Burger King-Tim Horton's Combo Needs to Step Up Franchising to Catch Subway, McDonald's

Even though the companies now have over 18,000 combined stores, they are at a mere fraction of their breakfast sandwich competitors. 

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Burger King and Tim Horton's are joining forces in a $11.4 billion deal. While this is a major powerhouse of a merger, Burger Horton (King Tim?) still has a long way to go to make a dent against their competitors. On a conference call with press today, executives pushed growth, growth, and more growth — and apparently, franchise owners already have phones ringing.

Here's a chart showing how many locations each of the major fast food competitors has, including Burger King and Tim Horton's on their own, and now combined:

Subway and McDonald's have long been neck-and-neck in the race for the most fast food locations. Yum Brands owns a variety of chains, including KFC, Taco Bell, and Pizza Hut, so that big number is not all in one chain.

Tim Horton's, on the other hand, is small fries, beating out only Chipotle and Panera Bread, minor and higher-priced food chains that often offer ample seating indoors and wireless workspaces.

On the press call, executives stressed international brand growth. Burger King noted that just last year, they grew by 700 stores by working with franchise owners in Latin America and Eastern Europe. They hope to take their methods of franchising to Tim Horton's. Tim Horton's executives also noted their franchise system works well. However, Burger King franchises simply require more cash to start.

For Tim Horton's, the cost of a Canadian franchise is about $500,000 Canadian Dollars, which is about $456,000 USD. It requires a net worth of about $500,000 CAD and liquidity of $300,000 CAD. On the other hand, Burger King's total franchise cost is about $1.4 million. The net worth requirement is $1.5 million, with $500,000 in liquid assets. Even with those costs, both companies mentioned that "phones are ringing" when it comes to existing franchisees wanting to cross over into new territory.

The differences in standards for franchising can affect how Tim Horton's owners could also become Burger King owners. However, it is a simpler transition for BK owners seeking to open up a coffee shop. This could allow Tim Horton's to grow in a meaningful way in the United States.

While the prices are quite different and Burger-Horton has a long way to go to compete with the big boys of fast food nation, their fundamental franchising model already lines up perfectly. Several years ago, Burger King converted almost all their shops to franchises. Only 52 BK restaurants are still company-owned, and only 18 for Tim Horton's. This model allows the Home of The Whopper to benefit from an almost 90 percent gross profit margin, and while Tim Horton's is not quite that high, hopefully the joint force could allow both companies to reap the benefits of nearly perfect margins.

This article is from the archive of our partner The Wire.