Article
BKC has more than XT planned for menu
At a recent conference, BKC CEO John Chidsey talked menu development and growth — and said the company has resolved the ad fund dispute with franchisees.
February 11, 2010
Burger King is developing a number of menu items to improve its value perception and increase sales in dayparts from breakfast to snacking, Burger King Corp. chairman and CEO John Chidsey said at this week's Deutsche Bank Securities Small and Mid Cap Conference in Naples, Fla.
He also told conference attendees that the company has resolved its issue with franchisees over the company's desire to divert a portion of their soda rebates.
In reference to the new menu offerings, Chidsey outlined several value items being tested to replace the current $1 double cheeseburger promotion, which has boosted traffic but hurt margins. The menu items include the Rodeo BK Double burger, the BK Original Chicken Jr. sandwich and the BK Little Enormous, an oversized breakfast sandwich.
Chidsey said during the Q&A portion that the test includes several different sales options, from keeping the $1 double cheeseburger to increasing the price of the Whopper Jr to $1.09 or putting a new product on the value menu — or a combination of any of those. The company expects to reach a decision in about a month.
The value items are an important part of BKC's barbell strategy, he said. The success of the $1 double cheeseburger, which led to a 9-point traffic swing in the months since its mid-October launch, is proof of that. With Burger King late to the game in offering a value menu, it has taken such a high profile deal to boost consumers' perception of the chain as one focused on value.
In April, the company will lauch the $1 BK Breakfast Muffin Sandwich, a sausage, egg and cheese breakfast sandwich on an English muffin.
On the premium offering side, the chain is developing a number of new items made possible by the new batch broilers. "We think this is a great breakthrough for us which will help us in the years to come by allowing us to be much more nimble or creative about our food offerings," Chidsey said.
This month, the chain will launch the Steakhouse XT nationwide in three varieties: Steakhouse XT, Smoky Cheddar Steakhouse XT and A1 Steakhouse XT. The premium burgers feature a fresh-cooked, half-pound beef patty.
Upcoming premium products include bone-in ribs, which are scheduled to launch nationwide in June. New items under test include a Tuscan Tendergrill, a bacon-topped chicken sandwich on a ciabatta roll, and a Peppercorn Bacon XT limited-time burger. The company has several more premium items in development, including a stuffed burger, steak sandwich and new desserts.
The presentation also included a listing of add-ons in development, such as a Cupcake Sundae Shake, soft serve ice cream, LTO Icee offerings, Gold Peak Tea and iced coffee.
Chidsey said in the presentation that the company is expanding its "portable add-ons" in order to drive check averages higher. The company's strategy includes focus on daypart expansion, including breakfast, late-night, specialty drinks and snacking. Of those dayparts, breakfast presents the best opportunity for growth.
"I think there's still plenty of holes in our menu that we need to attack," he said.
Opportunity in reimaging
While new menu items are an important component of boosting traffic and sales, the company sees the greatest opportunity in its U.S. reimaging program. BKC has remodeled 134 company stores over the last seven quarters, resulting in a 12 percent to 17 percent sales lift in those stores. Scrape and rebuilds offer an even greater lift — 25 percent to 35 percent.
BKC is on track to reimage 70 to 75 company stores this year, many of which will reflect the new 20/20 design, Chidsey said. When the company refinances its debt later this year, it may be able to complete the remaining of 300 locations within a 12-month period.
The completion of the franchisee reimaging program will take longer since there is a backlog of 2,500 stores — about one-third of the system. Those stores were not remodeled according to their franchise agreements prior to Chidsey taking over company leadership. The company has worked with franchisees on a case-by-case basis to schedule those reimages over the next five years.
The company also is on track for U.S. growth. In 2009, the Burger King added 360 stores nationwide, and another 400 to 500 are planned for 2010. The growth plan has been aided by cheaper land and materials as well as by smaller footprint stores. Those stores feature fewer seats because most customers use the drive-thru.
Ad fund dispute resolution
During the Q&A portion, Chidsey also explained the company's resolution with franchisees in regard to its marketing fund. Rather than divert funds from soda rebates as most QSRs do, the company will no longer match franchisees local marketing contribution, resulting in a $36 million increase to the ad fund.Franchisees agreed to make up that difference in local ad spend over the next two years, he said.
Chidsey said the announcement was made to franchisees last week and that he expects the National Franchise Association to drop its suit in the coming weeks.
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