VOL. 128 | NO. 33 | Monday, February 18, 2013
Burger King Feels Heat as Rivals Focus on Value
CANDICE CHOI & MICHELLE CHAPMAN | AP Business Writers
NEW YORK (AP) – A revamped menu helped boost Burger King's profit in the fourth quarter but now the world's second biggest hamburger chain says it needs to play up value more aggressively to compete with rivals.
The Miami-based chain said Friday that sales in the new year are trending "modestly negative" as the broader fast-food industry fights to attract cash-strapped diners with cheap eats.
To address the intensifying focus on value from competitors, Steve Wiborg, president of Burger King's North America operations, noted the company launched a limited-time offer for a Junior Whopper for $1.29 this week.
Although Burger King will continue to pursue a "barbell" strategy of also offering premium items, Wiborg said that for now it will be "a little more focused on value because of competitive pressures."
With the broader restaurant industry expected to be flat to modestly up this year, companies are going to greater lengths to convince people to eat out more. McDonald's, for example, has been underscoring its Dollar Menu to boost sales and recently added a Grilled Onion Cheddar Burger to the lineup. In some markets, the Oak Brook, Ill.-based chain is also offering six-piece Chicken McNuggets for a buck.
Wendy's also revamped its 99-cent menu to offer customers more variety, as well as giving it more wiggle room to charge slightly higher prices. The chain's new "Right Price, Right Size" menu has tiered pricing that goes up to around $2.
Meanwhile, Burger King CEO Bernardo Hees said that sales in Europe haven't been affected by the horsemeat scandal that has gripped the region. The scandal erupted after testing showed that various ground beef products, such as a frozen lasagna meal, actually contained horsemeat. But Hees said Burger King's sales in the United Kingdom have been up in January and February.
The remarks from Hees and Wiborg came after Burger King delivered a strong fourth-quarter results; its net income nearly doubled as a key sales figure rose in North America and the company shifted to a franchisee-owned store model that significantly slashed costs.
Adjusted earnings and revenue topped Wall Street's expectations. It also raised its dividend by 25 percent to 5 cents per share.
3G Capital, the private investment firm that owns a majority stake in the company, has been working to turn around Burger King's business since purchasing it in 2010.
The franchisee-owned store model is aimed at cutting down on overhead costs and boosting profit margins. At the end of the year, the company said it was 97 percent franchised, versus 90 percent at the end of 2011. It planned to be nearly fully franchised this year.
Burger King said revenue at locations open at least a year climbed 2.7 percent in the quarter, boosted by a 3.7 percent increase in the U.S. and Canada. By contrast, McDonald's Corp. had reported last month that the figure rose just 0.1 percent globally and 0.3 percent in the U.S.
Burger King said results in North America were helped by new menu items such as its chicken parmesan sandwich, Cinnabon Minibon rolls and its holiday sweets menu.
In the region encompassing Europe, the Middle East and Africa, the figure rose 1.6 percent. It edged up a more modest 0.7 percent in Latin America and 0.8 percent in the Asia Pacific region. This figure is a key gauge of a restaurant operator's health because it strips out the impact of newly closed and opened locations.
For the three months ended Dec. 31, Burger King earned $48.6 million, or 14 cents per share. That compares with $25 million, or 7 cents per share, a year earlier.
Removing one-time costs, earnings were 23 cents per share. Analysts polled by FactSet expected 15 cents per share.
Revenue fell 30 percent to $404.5 million as a result of the refranchising. This still topped Wall Street's estimate of $375.3 million.
For the year, Burger King Worldwide Inc. earned $117.7 million, or 33 cents per share. That's up from $88.1 million, or 25 cents per share, in the previous year. Annual revenue declined 16 percent to $1.97 billion from $2.34 billion.
Burger King Worldwide has more than 12,900 locations in 86 countries and territories.
Follow Candice Choi at www.twitter.com/candicechoi
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