MIAMI The king appears to have spoken.
After rumored friction this summer between Burger King Holdings Inc. and its franchisees centering on a $1 double cheeseburger, the Miami-based company announced late Friday that it would debut the $1 sandwich nationwide next month.
In July, tension was reported about any debut of the $1 double cheeseburger, as the franchisor allegedly wanted to use the item to spark sales, but franchisees allegedly wanted to shelve the $1 product to protect margins.
Starting Oct. 19, however, Burger King’s quarter-pound double cheeseburger will be available in U.S. restaurants for $1. The No. 2 burger brand, with 11,924 locations worldwide, claimed its sandwich offers more meat and more cheese than McDonald’s double cheeseburger and Wendy’s Double Stack.
“We’ve conducted extensive tests on this offer in local markets over the past 18 months,” said Mike Kappitt, senior vice president, global business intelligence and strategy at Burger King. “Positive sales results and strong consumer demand for our $1 ¼-pound Double Cheeseburger prove this strategy delivers a superior sandwich at an exceptional value.”
Burger King has suffered a sales slowdown in recent months, posting a 4.5-percent drop in systemwide same-store sales for U.S. and Canadian units during its latest quarter ended June 30. The result — just the latest of slowed sales among fast-food brands — had analysts and investors discussing the future prospects of the segment amid the harsh environment of rising unemployment, slowed consumer spending and deep menu price discounting.
Burger King said its plan for the future included the promotion of both value-based items as well as premium menu offerings. New equipment in the majority of units will help the chain create larger burgers and various new products, like ribs.
“We will flex premium when we can; we will flex value when we need to,” said Burger King chairman and chief executive John Chidsey, during the company’s latest corporate conference call with investors in late August.
Value products, while the needed ingredient for today’s recession-weary consumer, also can be the nemesis of the operating franchisee, as profit margins are cut with a lowered price point. Earlier this year McDonald’s Corp. and its franchisees agreed to remove its double cheeseburger offering from the chain’s Dollar Menu and raise the price to a suggested $1.19. A new sandwich, the McDouble, with lower food costs because it has one fewer slice of cheese, was placed on the Dollar Menu instead.
Prior to Burger King’s announcement on the pending availability of its $1 double cheeseburger, securities analyst Steve West at Stifel Nicolaus lowered his rating on Burger King’s stock from a buy to a hold. He said sales pressures will remain through the company’s fiscal 2010, especially the current first quarter, when West projects U.S. same-store sales to fall 8 percent from a year earlier.
He also said in a note Friday that Burger King’s management team needs to reestablish some credibility with investors after a few “disappointing quarters.”
West finally cited franchisee tension in the system, often a problem that stems from reduced sales and profit at the unit level.
“Our recent channel checks and discussions with franchisees show growing discontent in the system,” West said. “New products … are not producing the expected sales lifts in test markets, pressuring restaurant-level margins. Additionally, management’s questionable decision to recoup soda vendor rebates is clearly not sitting well with a franchise base that is seemingly quickly becoming discontented and less profitable than a year ago.”
In May, a group of franchisees filed a suit against the franchisor for allegedly diverting funds from soft drink providers that were typically earmarked for franchisees to a national advertising fund.
Contact Sarah Lockyer at [email protected]
