Burger King: no special sauce Call it a combo meal. Earnings at Burger King, the fast food chain, doubled in the fourth quarter. A revamped menu and promotions (such as a 55-cent Whopper for the burger's 55th anniversary) boosted sales, but cost cuts were the main dish. Part of that comes from Burger King's conversion into a franchise business, where headquarters takes a fee of about 5 per cent of sales and shifts store assets, expenses and any residual profits to franchisees, smoothing corporate-level profitability and increasing returns on capital. But Burger King, majority owned by 3G Capital (which is partnering Warren Buffett to buy Heinz), has slashed costs at the corporate level too. General and administrative expenses fell $10m, to $48m, in the fourth quarter. Can the cost cutting continue? After all, by the end of 2012, Burger King was 97 per cent franchised, and the company expects to spend about $50m-$55m quarterly on G&A in the future. The next part of the meal (the fries, if you will) is global growth. International stores are popping up at an accelerating pace. The company added 509 restaurants outside the US and Canada last year, against 311 the year before. The final bit of the combo (a jumbo soda?) is the US and Canada, still the bulk of Burger King's sales. Same-store sales rose 3.7 per cent in the last three months of 2012, but the company has warned that so far in the first quarter they are down. Last year the weather was warm, making for difficult comparisons. More important, Burger King is competing in value offerings with McDonald's, which has much higher sales per store and therefore more freedom to cut prices without wiping out profits. Changing the menu, competing against McDonald's and cutting costs all at once puts pressure on franchisees. But their happiness is crucial to Burger King's long-term success. In the burger business, there is no free lunch.