Burger King Q1 sales slip, menu enhancement planned

May 12, 2011 | by Alicia Kelso

Burger King reported earnings from its first quarter 2011 ending March 31, which included an 8 percent drop in revenue, or $552 million, primarily due to refranchising and negative comparable sales growth.

The chain specifically took a hit in North America, where same-store sales declined 6 percent, compared to a 3.6 percent drop in global sales.

However, Burger King's adjusted EBITDA was $121.1 million compared to $106.2 million in the same quarter of 2010, a 14 percent improvement driven by reductions in general and administrative expenses following a global restructuring and the implementation of a zero-based budgeting program.

"Continued disciplined expense management allowed us to improve our Adjusted EBITDA and Adjusted EBITDA margin at the fastest pace in 10 quarters, despite negative comparable sales growth in North America and commodity price pressures," said Daniel Schwartz, BK's chief financial officer.

The company is still working through debt incurred with its sale to 3G Capital in the fall. The company had a net loss of $6.8 million for the quarter compared to net income of $41 million for the same period in the prior year, attributable to a significant increase in interest expense from the sale.

Additionally in the first quarter, Burger King increased its global restaurant count by 50 net new restaurants. Throughout the entire year, 40 percent of the chain's growth came from Asia/Pacific, particularly China, Korea and Japan. Thirty percent came from Turkey, and 10 percent was in Brazil.

Shift in focus and new initiatives

Via the earnings conference call, Schwartz said the company will continue to focus heavily on the North American segment by specifically prioritizing marketing, menu, operations and image.

New marketing campaigns will stick closely to results from an in-depth consumer analysis conducted by the company earlier this year. Thus far, Burger King has shifted the spotlight to an expanded consumer base.

"We've enhanced our menu to appeal to a broader range of consumers and are currently testing several new items," Schwartz said, adding, "This week, we launched a new ad campaign featuring our flagship product Whopper for the first time in 30 months."

New items already introduced include the new Chicken Tenders, complemented by six dipping sauces; the $1, $2 and $3 BK Stacker and the new Jalapeño & Cheddar BK Stuffed Steakhouse burger.

The marketing shift complementing these new items has been a boon. North American president Steve Wiborg said the Chicken Tenders advertising launch lifted the sales of that specific line 70 percent.

"Part of that was a free offering we did that we haven't done in many years. We saw a growth in repeat business. And 17 percent of that came from our 20-piece offering, so we saw part of our overall strategy working on parents with kids, the female consumer ... Expect more things like that to come," he said.

Schwartz added that a nationwide launch of soft service ice cream has started and is expected to be completed by this summer.

"We are putting out a dessert platform in all restaurants that we'll be advertising at the end of summer, which we're very excited about," he said.

From an operational standpoint, he said the company will focus on improving speed of service, clean restaurants and superb guest experiences while delivering high quality food.

"Improving our overall restaurant image in North America is a huge area of opportunity for us," he said. "We recently announced two significant image initiatives: The new reduced-cost 20/20 image remodel program offering financial incentives to franchisees, and a third-party financing program available to U.S. franchises participating in a remodel program to be arranged by Rabobank."

The newly-introduced remodel is expected to cost 50 percent less than existing 20/20 remodels, with the same key design elements. Schwartz said the specific cost will vary by building size, location and type, and that the company has received a "positive initial response from its franchise base."

Schwartz added that the leadership team continues to focus on building strong long-term relationships with its franchise community, evidenced by a recent resolution to a longstanding lawsuit over value meal pricing.

Shortly thereafter, Burger King settled another lawsuit with a 10-unit franchisee, with Wiborg stating, "We want everyone focusing on beating the competition and not trying to fight each other."

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with FastCasual.com, QSRweb.com and PizzaMarketplace.com has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, Consumerist.com and Franchise Asia magazine.
View Alicia Kelso's profile on LinkedIn

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