When most consumers think of Burger King (NYSE: BKC), they think of cheap eats for their lunch break. But a look as some recent menu experimentation shows that BK is making a push into the premium arena with higher priced, higher quality food.
Take an upscale Burger King brunch menu in test markets, including cibatta breakfast sandwiches and mimosas. Or consider the nationwide success story of its premium ribs promotion this summer – which was so successful Burger King sold out of ribs early.
Or consider Burger King’s latest push for upscale Whopper Bars in select areas, offering some rather spectacular reinventions of the whopper.
Take the NY Pizza Burger, served at BK’s Seventh Avenue location on Manhattan. It’s four patties, pepperoni, mozzarella cheese, marinara and Tuscan pesto sauce all on a nearly 10-inch sesame seed bun – and served in a pizza box. It’s meant to be shared, of course. Then there’s California Whopper served in South Beach, featuring melted swiss and crispy bacon topped with guacamole. Not to mention the endless varieties diners can come up with on their own from the dozens of sauces and toppings at these premium Whopper Bar locations.
Skeptics may scoff at these premium locations as a novelty, since there only a handful of them around the nation as of right now. True, in an era of weak consumer spending it’s not logical to expect every diner to trade up from $1 offerings on the value menu to $10 and up premium meals.
But BK doesn’t need every diner to do so – it just needs some of them. And those diners subsidize lower priced, lower margin menu items that aren’t big money makers.
The bottom line is that you can’t grow the bottom line making just a few pennies of profit on cheap menu items. In fact, Burger King franchisees sued the corporate offices over promotions for a $1 double cheeseburger that they claimed were making only a few pennies for the stores after the cost of ingredients and labor. The ribs promotion this summer, on the other hand, resulted in over a $1 of profit per meal sold according to company sources. That means one customer buying ribs was worth 40 or 50 double cheeseburgers when it comes to the bottom line.
Perhaps the perfect example of the push to premium at fast food joints is the runaway success of McDonald’s (NYSE: MCD) and its McCafe coffee lines. It lowballed Starbucks (NASDAQ: SBUX) and other premium coffee shops with its lattes and mochas, but still makes a significant chunk of change on the drinks that have fueled big profit growth in recent quarters. What’s more, it has broadened the customer base so coffee drinkers may get fries or a burger along with their caffeine fix – and push up MCD profits even more. Expanding product lines with premium offerings just makes good sense in those respects.
Will Burger King roll out the Whopper Bar everywhere? Probably not. But the profits from just a few of these high-end burger joints could make a significant impact on sales.
As with the mammoth NY Pizza burger, a little goes a long way when it comes to premium fast-food offerings.
As of this writing, Jeff Reeves did not own a position in any of the stocks named here.
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