Fast food heavyweights Burger King Holdings Inc. (BKC) and McDonald’s Corp. (MCD) continue to duke it out in a fight for a bigger share of an increasing crowded fast-food marketplace. First it was the $1 double cheeseburger war. Then, the fight over breakfast (read all about Burger King’s “brunch” menu here). Now it appears Ronald McDonald and The King have come to blows over a price war for summer drinks.
Many McDonald’s locations are planning a summer drink promotion where customers can get any sized soft drinks or a 32-ounce sweet tea for just $1. Now the King has counter punched, with a plan to sell medium-sized Icees in Coke flavor or Fanta Cherry flavor for just $1. The promotion starts May 24 and runs until June 20.
But amid all these antics, one thing remains clear — BKC stockcontinues lose ground to MCD stock. So is it possible these promotions are doing more harm than good, or will the summer drink deal finally be the special campaign that props up sales?
The jury is still out on whether past promotions have succeeded for Burger King. The company posted an 8.2% decline in U.S. and Canada same-store sales for January and February. And industry insiders say the company’s March and April trends show improvement, though they are still lagging McDonald’s. On the other hand, some of Burger King’s biggest promotions haven’t really had time to gain traction. Burger King’s “brunch” menu has only been rolled out in test markets, and a deal with Starbucks (SBUX) to sell Starbucks-owned coffee at Burger King won’t reach fruition for a few months. So the biggest bump for BKC may still be down the road.
But Burger King’s latest promotion of $1 Icees may face stiff competition as McDonald’s hopes to add frappes, specialty iced coffees and smoothies to its McCafe menu. The coffee sales at McDonald’s locations have been wildly successful and really helped boost McDonald’s first quarter earnings.
The real question after all of these point-counterpoint promotions is what McDonald’s and Burger King will come up with next after the summer drink specials fade.
Burger King’s next big plan will be ribs, which some insiders describe as one of its most profitable products ever. That should be a welcome relief for stores that are used to seeing promotions that shrink margins rather than expand them. Fast-food’s sales started to rebound in March, after starting the year off poorly amid severe winter weather, and BKC is hoping to keep up the momentum.
But MCD stock is still far ahead of BKC stock. Shares are up 33% in the past year, more than double the gains of Burger King.
As of this writing, Jeff Reeves did not own positions in any of the stocks mentioned here.
