Extra small beat extra thick. Burger King said U.S./Canada same-store sales dropped 6.1% for its third quarter, ended March 31, 2010, despite its $1 Double Cheeseburger promotion and introduction of the Steakhouse XT burgers. That decline compares with BK’s +1.6% comp sales a year ago, when it was promoting mini BK Burger Shots, mini BK Breakfast Shots and the Angry Whopper.
Burger King Chairman-CEO John Chidsey told analysts that its average U.S. check has fallen 5% since the Oct. 19 national launch of the $1 Double Cheeseburger. That negative impact—which he called a “fundamental one-time reset” in check average—will be felt at least until it is lapped this October, if not longer. Additionally, Chidsey said that the chain’s value/discount menu items now account for 20% of total sales (up from about 12%), which he said is in line with McDonald’s and other competitors. Burger King has replaced the $1 Double Cheeseburger with the Buck Double, a $1 burger with less cheese.
BK will continue to follow its “barbell menu” strategy of balancing value- and premium-price products, CMO Mike Kappitt said. That will include the Fire-Grilled Ribs, which the chain confirmed will roll out as an LTO next month. Kappitt said sales of the new XT burgers have skewed toward the full-price A.1. and Smoky Cheddar burgers rather than the $3.99 Steakhouse XT burger. He added that Burger King has several new menu products (many using its new batch grills) aimed at adults in its pipeline. These include premium-price items such as the current Whiplash Whopper, that will help boost check average. “We have a robust product pipeline that leverages the new broiler,” Kappitt said.
Other topics covered during the quarterly call:
● Chidsey said an enhanced, broader breakfast menu, including the adoption of Seattle’s Best coffee, will be put in place and marketed this fall. The chain also is looking at extending hours of operation in more stores, as competitors have done.
● The chain saw a 9% rise in beef prices during the past quarter but said it was helped by decreases in contracted chicken prices. No shift in menu mix is planned to counter feef-cost increases.
● Burger King saw negative comp sales in the UK after 12 consecutive quarters of positive growth. The chain this week brought back the Angry Whopper in the UK and in Canada. Continuing sales declines in Germany (its second-largest market, with 681 stores) have been more troublesome, but Chidsey says a new ad agency there and stronger value offers should help turn sales around.
● Brazil, China, Russia and Japan will be the focus of international unit expansion in the near future. At the end of the quarter, the chain had 12,115 stores globally, with 7,263, or 60% of its system, in the U.S. (compared with McDonald’s 13,954 U.S. units or 43% of its total).