Article

Menu, marketing overhauls boost Burger King profits

Second quarter yields positive sales, international momentum.

August 1, 2012 by Alicia Kelso — Editor, QSRWeb.com

Burger King Worldwide continues to realize positive effects of its comprehensive turnaround strategy, put into place nearly two years ago. In its first earnings call since going public in June, the company reported a nearly 60 percent profit behind 6.4 percent systemwide sales growth and 4.4 percent comp sales growth.

"I am pleased with the progress made this quarter," said Bernardo Hees, chief executive officer. "In the U.S. and Canada, our focus on menu, restaurant image, operations and marketing communication is beginning to generate tangible results. Internationally, we are laying the foundation for accelerated development worldwide through the formation of partnerships in Russia and China. We are excited to be listed on the NYSE this quarter and believe BKW is well positioned for long-term growth."

Systemwide comparable sales growth was positive across all segments. The U.S. and Canada delivered 4.4 percent comparable sales growth driven by strong sales and product volumes from the largest expansion of menu items in company history, including smoothies, frappes and wraps, introduced in April.

Latin America and the Caribbean delivered double-digit comp sales growth of 10.5 percent, driven by strong performances in Brazil and Mexico. EMEA delivered comparable sales growth of 3.3 percent, driven by successful promotions in Germany, and APAC delivered comparable sales growth of 2.1 percent, primarily driven by the impact of an extra trading week in the quarter in Australia.

Refranchising, global efforts

As part of Burger King's global strategy, the company refranchised 386 company-owned restaurants domestically and 78 company-owned restaurants internationally during the quarter. This includes 278 restaurants that were sold to Carrols Restaurant Group, BKW's largest franchisee.

As part of BKW's international expansion plan, the company has announced the establishment of two joint ventures in Russia and China. In Russia, the joint venture has committed to open several hundred restaurants throughout the next few years. In China, the joint venture has committed to open 1,000 restaurants throughout the next five to seven years, representing the largest multi-unit development agreement in the brand's history.

Menu, marketing initiatives paying off

Hess discussed in detail the four pillars and their necessity in turning the business around in the U.S. and Canada. They include menu, marketing and communications, brand image and operations.

The menu initiative was highlighted by April's extensive product launch, followed by a limited-time, barbecue-inspired menu, introduced in June.

North American president Steve Wiborg said a main objective with the menu expansion was to appeal to a broader consumer audience, including women, families with children and seniors.

"We're very pleased with the performance, which drove comparable store sales and broadened our consumer profile," he said. In particular, Burger King's beverage platform – with smoothies, frozen lemonades and frappes – has performed positively. Chicken sales, behind the launch of strips and wraps, are up more than 20 percent in the quarter versus last year.

Wiborg said the company's franchisees have responded favorably to the new menu lineup and, with additional tools in their kitchens now, Burger King has the opportunity to introduce more products with these new platforms that are now in place.

The summer barbecue line has also performed well through the summer, buoyed by ancillary items such as sweet potato fries, which complement the brand's core Whopper and other burgers.

"The summer barbecue menu is part of our new strategy to launch limited time offers with common themes," Wiborg said.

On the marketing front, Burger King's celebrity-laden ad lineup helped broaden the consumer base beyond the company's traditional 18-24-year-old males. Wiborg said the meaningful investment in marketing during the quarter yielded positive traffic and social media results, and social media conversations about the brand nearly doubled from May to June.

Other earnings call highlights

Burger King continues to remodel to the modern 20/20 design throughout its system. Currently, 30 percent of units in the U.S. and Canada have either been reimaged or have committed to reimage. The goal is to have more than 40 percent of the system done within the next four years. According to the company, the remodeled units to date have experienced sales lifts of 10 to 15 percent.

Operational scores continue to rise, as the company cites operations as the most important pillar. Burger King has coaches in place throughout North America who work closely with franchisees to improve customer experience.

"There is no silver bullet here. We need to execute and the new menu launch is only first step. As reimaging ramps up and the field team structure ramps up, we expect to build off this momentum," Wiborg said. "We remain encouraged with the pipeline in the coming months. There was a sales gap between us and our peers and we believe we're closing this gap."

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