Burger King Worldwide Inc. executives said this week that the company would streamline the rollout of new products in order to boost franchise-led growth.
Alexandre Macedo, president of Burger King North America, noted that the strategy of focusing on “fewer, more impactful” product launches resulted from a mutual interest from both the franchisee community and the company.
The strategy would ensure franchisees could execute the menu items easily and profitably and that Burger King could support it with stronger marketing campaigns, executives said.
“We’ve been working so much with the franchisees and really getting a better feel for this competitive moment, and we feel very strongly that to be able to have success in this competitive environment, it’s important to focus on the few, right things,” Macedo said. “When you do that, you guarantee the execution at the restaurant level, guarantee that the profitability of the franchisees is good and, finally, you guarantee that you can have a good marketing push on an item to make it relevant.”
He added that Burger King did exactly that with the Sept. 24 launch of its new Satisfries, which were available systemwide for only the last week of the third quarter.
“Everyone in the country knew we were launching Satisfries,” he said, “and it’s the same thing we want to do moving forward with a few additional launches planned before the end of the year.”
The less crowded menu pipeline stands in contrast to Burger King’s main quick-service competitors, McDonald’s and Wendy’s, which have publicly stressed the importance of new-product news and have increased their rollouts of premium limited-time offers. The chains also ramped up their marketing this year around new value platforms, including McDonald’s upcoming Dollar Menu & More and Wendy’s Right Price Right Size menu.
Burger King has also tweaked its value offerings, Macedo noted, including the reintroduction in August of its “2 for $5” mix-and-match sandwich offering, most recently including the Bacon Cheddar Stuffed Burger to increase guests’ choices.
“Product volumes from the August promotion were 31 percent higher than when we ran the same promotion in May,” he said, “making the third consecutive quarter of running this [2 for $5] promotion with improved performance each time.”
The difficult consumer spending environment that kept domestic sales relatively flat in the third quarter has not let up in October, Macedo said, yet same-store sales have improved into positive territory.
“This comes not only from Satisfries but also from our multi-tiered value approach, consistency, and fewer, more impactful launches,” he said, “which is exactly what you can expect moving forward.”
Franchisees to expand footprint
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Executives announced the new menu strategy after reporting that completion of its global refranchising strategy sent Burger King’s net income soaring to $68.2 million in the Sept. 30-ended quarter from $6.6 million a year earlier.
The company’s revenue fell 89 percent compared with a year earlier, from $244.6 million to $27 million, as a result of the refranchising 519 company-owned locations worldwide in the previous 12 months. Yet the company’s total operating expenses fell nearly 90 percent, significantly improving earnings.
Miami-based Burger King Worldwide is now nearly 100-percent franchised, which would allow the company to grow net new units, sales and profit margins in the United States and Canada, as well as its three major international divisions, executives said.
“Over the past two years, we’ve refranchised 1,000 restaurants around the world and fundamentally transformed our business model,” chief executive Daniel Schwartz said during Burger King’s third-quarter earnings call. “We remain confident that a fully franchised business model will allow us to accelerate growth, while maximizing value for franchisees and shareholders.”
Though the North American division closed a net 13 units in the third quarter, Burger King’s three international divisions picked up the slack, leading to 133 net openings worldwide in the period, more than doubling from 63 openings in the third quarter of 2012.
Europe, the Middle East and Africa accounted for more than half of that growth, with 80 net openings, followed by 39 openings in the Asia-Pacific division, and 27 in Latin America and the Caribbean. More than half the growth in the past 12 months has come from large emerging markets like Brazil and China, where Burger King has joint-venture agreements with a master franchisor.
But “we’re also seeing traction in smaller markets,” Schwartz said, noting a new development agreement in Sri Lanka and the opening of the first unit in Pakistan.
“As was the case last year, we’re going to have a significant acceleration sequentially into the fourth quarter, both domestically and internationally,” Schwartz said. “If you look at where we were the past few years, we’ve come a long way, growing at many times the pace of our historical growth. When you look at next year, we’re confident we can continue this growth.”
The United States and Canada’s restaurants would continue an aggressive effort to reimage and remodel, Schwartz added, and the company is in line with its projection to have 40 percent of the North American system updated by 2015. On average, reimaged stores are producing a sales lift between 10 percent and 15 percent, officials said.
Burger King’s mostly franchised system of 13,259 restaurants operates in the United States and 90 foreign countries.
Contact Mark Brandau at email@example.com.
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