Burger King shifting to value messaging amidst tight competition

Burger King delivered its fourth consecutive quarter of positive sales growth this week and also announced year-over-year profits were up $23.6 million.

During today's earnings call, CEO Bernardo Hees said the company has reached numerous significant milestones this year, including a global net restaurant growth of 485 units, or 3.9 percent, nearly doubling the pace of growth in prior years. Internationally, the company has added development agreements in key markets such as Russia, China, Mexico, Central America and South Africa.

Also of note, Burger King is now closer than ever to being 100-percent franchised. As of the end of 2012, 97 percent of the system was franchised.

Driving much of the company's Q4 and 2012 full-year results were the U.S. and Canadian systems, with comp sales up 3.7 percent. Domestically, Burger King remains focused on the four-pillar strategy that was put into place more than two years ago when the company was bought by 3G Capital. The pillars include menu, marketing/communications, restaurant imaging and operations.

Menu and marketing

In April 2012, the company launched its largest menu overhaul in brand history, and complemented the launch with changes to its marketing plan to broaden demographics.

"We're now using a food-centric marketing message and are emphasizing our differentiated flavor profile," said Steve Wiborg, president, BK North America. "Since launching the new message, we've seen evidence of a broader appeal, and the change has especially been successful with women and the 55-plus crowd."

April's menu introductions continue to sell well, Wiborg added. The company has also continued to build on those platforms with limited-time promotions, such as the Angry Whopper and gingerbread dessert line, which are being used to drive traffic and create ongoing brand awareness.

"For example, the $1 Cinnabon promotion drove traffic in restaurants and reminded customers of the new product offering," Wiborg said. "Through innovation and ongoing promotions, we are able to build excitement around the brand and drive positive, profitable sales growth."


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However, Burger King executives warned that there has been a bit of a slowdown thus far in Q1, driven by a variety of factors including harsh weather, a continued slow economy and tougher competition in the quick-service space.

"One driver of the sales slowdown is the meaningful uptick of the value messaging done by our competitors," Wiborg said. "In the first quarter we didn't promote enough value to compete. As we progress, you will see a more balanced approach with our barbell menu strategy. We need to be more aggressive on the value side, and we'll continue to execute on our strategy of taking a balanced approach with premium and value."

Wiborg added that franchisees are on board with this shift because they're experiencing the increased competition.

Operational training

Another strategic pillar is to strengthen the focus on operations. Burger King completed its coaches training in December. The "Sales, Profit and Operations" coaches work shoulder-to-shoulder with restaurant teams to improve performance and help deliver a consistent experience across the system.

Burger King has also rolled out a new operations performance index (OPI) to rank restaurants' performance. It includes metrics from the guest TRAC scores (a guest satisfaction survey from the past three months), guest relations (negative contacts via phone or web), the Coach program (the most recent coach visit score) and speed of service (drive-thru).

Burger King also began ranking franchisees to increase transparency and promote "healthy competition" to improve systemwide operations.

Also during Q4, the company launched BK Guru, an online training program for restaurant employees that will also help increase standardization.

Burger King showcased its operational training with its recent Valentine's Day promotion that featured employees serving as "Guest Ambassadors" who keep the restaurant clean, open doors, refill guests' drinks, etc.

Restaurant reimaging

The fourth and final pillar is the company's reimaging program. The goal is to have 40 percent of U.S. and Canada system units in a modern image by 2015. Approximately 600 units were re-imaged in 2012, putting the total system at 19 percent completed to the modern image, up from 11 percent at the end of 2011.

Wiborg said re-imaged restaurants continue to experience an average sales uplift of 10-15 percent.

"Reimaging is critical to improving the brand in the U.S. and we're pleased with the initial results," he said.

International highlights

Hees said 2012 was a foundational year for long-term international growth. Throughout the year, new master franchise joint ventures were announced in Mexico, Central America, Russia, South Africa, Brazil and China, as well as new development agreements in countries such as Vietnam, South Korea, Colombia and the Nordics.

During Q4, EMEA experienced positive comp sales of 1.6 percent, with strength in the United Kingdom, Germany and Turkey offsetting negative performances in Spain and Italy.

The LAC region was up 0.7 percent (Brazil was flat), while APAC was up 0.8 percent, driven by improvement in Australia and South Korea.

Read more about operations management.

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