Burger King Plans Value Ad Push In June
May 28 2009 - 2:20PM
Dow Jones News
Burger King Holdings Corp. (BKC) is turning up the heat in the
burger wars.
The "Home of the Whopper" plans to focus more of its advertising
message on value items starting in June, several months earlier
than expected as the chain tries to recover from disappointing
sales amid an onslaught of discounts and coupons from other
fast-food chains.
"The current marketplace is demanding value and the company is
being responsive to that consumer-driven demand," Russ Klein,
Burger King's president of global marketing strategy and
innovation, said in an email.
With ad rates coming down, Burger King hopes to make a big
impression with its value message, though it may be coming to the
game a bit late. Some analysts think the chain has lost ground to
competitors in communicating lower prices. McDonald's Corp. (MCD)
has its popular Dollar Menu, and Wendy's, of Wendy's/Arby's Group
Inc. (WEN), has its "3conomics" campaign offering three sandwiches
at 99 cents each.
Burger King instead has focused on premium products,
historically spending about two-thirds of its advertising budget on
items like the "Angry Whopper," a spicy take on its traditional
sandwich, with the rest devoted to value products, Barclays Capital
analyst Jeffrey Bernstein said in a recent note after meeting with
company management. He said that Burger King plans to flip the
ratio to lower-priced products like its newly launched miniature
hamburgers called BK Shots and its $1 Whopper Jr., with competitive
pressure forcing the chain to make the shift two months earlier
than planned.
"While we have historically viewed Burger King as being on the
offensive in terms of leadership around new products and
promotions, it appears management is forced to play defense in
order to protect market share," Bernstein wrote.
Burger King is also cooking up items like ribs and an
extra-thick burger on a new batch broiler, planning a big
advertising push behind such premium products next year. The sour
economy could temper expectations for the impact those products
could have in helping the chain stand out, Bernstein said.
With the economy reeling, highlighting premium products has
proven difficult as consumers keep a closer eye on their budgets.
Some fast-food chains have sought to position their higher-priced
items as equal in quality but lower in price to those of sit-down
restaurants, which have in turn cut their prices to narrow the gap.
Increased couponing and discounting from other fast-food chains
have also magnified the disadvantage from lack of a strong value
campaign.
Fast-food chains do risk sacrificing their margins and sales if
they resort to steep discounts, though falling food prices can make
it more tempting for chains to offer such deals.
Still, some have resisted going down that path, saying that it
trains customers to buy only discounted products. CKE Restaurants
Inc. (CKR), the operator of Carl's Jr. and Hardee's restaurants, on
Wednesday said that it will continue to avoid deep discounts and
coupons, even as it blamed competitors' "heavily-discounted,
low-quality" value menus for its own weak sales.
Analysts don't expect these burger wars will devolve into those
seen in the late-1990s when Big Macs and Whopper sandwiches were
sold for $1 each, as chains have honed their pricing strategies
since that time. They are also focusing the discounts on new
products rather than signature items.
Fast-food chains hope their moves can bolster their shares,
which have lost favor with investors who have shifted their
preference to casual-dining chains that are benefiting from cutting
costs and tend to recover early from an economic downturn.
In recent trading, Burger King shares were down 3% at $16.30,
while McDonald's shares fell 0.4% and Wendy's shares were down
1.4%.
The Dow Jones Industrial Average was flat, while the S&P 500
index ticked up 0.4%.
-By Paul Ziobro, Dow Jones Newswires; 201-938-2046;
paul.ziobro@dowjones.com