Continue to Site

    Burger King's Breakfast Has Room to Grow

  • BK Cafe is a long-term investment with staying power.

    Burger King
    Burger King's breakfast daypart was slower than expected last quarter.

    Some of Burger King’s menu launches didn’t quite hit in early 2019. One downturn in particular, though, could shake up one of the industry’s most contested dayparts. Restaurant Brands International chief executive Jose Cil, who just completed his first quarter at the helm of Burger King, Tim Hortons, and Popeyes’ parent company, said the chain’s breakfast business was soft and “slightly down” in Q1 2019, reported Monday morning. That led Burger King to launch its BK Café platform in March, highlighted by the buzz-worthy $5 monthly coffee subscription.

    But the headline-grabbing deal, which allows customers to grab a coffee every day if they sign up through Burger King’s app, is a long-term investment meant to expand its breakfast business, and one that’s just getting the discussion started. The notion is that it gets customers through the door, but will they order something else once they've arrived? All while competitors like McDonald’s and Panera Bread shift strategy to reengage early occasions.

    Cil said the platform provides “a solid foundation to help drive guest count and sales growth in this important daypart going forward.”

    Burger King’s U.S. business could benefit from a jolt. Same-store sales increased 2.2 percent in Q1. The figure was up just 0.4 percent in the U.S. Both were muted compared to the prior-year period, when comps rose 3.8 and 4.2 percent, respectively.

    Burger King’s U.S. same-store sales have been a bit of a rollercoaster over the past year or so.

    • Q1 2019: 0.4 percent
    • Q4 2018: 0.8 percent
    • Q3 2018: -0.7 percent
    • Q2 2018: 1.8 percent
    • Q1 2018: 4.2 percent
    • Q4 2017: 5.1 percent
    • Q3 2017: 4 percent
    • Q2 2017: 3 percent
    • Q1 2017: -2.2 percent

    In addition, Burger King’s systemwide sales growth was 1.6 percent in Q1 versus 5.9 percent in 2018. That’s mostly due to a slowdown in net restaurant growth to 0.8 percent compared to 1.3 percent from planned closures.

    From the fourth quarter of 2018 to the end of Q1 2019, Burger King’s total stateside unit count declined 50 restaurants to 7,280 units from 7,330. Cil said the U.S. closures were a "higher number than normal."

    Cil unpacked some of the changes. First on the menu side, Burger King launched spicy nuggets in the quarter, which helped maintain the brand’s value platform despite rising in price from $1 to $1.49 for 10 pieces. Meanwhile, the Big King XL performed well in the premium layer, Cil said, which speaks to the brand’s typical menu balance of indulgent, higher-ticket items and everyday core value.

    “Burger King is all about delivering flame-grilling excellence to our guests and this product fits that right in the sweet spot." — RBI CEO Jose Cil on Burger King's Impossible Whopper.

    However, Burger King lapped several impactful offerings in the period, such as the Double Quarter Pound King and Spicy Crispy Chicken Sandwich, and was unable to generate similar performance. The Grilled Chicken Sandwich “did not preform to our expectations,” and "didn't have the connection to the guest as we were expecting," Cil said. Couple that with the lagging breakfast sales and Burger King put together a slower product run than typical.

    On top of the BK Café launch, Cil said the reintroduction of Burger King’s Angry Whopper and innovations around its King’s Collection platform should reignite transactions. And then there’s the impending arrival of the plant-based Impossible Whopper.

    Burger King unveiled the product on April Fool’s Day with a social media campaign based on fooling customers into thinking it was the original deal. It generated more than 6 million media impressions, Cil said.

    The 59-restaurant test in and around St. Louis sparked significant interest beyond social media. Cil said Burger King plans to expand to a few more select test markets over the summer as it prepares for a national launch later in the year.

    A key result, he added, was that customers didn’t swap the Impossible option for original Whoppers. Orders have been incremental. In other terms, those guests picking it are new users. So it’s opening Burger King to a different customer segment, Cil said.

    “We think it's very much in line with our brand position,” he said. “Burger King is all about delivering flame-grilling excellence to our guests and this product fits that right in the sweet spot.

    Burger King
    Coffee every day for just $5 a month? Burger King made it happen.

    Behind the closures, and a changing system

    Last year, Burger King introduced the BK of Tomorrow restaurant image. These designs, modeled after the Garden Grill package, include exterior guest-facing enhancements as well as interior fixes. Among them: the construction of double drive-thru lanes and outdoor digital menuboards. The drive thru accounts for the majority of Burger King’s sales in the U.S., Cil said. And the brand is coming off a year where it already ranked No. 1 in speed of service among chains measured in QSR’s Drive-Thru Study at 193.31 seconds.

    Outdoor digital menuboards drive increased check, allow for integration with other technologies, like mobile apps, and provide franchisees cost savings on printed menu and media signage, the company said. The new design is focused on building a digital integrated experience for guests as well, complete with in-restaurant self-order kiosks.

    Cil said the new design, first piloted in Burger King’s Miami corporate restaurants, is resulting in more visits and long-term comparable sales growth.

    The chain has “hundreds” of U.S. restaurants in the pipeline to be remodeled in 2019, Cil said.

    The closures were planned, he added, and reflect Burger King’s desire to bring more next-generation designs to market. “This is a healthy part of continuing to build franchise profitability in the U.S. system as we close lower-volume restaurants and replace them with new beautiful Burger King of Tomorrow restaurants,” Cil said.

    Burger King opened more than 200 U.S. restaurants in 2018. Most of which, Cil said, produced significantly higher volume than units Burger King shuttered.

    One deal he pointed to involves the merger of Carrols Restaurants Group—Burger King’s largest U.S. franchisee—and Cambridge Franchise Holdings, announced in February. The deal added 166 Burger Kings and 55 Popeyes to Carrols’ portfolio, which already included 849 locations.

    As part of the merger, Carrols also committed to opening 200 new Burger King restaurants on a net basis over the next six years, Cil said. They will remodel a substantial portion of their portfolio to the new image “in the coming years.”

    Burger King
    Burger King's Whopper Detour campaign took a jab at McDonald's.

    Tech talks

    As shared before, Burger King was later to the digital party than some of its competitors. Also not surprising is how fast the chain is catching up. Burger King began testing delivery at several hundred U.S. restaurants in the first quarter of fiscal 2018. Roughly a year later, delivery is active in nearly half of Burger King’s stateside locations.

    Josh Kobza, RBI’s chief operating officer, said Burger King would “probably” expand the sources from which it takes orders as it expands coverage. “We see these channels to be highly incremental and to be profitable to our restaurants,” he said. The occasions are

    The brand’s mobile app usage continues to grow, too, with more than 8 million downloads and about 3 million monthly active users. Burger King has produced some note-worthy campaigns to drive downloads, including the Whopper Detour offer that featured 1-cent burgers when ordered near a McDonald’s.

    Regarding frequency, Kobza said, “what we've seen so far, at least, is that, it seems like a lot of our bigger fans tend to want to engage with us on the mobile app. So we do see a bit higher frequency from some of those guests. But I think there is a lot more for us to learn. I think this is a really powerful tool for us to engage with all of our guests. And we will continue to evolve in how we use that tool and how we are able to provide a great experience to our guests through this and many other new digital interfaces over the coming quarters and years.”

    As a company, RBI reported earnings of 53 cents a share. Adjusted earnings in Q1 were 55 cents a share and sales totaled $1.27 billion compared to $1.25 billion in the prior-year period.

    Same-store sales gained 0.6 percent at Popeyes and fell 0.6 percent at Tim Hortons.