Burger King’s same-store sales have decelerated in each quarter this year. Q1 saw a 3.8 percent lift, followed by a 1.8 percent hike in Q2, and a 1 percent increase in the Q3 period that ended September 30, the company announced October 24.
Yet there’s a new look in the works.
During parent company Restaurant Brands International’s conference call Wednesday morning to review the most recent results, chief executive officer Daniel Schwartz unveiled Burger King’s plan to introduce a modern “Burger King of Tomorrow” restaurant image across the U.S.
“While we have made significant progress remodeling and modernizing our restaurants in the U.S. relative to our restaurant image back in 2010. We have continued to refine and to test new design standards to place the greatest emphasis on elements that most positively impact guest experience,” Schwartz said.
He said the new image “contemplates upgrading our restaurants to our most recent Garden Grill design.” The model has demonstrated strong benefits in guest satisfaction and dine-in comparable sales, Schwartz added. At the end of 2017, Burger King had 7,226 restaurants in the U.S. There are 17,239 total.
Given the importance of the drive thru at Burger King (the brand was No. 1 in speed of service in this year's QSR Drive-Thru Study at 193.31 seconds), Schwartz said the new designs are also going to include exterior, guest-facing enhancements, like the construction of double drive-thru lanes, and outdoor digital menuboards.
“Double drive thrus allow for significantly improved throughput and speed of service,” Schwartz said. “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 image is also focused on building a digitally integrated experience for guests, he said. This includes the implementation of outdoor digital menuboards and in-restaurant self-order kiosks.
“We’re just getting started now, “Schwartz said. “We have a pilot of this in our Miami company restaurants. As you know, we upgraded together with the restaurant owners, a significant portion of the system over the last eight years. What we can say about this is it’s the next evolution of our image. We have a pretty significant focus on technology. We’re going to have double drive thrus. Outdoor digital menuboards. Kiosks. Internally, a more open kitchen, giving the full kitchen theater experience, and some other exciting features.”
Schwartz said he expects the Burger King of Tomorrow image to be taken on by operators as their franchise agreements come due, as well as mid-terms. No timeline was laid out just yet. This will take place as RBI continues to update Tim Hortons to the "Welcome Image" design introduced a few months back. The company has completed 100 of those, Schwartz said, and anticipates finishing "hundreds of additional renovations in the fourth quarter."
He added that, to the extent Burger King's restaurant owners want to pull forward the renovation and do so before it’s officially due, RBI would provide royalty incentives as it has historically done in the past. “As far as capital contribution, unlike the Tim Hortons system … we really only control the real estate about 10 percent of the system and on that 10 percent to the extent that those are renovated, in those cases we do make a capital contribution, as we have been doing historically,” he said.
This should allow Burger King to move quickly on the refresh.
“We always have historically contributed, and we have historically provided generous incentives to our franchisees in terms of royalty and other franchise incentives to enable us to renovate the system at quite a healthy pace,” Schwartz said.
In regards to capital requirements, Schwartz said, “it would be a little bit more” than the company is doing now due to the increased scope, but didn’t list an exact figure.
“We see demand both for renovations and for new development,” he added. “And as you know, Burger King is one of the fastest growing, and one of the brands that opens the most new restaurants in the United States. So we're seeing demand across both of those.”
Delivery dialed up
In other updates, Burger King’s delivery program, which kicked into gear this past April with tests at “hundreds of restaurants,” is now live in 2,000 North America units, Schwartz said. Delivery is available in more than 5,000 Burger Kings globally.
The brand also launched a mobile order and pay app in the U.S. this past quarter. The app is already fully integrated with roughly two-thirds of its restaurants in the country, and within a few weeks of launching, Schwartz said, Burger King experienced roughly 2 million downloads.
“We will continue to enhance the app over time based on guest feedback and we’ll also pursue integration with other technologies in an effort to offer our guests a seamless digital experience,” Schwartz said.
Trouble in the U.S.?
While Burger King’s global comps rose 1 percent in the quarter, its U.S. same-store sales fell 0.7 percent. Schwartz said the soft results reflect less compelling value offers and the lapping of the brand’s strong 2 for $6 launch last year.
“Heading into the fourth quarter, we intend to return to a more balanced approach and, in October, you've already likely seen us move in this direction with recent promotional activity,” he said. One example being the 10-piece nuggets deal for $1.
Schwartz said quick service is facing a more competitive value environment than we’ve seen historically. And in this battle, at least recently, Burger King didn’t strike the right balance between premium and value.
In regards to its other brands, Tim Hortons witnessed same-store sales gains of 0.6 percent in Q3. Popeyes saw its comps increase 0.5 percent. Burger King appreciated net restaurant growth of 6.1 percent to hit 17,239 total units, while Tim Hortons upped 2.7 percent to 4,805 and Popeyes 70.6 percent to 3,022.
RBI posted quarterly earnings of 63 cents per share, which missed the Zacks Consensus Estimate of 65 cents per share. The company earned revenues of $1.38 billion compared to the year-ago mark of $1.21 billion.
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