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Burger King: More Ultra Low Promotions Underway

Restaurants will be struggling like never before to generate positive comparable sales this quarter. Moderate weather last winter drove above norm sales and traffic then and the publicly traded restaurants are now up against those numbers. Burger King (BKW) is especially vulnerable to investor sentiment with its IPO this year, its rebuilding underway and new menu items introduced this summer, that did generate some sales uplifts.

Concurrent with its 55th corporate anniversary, a “buy one get one (BOGO) Whopper deal for 55 cents is underway this weekend. Franchisees just last week “voted” to extend it another weekend, December 13-17. Franchisees got the heavy sell and pressure to do it. Web reports are that some franchisees aren’t honoring the BOGO offer.

 This is an ultra low price point, the dream of marketing agencies everywhere who dream about low prices, and to take the cheap way out for their clients. This is a Burger King franchisee profit issue in that the additional Whopper has a backdoor cost of app. $.80, so the gross profit loss at first look is roughly about 25 cents per BOGO burger sold.

 Will they make it up on volume? We’ll see. This is a classical economic price/supply/demand test. A big issue is product mix, whether tradeups can occur and how many additional customers that come in. Loss leader tactics aren’t “wrong” per se but the effectiveness depends. In store, we saw the new digital menu boards prominently featuring the $.55 offer, which doesn’t seem quite right to maximize tradeups. 

 I was expert for the BK franchisees in 2010 regarding the infamous $1 double cheese burger (DCB) legal action. For the record, the fully loaded cost then was about $1.17, and franchisees lost about 17 cents per DCB item then. The action settled, the court did not have the opportunity to rule on the main issues. The BKW marketing approach is different now: not $1 double cheeseburger for months on end with no other new news, but selected weekends.

 But there was considerable Burger King discussion then that the Whopper should be not be discounted, it was their legacy flagship product. Perhaps not now. What does the research say?

 This is another reminder that publicly traded restaurants, particularly those with no or few company operated units (Burger King is selling stores worldwide and will soon be near  zero company stores) will forever and forever tempted to do low priced offers.. The investment community rewards comparable sales; franchisee profits aren’t reported or much often discussed.

 Franchisors still need skin the game. Different parties, different motivations for sure.




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About john a. gordon

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John A. Gordon, founding principal of Pacific Management Consulting Group provides analysis and advisory services relative to complex restauant topics. This includes buy or sell due diligence, operational analysis and improvemenrs, expert litigation support and business investigation and analysis.

Gordon focuses on restaurant strategy, operations and financial management topics, and has a 45-year background in restaurant operations and financial management staff roles for both franchisors and franchisees. He is a certified Master Analyst of Financial Forensics (MAFF). He supports both franchisees and franchisors, and has a franchise standards and practices sub speciality.

Pacific Management Consulting Group provides creative, detailed and effective insight, independent research and analysis that is free of conflicts of interest. The company provides chain restaurant earnings and economics analysis, research, expert witness engagements, suppors both consulting and sell side equity research firms, due diligence and other analytical investigations. He routinely partners with other restauant subject matter experts in a variety of specialities.

Visit him at Pacific Management Consulting Group. Contact him by email or call (619) 379-5561. Gordon blogs on on his website and publishes discussion papers; his press clips and a real time restaurant analysis blog, is included.

Area of Interest
Franchise Operations