Features
Burger King Is Run by Children
Illustration by Kyle Platts
Last
summer a trim guy with wavy brown hair, high cheekbones, and a broad
smile could be found making Whoppers, working the drive-through window,
and scrubbing bathrooms at a Burger King in Miami. His name was Daniel
Schwartz. He learned to make a Whopper in less than 35 seconds and
blended in well with his fellow employees, except for the fact that
Schwartz had a guy with a video camera trailing him. “I cleaned about
15 toilets in the past two days,” he boasted at one point, as if he’d
just completed a marathon.
Boru O'Brien O'Connell for Bloomberg BusinessweekBehind this week’s coverSchwartz was justifiably pumped. That June he’d been named Burger King’s (BKW) chief executive officer, with a $700,000 annual salary and a potential cash bonus of twice that. There was another reason for Schwartz to be exuberant: He was only 32 and well on his way to becoming a star in the fast-food industry.
Making sure the fixtures in Burger King’s restrooms gleam is only one of Schwartz’s challenges. He’s Burger King’s 21st CEO since the company was founded in 1954. The chain has had six owners and suffered from years of neglect and strategic incoherence. Unlike his predecessors, Schwartz isn’t just competing with McDonald’s (MCD) and Wendy’s (WEN). He has to keep customers from straying to trendy newcomers such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA). Their sales in the U.S. last year grew 17 percent and 12 percent, respectively, according to Technomic, a food industry consultant. Sales were essentially flat for Burger King and its two primary rivals.
Schwartz looks much as he did when he was a student on the dean’s list at Cornell University, all the way back in the Aughts. He had no experience in fast food before going to Burger King; he spent almost a decade on Wall Street after college. And he’s surrounded himself with a similarly eager and fresh-faced inner circle. Josh Kobza, the chief financial officer, is 28. He and Schwartz are usually joined on conference calls by Alexandre Macedo, Burger King’s ancient 36-year-old president for North American operations, and Sami Siddiqui, the head of investor relations, who’s 29. Only one of the four saw a day of the Seventies.
Schwartz is an outlier in the corporate world. Matteo Tonello, managing director at the Conference Board, a nonprofit research organization that studies such things, says chief executives that young are a rarity outside of tech enclaves such as Silicon Valley. He says the average age of an incoming CEO at a company in the Standard & Poor’s 500-stock index was 53 last year. Schwartz would be the second-youngest CEO on the Fortune 1000 (behind Mark Zuckerberg) if Burger King made that list, according to figures from BoardEx, a firm that analyzes data about corporate executives and directors. “The conventional wisdom is that you need an experienced candidate,” Tonello says. “There’s still a lot of skepticism toward younger ones.”
Courtesy NYSEThese days, however, Burger King is behaving more like a startup than a typical burger chain. In 2010 it was purchased for $4 billion in a leveraged buyout by 3G Capital, the Brazilian private equity firm that also owns H.J. Heinz with Berkshire Hathaway (BRK/A) and whose principals are among the controlling shareholders of Anheuser-Busch InBev (BUD). Jorge Paulo Lemann, 3G’s 74-year-old billionaire co-founder, likes to enlist young executives and put them in top positions at the firm’s companies. “Who says you have to be old to be good?” says William Ackman, the New York hedge fund manager who runs Pershing Square Capital Management, Burger King’s largest investor after 3G.
Schwartz and his co-workers are apostles of 3G’s ferocious approach to cost reduction. They talk about the need to instill everybody at Burger King with an “ownership mentality,” meaning mainly that employees should husband the company’s money as if it were their own. That’s put an end to some cherished perks. After InBev swallowed Anheuser-Busch in 2008, the American brewery’s executives were informed that they’d no longer get free cases of beer. In September, Bloomberg News reported that executives at Heinz, bought three months earlier by 3G and Berkshire Hathaway, had been commanded to turn in their mini-fridges.
Schwartz, who did not cooperate for this article, has overseen much chiseling. McDonald’s owned 19 percent of its 35,429 restaurants worldwide in 2013. Wendy’s owned 18 percent of its 6,557 outlets. Historically, Burger King operated much the same way: When 3G bought the chain in 2010 it owned 11 percent of its 12,174 restaurants around the world. Since then, Burger King has sold all but 52; it keeps the last few for training executives and testing products.
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