Burger King (BKC) has been sleepwalking through breakfast sales for a long time, and a new partnership with Starbucks (SBUX) announced recently isn’t likely to be the wake-up call the company needs to catch archrival McDonald’s (MCD).
By September, Burger King said it will replace its current BK Joe coffee line at some 7,250 locations with Seattle’s Best Coffee, the former hometown rival that Starbucks acquired in 2003 and now an SBUX brand. Prices for the 100% Arabica-bean coffee will range from $1 to $2.79, with the option to add some of Starbucks’ bells and whistles like flavored syrup and whipped cream.
Burger King has been a perennial and distant No. 2 to McDonald’s in the fast-food industry, and it will take more than a sexy deal with Starbucks to start eating away at McDonald’s lead.
McDonald’s dominates the fast-food breakfast business, and its success in the morning has been credited with ongoing improvements in same-store sales, which did well throughout the recession
Burger King, on the other hand, recently reported that quarterly same-store sales fell 2%, while total U.S. and Canadian sales were down 3.3% for the same period. The company also reported that it ended the period with 12,000 locations, about a third the number that McDonald’s has.
Burger King did not make it clear why its current BK Joe coffee program flopped with customers, but BK management is hoping that selling a “branded” brew will caffeinate their breakfast business and improve their competitive position.
The program has several potential weaknesses. The partnership relies on the assumption that people want SBUX coffee – or at least an affiliated brand like Seattle’s Best. The company’s sales are an indication that there is a wide demand for its products, but Starbucks has not done well in taste tests at research firms, including Consumer Reports. BK Joe may taste just as good as Seattle’s Best.
What’s more, McDonald’s morning success has not just been because of its McCafe coffee line. The company also revamped its entire morning menu and offers “value” prices on a number of items. Burger King will have to match or better McDonald’s in those areas if it wants to fatten up its market share.
This deal isn’t necessarily the best idea for Starbucks either, which has struggled throughout the recession. Starbucks was expanding aggressively when the economic storm hit, and the chain had to fire 12,000 people and cut its store count. It is only now recovering from the effects of a drop in traffic to its locations.
And offering Starbucks coffee at Burger King could hurt sales of Starbucks coffee at its own retail locations. It is impossible to guess how much it could cut into Starbucks revenues, but customers are not likely to stop at a coffee shop and a fast-food joint during the same morning.
Bottom line: Burger King and Starbucks have another thing coming if they think this deal is going to be enough to rule the breakfast world. If you want to know which coffee stocks are a buy, then Perk Up Your Portfolio with These Coffee Stocks.
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