Revitalized Burger King Heats Up Global Burger War
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The flames have been stoked and rivalries renewed in the burger business. A revitalized Burger King Worldwide (NYSE: BKW) joins The Wendy's Company (NASDAQ: WEN) in once again challenging the supremacy of McDonald's (NYSE: MCD) golden arches around the world.
Newly re-listed on the New York Stock Exchange, Burger King has launched a massive advertising campaign emphasizing that “exciting things are happening at Burger King” and featuring soccer star David Beckham and Aerosmith front man Stephen Tyler. The ads are meant to drive home the point that it has completely overhauled its menu in order to appeal to the widest possible audience. Its menu is now more similar to McDonald's and features items such as smoothies, ice cream, salads, wraps and more chicken choices. The shift in strategy is to focus more on quality and less on deep discounting. The company is also remodeling its restaurants into modern “20/20 image” restaurants.
Similarly, number two Wendy's earlier this year said it would expand the burger wars to new fronts by challenging McDonald's on breakfast, coffee, salads and late-night dining among other items. Wendy's ads, featuring red heads of course, have been pushing the point to consumers. The company also is remodeling its restaurants, ala McDonald's, with modern designs and flatscreen televisions.
Wendy's major change emphasis seems to be on breakfast, which makes sense. In 2010, breakfast accounted for roughly a quarter of McDonald's sales while at Wendy's breakfast represented just 2.2 percent of sales. So obviously there is a lot a room for growth there.
There is one key difference in the approach taken by Burger King and Wendy's in their challenge to number one McDonald's. That difference is that Burger King has decided to challenge McDonald's in overseas markets too. Right now about 40 percent of the company's 12,500 restaurants are overseas and its goal is to double its presence in foreign markets over time.
Burger King looks to make some bold moves into three of the BRIC countries – Brazil, Russia and China. The company revealed its expansion plan for Brazil last year and earlier this month it announced it would open several hundred new restaurants in Russia through a partnership. The company also plans to open 1,000 stores in China through a joint venture.
This is rather surprising since even McDonald's is only number two in China, badly trailing number one Yum! Brands (NYSE: YUM) there. In fact, right now Burger King has only 63 restaurants in China, far behind McDonald's 1,400 and Yum's more than 4,000 outlets. But the attraction has to be the pace of growth of China's fast food market. It has been growing at a phenomenal pace of 10-20 percent annually and was valued at $40.8 billion in 2010.
We'll have to wait and see if Burger King's emerging market push will pay off. The key will be execution...just ask all the major US firms that have flopped in China and have had to pull out. Perhaps the company should think of adopting Yum's successful strategy in China -- focusing on the development of a local supply chain and having a willingness to change its menu to adapt to local tastes.
The real key to Burger King's comeback, however, will be its success or failure in the US market where 60 percent of its stores are located. Both it and Wendy's definitely have a shot at closing the gap on McDonald's with their new strategies while it is distracted for a few months by the retirement of current CEO Jim Skinner. But don't be surprised if shortly after the new CEO is in place that the Golden Arches strikes back with new menu offerings.
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