Burger King Drama

With Burger King (NYSE: BKC) announcing earnings Thursday, look for more drama as we go.

Last week, Dow Jones Newswires reported that Burger King has agreed to defer “for now” the planned diversion of about 20% of the Coca Cola soda rebate, monies ordinarily paid to franchisees. This action is still the subject of a federal suit still pending in the Southern District of CA. Monday, the Wall Street Journal reported on criticism of BKC’s marketing focus on its core, heavy users and complaints the company had ignored children’s and dessert programs.

 There’s also been a flurry of analyst speculation and four downgrades in the last 60 days (eight since May 2009), noting slow sales, franchisee unrest, and concern about a lighter ad fund budget as a result. Reports of negative slow Q4 sales (with a big uptick noted in October when the campaign began) are now present.

 The ad fund size issue need not be an issue: Burger King can always investment spend and cover any incremental media cost, with compelling offers and profit flow through.

 But we feel there must be something and a theme to promote. As we noted last fall in seeking alpha, the double cheeseburger was a significant menu item and $1 a significant price point, but price appeals only works so long. Its first 2010 major new product, the XT Burger, was slated for this month. BKC did promote and feature funnel cakes in December.

 The competition isn’t sitting still. Wendy’s (WEN) has rolled out many new products in the last 120 days (their menu is almost totally transformed in the last year) as has Arby’s and Carls/Hardees (CKR). And of course McDonald’s (MCD) is still working its Angus Burger, breakfast and several $1 price points, leading to a decent quarter and better US (albeit marginally positive) US sales and more positive world-wide sales results.