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Brazil's Whopper Deal
6:49 AM Monday September 13, 2010
by Fernando Luzio
When a New York-based private equity firm, 3G Capital, bought the Miami-headquartered fast food chain Burger King for
$3.26 billion last week, you could sense the excitement as far south of the equator as Sao Paulo. That's because three
well-known Brazilian investors (and Harvard alums) back 3G Capital: Jorge Paulo Lemann, Carlos Alberto Sicupira, and
Marcel Telles.
Lemann, a tennis player who qualified for Wimbledon in his youth, founded one of Brazil's most successful investment
banks, Banco de Investimentos Garantia, in the early 1970s. Carlos Alberto ("Beto") Sicupira started in the 1980s at that
bank, and then, grew a single Rio de Janeiro store into Lojas Americanas, one of Brazil's biggest retail chains. In the late
1980s, Marcel Telles, with Lemann and Sicupira, gained control of a Brazilian brewery that they grew into AmBev, which
merged with Belgium's InBev and, in 2009, acquired Anheuser-Busch.
Soon, Burger King's chairman will be another Brazilian, Alex Behring, who is also 3G Capital's managing partner. The
former head of America Latina Logistica, a Brazilian railroad and logistical services firm, he joined the low-profile
investment firm in 2005, after working for 10 years at GP Investmentos, a private equity firm that Sicupira founded. In
addition, Bernardo Hees, who has been the CEO of America Latina Logistica since 2005, has just been appointed Burger
King's new CEO. Befitting the world's largest exporter of grain and beef, Brazilians quietly control and manage both
Anheuser-Busch and Burger King, two iconic American brands.
Some aspects of the takeover stand out:
The $3.26 billion involved in the Burger King buyout symbolizes the power that Brazilian banks have accumulated
even as their rivals in North America and Europe recover from the wounds inflicted by the recent financial crisis. This
happened partly because of the political stability in Brazil imparted by the Cardoso and Lula-led governments over the
last 15 years; an economy that has been growing at 3.63% per annum in the last five years; and the close supervision of
the autonomous central bank, Banco Central do Brasil.
After the recent consolidation in Brazil — where retailers such as Pão de Açúcar and Casas Bahia, private banks
such as Itaú and Unibanco, and telecom giants like Oi and Brasil Telecom have merged — it's become tougher for
Brazilian companies to grow through M&A locally. Brazilian companies such as Gerdau, which took over Ameristeel;
JBS-Friboi, which picked up Pilgrim's Pride; WEG, which acquired Voltran and Zest Group; Petrobras, which bought the
Pasadena refinery and Cascade Field; and Vale, which invested in White Plains and Fosfertil, among others, are
acquiring assets overseas to become global players.
The takeover of Burger King symbolizes the growing entrepreneurial spirit and aspirations of Brazilian executives,
who must revitalize the 12,000-store, 75-country chain that is a distant No. 2 to McDonald's. The Latin American
connection could help in several ways. Not only could Burger King's supply chain benefit by procuring more meat and
grain in South America, but also, the fast food chain could grow sales by expanding across the continent. It increased the
number of restaurants it opened last year in Latin America by 6%, to 1,138 on June 30.
Once the takeover is complete by December 2010, 3G Capital will probably follow four golden rules to remake Burger
King:
1. It must redefine the "who" (BK's client segmentation and target markets). 3G Capital may have to revise the
current strategy of focusing entirely on Burger King's heaviest users: young, male, and likely to be the member of a
minority. That demographic has been hardest hit by the current US recession in terms of income and employment.
2. It should restructure the "what" (BK's customer value proposition). Burger King must rethink its offerings by
introducing salads, juices, and less junky food. Within days of the takeover, for instance, Burger Kind unveiled a new
breakfast menu that takes McDonald's head-on by offering blueberry biscuits and pancake platters as well as coffee from
Seattle's Best.
3. It has to redesign the "how" (BK's processes). Burger King must discover sources of distinction in its value
chain by changing the way it performs its core activities. The choice of a former railroad executive as CEO isn't an
accident; there's probably some fat at Burger King, and, as the case of Anheuser-Busch shows, Lemann, Sicupira, and
Telles are adept at cost cutting.
4. It must alter the "us" (BK's organizational structure and compensation system). 3G Capital has to find ways of
re-engaging the chain's employees and franchisees to ensure that a turnaround happens.
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Brazil's Whopper Deal
I'm pretty bullish about the takeover, but I'd like to know what you think. Do you believe Burger King will be able to catch
up with McDonald's, especially outside the US, now that it under new management by executives from an emerging
market?
Fernando Luzio is the CEO of Luzio Holistic Strategic Vision, a consulting company, and a professor of strategy at
Universidade de Sao Paulo in Sao Paulo.
More on: Global business
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