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Burger King $1 double cheeseburger boosts Q2 traffic
February 4, 2010
Burger King's $1 double cheeseburger boosted U.S. traffic for the second quarter ending Dec. 31, 2009, but the value price impacted sales, according to the company's quarterly results released Thursday. Despite the sales challenge, the brand is continuing with the six-month promotion, which is scheduled to end in April. The company also has several other value initiatives planned for the coming year — along with a counterpoint of indulgent products, including the new Steakhouse XT, ribs, stuffed burgers, chicken limited time offers and more.
Burger King chairman and CEO John W. Chidsey told investors on the company's earnings call that although U.S. same-store sales were negative for the quarter (down 3.3 percent), they improved sequentially following the launch of the promotion. Any cannibalization of the brand's higher priced sandwiches, including Whopper products, due to the promotion were in line with company expectations.
Systemwide comps were down 2 percent for the quarter. In its European and Asian markets, comps were up 0.9 percent for the quarter, driven by the strength in the United Kingdom, Spain and major Asian markets. In its Latin American markets, comps were down 2.6 percent for the quarter.
"The industry and our brand continued to experience weak consumer spending as global unemployment levels remained high," Chidsey said in a statement, noting that The NPD Group reported that U.S. quick-service traffic fell 3 percent in the quarter ended November 2009. "However, we continue to tactically respond to the current consumer need for extreme affordability with our value promotions while remaining focused on managing the brand for the long-term and investing in the future."
Despite the drop in comps, the company did see a 2 percent gain in revenues for the quarter, reporting revenues of $645.4 million, compared to $634.1 million in the same period last year. Net income was up 13 percent at $20.2 million, compared to $44.3 million in the same period last year. Income was boosted in part by a net increase of 95 new stores systemwide, improved company restaurant margins, and an improved currency translation.
Year to date, revenues were down 2 percent at $1.28 billion, compared to $1.3 billion last year. Net income was up 3 percent at $96.8 million, compared to $94.1 million last year.
The company did see some lift from its new Funnel Cake Sticks during the quarter. The product is uniquely positioned to drive both dessert and breakfast sales and outperformed all previous dessert launches in terms of units sold, Chidsey told investors. For the third quarter, the U.S. system is ready for the launch of the Steakhouse XT at the introductory price of $3.93.
Chidsey said that franchisees have showed support and enthusiasm for the XT introductory price promotion.
Expectations, initiatives
The company expects 2010 to continue to be challenging."The QSR industry is expected to face strong macroeconomic headwinds throughout 2010, as unemployment conditions are not likely to improve," Chidsey said in a statment. "Therefore, we will continue to focus on our guests' desire for extreme affordability with promotions such as the $1 1/4 lb. Double Cheeseburger and other value promotions we will be introducing in the near-term."
U.S. Burger King franchisees are on track in the implementation of its new batch broilers, which will support the line of new premium products. The company also continues "to invest in the brand with initiatives such as our advanced point-of-sales system roll-out, which is enhancing order taking, inventory control, labor costs, cash management and our market research with the availability of transactional level data," he said.
Successful initiatives for the quarter included the unveiling of the new 20-20 restaurant design in Amsterdam, the debut of the Whopper bars in the Asia Pacific and Latin American regions, and the opening the first store in the Russia market. The company also celebrated the grand opening of its 12,000th restaurant, in Beijing.
Marketing initiatives, in addition to the focus on value, included a U.S. campaign with NASCAR Sprint Cup Series driver Tony Stewart as well as movie tie-ins targeting female super fans and children. Buger King also targeted female brand fans with a promotions of its Positive Steps meals, which include 350 meal combinations under 650 calories, in various women's magazines.
2010 plans
Looking forward, the company plans to continue with its North American reimaging program and with diversifying its global portfolio by expanding in existing markets as well as the new Russia market.
Analysts did ask about the strained relationship with franchisees, a group of which has filed suit against the company for its $1 double cheeseburger pricing decision and its plan to divert funds from the soda rebates to the national advertising fund. Chidsey responded that it would be good if they could arrive at an acceptable solution to boost the advertising fund. He pointed to two positive franchisee votes, including the new Steakhouse XT introductory price point, as signs of good franchisee support.
"Obviously, it's a tough time, so I read the research reports from other brands out there and anytime sales aren't positive, you're going to have discontent, but I don't think it is really stopping us," he said, noting that franchisees continue to build new restaurants. "Yes, there is noise, but I think in the end, we really are doing what we need to do to drive the brand forward to the long-term."
And the brand is on track for the long term, Chidsey said in a statement. "The fundamentals of our True North plan remain intact as we grow the brand, run great restaurants, invest wisely and focus on our people including working collaboratively with our franchisees. And while we continue to nimbly respond to the current consumer environment, we are committed to managing the brand for the long-term, making the right decisions to drive the business forward."
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