Aggressive Promotions Working For Burger King

Angry Whopper Burger King's heavy marketing of value-priced promotions and "indulgent" offerings helped drive 12% revenue growth in North America (to $425 million) and 15% growth in overall net income (to $47 million) during the chain's fiscal '09 third quarter.

The U.S. gains help offset economy-driven sales declines in EMEA/APAC (-9%) and Latin America (-1%) and negative impacts from currency translation. Diluted earnings per share rose 13%, to 34 cents.

The period marked BK's 20th consecutive quarter of comparable-store sales increases in North America (up 1.6%) and 21st consecutive quarter of comparable-store sales increases on a worldwide basis (up 1%).

For the first nine months, North American revenue rose 13% (to $1.3 billion), while EMEA/APAC and Latin American revenue declined 9% and 1%, respectively, for a total revenue gain of 5% (to $1.91 billion). Net income rose 1%, to $141 billion. Diluted EPS rose 2%, to $1.03.



BK cited the January promotion of the Angry Whopper in the U.S. -- one of the most successful in its history -- as well as the U.S. launches of BK Burger Shots and BK Breakfast Shots as key sales drivers during the quarter. During the quarterly conference call, BK executives stressed the importance of heavy television exposure for "value platform" items (those priced between $1.39 and $1.49), including the new shots items.

The chain also ran promotions tied in with the "Pink Panther 2" movie, Cabbage Patch Kids Monster Jam and the Kids' Choice Awards during the third quarter. In addition, BK saw a significant gain in late-night sales as a result of a "competitive hours" initiative in North America.

Even more aggressive promotions and campaigns are lined up for fiscal Q4. These will include tie-ins with the new Star Trek and Transformers movies and a 99-cent BK Kids Meal deal tied in with SpongeBob SquarePants and Pokemon.

Q4 product launches will include a Tendercrisp Bacon Cheddar Ranch limited-time-offer chicken sandwich and a rollout of the extra-thick Steakhouse XT burger to approximately 40% of the U.S. marketing areas that have installed the chain's new batch broiler. BK will also continue to promote late-night.

Asked about the impacts of increasing competition from fast-casual chains now offering items at near-QSR price levels, Russ Klein, BK president of global marketing, strategy and innovation, noted that fast casuals are seeing serious traffic declines, and that leading chains such as Chili's are closing stores, whereas BK continues to aggressively add stores (355 in fiscal Q3, for example).

Klein also said that BK is "moving into the underbelly" of fast casuals with the introduction of the higher-priced, "indulgent" Steakhouse XT item.

Looking ahead, challenges include the continuing economic impacts outside of North America, in particular, and the unpredictable effects of the swine flu outbreak in Mexico (where the government has asked the chain to limit service in 118 Mexico City locations to drive-through and take-out). BK is now projecting Q4 EPS in the range of 34 to 37 cents, and full-year EPS to be in the range of $1.39 to $1.42, including a 10-cent per share negative impact due to movements in currency exchange rates.

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