator, hopes are high that the affected restaurants will re-open and a new investor will soon be found.

“We hope that the restaurants re-open by the end of next week,” said a spokesperson at Burger King’s headquarter in Florida.

Once the bankruptcy proceedings are closed in February, the insolvency advisor, Marc Odebrecht of the law firm Görg, is expected to receive a temporary license to run the closed stores. This would allow Mr. Odebrecht to find a new investor, who can replace the former franchisee owner Ergün Yildiz.

“The other 160 franchisees (in Germany) are suffering from sales losses as well.”

Toben Leif Brodersen, German franchise association

“It won’t end up being a classic bidding process,” sources close to Mr. Odebrecht said.

Burger King restaurants can only operate under franchises handed out by the restaurant’s main office in the United States. As a result, it has a veto right over new investors.

But sources close to the company said it is likely HQ will agree to the new deal as it is in their interest to re-open the German stores as soon as possible.

Burger King Germany registered sales of €71 million ($87 million) in the first quarter of 2013. Sales in the country made up 10 percent of the global revenue of the company. But a year later that number dropped to one-digit, the company’s business report showed.

“The other 160 franchisees (in Germany) are suffering from sales losses as well,” said Toben Leif Brodersen, manager at the German franchise association. Since the scandal broke and the press learned about it, overall sales fell by one third. “Some of them are facing existential fears,” he said.

The biggest hurdle since the scandal has been getting rid of Mr. Yildiz and his partner, Alexander Kolobov, who owned the franchise via their holding company Yi-Ko.

The two men had run a total of 91 Burger King locations with more than 3.000 employees since May 2013. But earlier this year, an undercover TV-journalist got a job as a kitchen assistant and uncovered a series of hygiene issues, such as keeping salad and meat longer than permitted. He also reported on mistreatment of Burger King’s staff.

The report ran in April but it took until November for Burger King to revoke all licenses granted to Mr. Yildiz and his partner. Deliveries were stopped and brand rights removed at the same time.

Initially, only Mr. Yildiz was dismissed and his partner, Mr. Kolobov, who also owns more than 100 Burger King restaurants in Russia, remained the sole contract partner. But Burger King wanted a new beginning, and pushed for bankruptcy instead of saving the relationship.

Now, it is now up to Mr. Odebrecht to come up with a new plan and a new investor.

 

The article first appeared in WirtschaftsWoche magazine. Franziska Scheven is an editor at Handelsblatt Global Edition and contributed to the piece. To contact the authors: oliver.voss@wiwo.de, henryk.hielscher@wiwo.de, florian.zerfaß@wiwo.de, scheven@handelsblatt.com

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