How Burger King fell behind
Burger King wants to move into the future, but it’s still stuck in the past.
The fast food chain’s parent company, Restaurant Brands International (QSR), said last month that it plans to modernize Burger King’s locations across the country in a plan it calls “Burger King of Tomorrow.”
Despite the project’s name, Burger King’s efforts are nothing new. The updated restaurants will feature self-order kiosks and sleeker restaurants — changes Burger King’s competitors started making years ago. While its competitors were upgrading their stores, Burger King focused on marketing campaigns and menu items.
Burger King’s new restaurants will feature open kitchens, double drive-thru lanes and outdoor digital menu boards. The burger chain hopes the changes will convince American consumers to order Burger King meals more often and spend more money at the store.
The plan is a move in the right direction, said Morningstar analyst R.J. Hottovy. It’s important for Burger King to focus on increasing convenience. But the brand is “playing catch-up here,” he said.
Gimmicks and ads
Until its modernization plan, Burger King had been pushing gimmicky products, including a Halloween burger that gives you nightmares. It also weighed in on political topics with stunts like a “chick tax” on chicken fries in pink packaging, designed to call attention to the so-called pink tax on women’s products, and a Whopper “fast lane” that sought to explain net neutrality.
“They’ve really focused a lot on marketing, product development and menu innovation,” said Neil Saunders, managing director at GlobalData Retail..
“They’re very good at coming up with the one-off menu innovations,” he added. “That drives traffic.”
But it hasn’t been enough. In the first quarter of this year, Burger King’s parent company Restaurant Brands International (QSR) reported that it was pleased with the burger chain’s momentum. “Our BK comparable sales results this quarter were driven by notable strength in the U.S.,” Restaurant Brand’s CEO Daniel Schwartz said at the time.
Since then momentum has slowed. In the second quarter the company said US comparable sales increased by 1.8%, and in the third quarter that figure slipped 0.7%. Same-store US sales rose by 2.4% in the third quarter at McDonald’s. At Wendy’s sales for that period also slipped, by 0.2%.
Those competitors put their upgrade plans in motion long ago.
Over the summer, McDonald’s (MCD) announced a $6 billion investment toward modernizing most of its US restaurants by 2020. The McDonald’s redesign also includes digital menu boards and self-order kiosks.
It’s important for quick-service restaurants to update their stores to maximize convenience, Hottovy said. But it can take years for chains to get all of their franchises on the same page.
McDonald’s is in a unique position, said Oches, because franchisers trust the company to deliver results.
“New store prototypes, remodels … those things are expensive,” Oches said. It’s easier for a brand like McDonald’s to convince franchises to spend that money. For others, it’s more of a struggle.
Wendy’s has spent the better part of a decade upgrading its stores to include lounge seating, digital menu boards and Wi-Fi. The company said this month that it’s remodeled nearly half of its stores. Wendy’s is also thinking about other improvements to stores: Last year the company announced a new series of smart design restaurants that use less energy than its traditional stores.
Burger King may have also struggled because unlike Wendy’s (WEN) and McDonald’s, it’s part of a holding company.
Burger King and Tim Hortons merged in 2014 to form Restaurant Brands, which snapped up Popeye’s last year.
“When you become this enormous multi-brand holding company … [it’s] hard to focus on details,” said Sam Oches, editorial director of Food News Media at QSR magazine.
To regain its footing, Burger King needs to increase traffic to stores and boost how much customers spend on regular orders.
“Regular trade is the bread and butter,” said Saunders. “The marketing and the seasonal occasions are much less important.”
Burger King is still in the early stages of the project, Schwartz noted in October, adding that there are already pilot restaurants operating in Miami.
“To refresh a store, that takes a long time,” said Oches. “So the fact that we’re still at the very early stages of this tells me that they have a long road.”