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    Burger King Stakes its Claim in Fast Food's Value Wars

  • Industry News February 12, 2018
    flickr: Mike Mozart
    Burger King is reporting impressive sales in the U.S.

    In fast food’s accelerating value wars, Burger King remains an industry frontrunner. The chain reported impressive comparable same-store sales growth of 4.6 percent in the fourth quarter. Restaurant Brands International CEO Daniel Schwartz credited much of the success to Burger King’s performance in the competitive arena.

    “We believe that maintaining this balanced menu offering to provide our guests with products they love at great prices will continue to drive further sales growth over the long run,” Schwartz said in a conference call Monday morning.

    READ MORE: Why Burger King could be fast food's sleeping giant.

    Schwartz added that Burger King’s Bacon King and Crispy Chicken Sandwich performed “particularly well” in 2017 and the chain rolled out several successful value promotions during the quarter that lifted the brand’s results.

    Burger King’s stellar performance carried RBI to a Wall Street-busting quarter. The Canada-based company, which also operates Tim Hortons and Popeyes Louisiana Kitchen, saw its total revenue climb 11 percent to $1.23 billion, year-over-year. Excluding one-time items, RBI earned 66 cents per share, beating analysts’ average estimate of 57 cents, according to Thomson Reuters. RBI’s fourth-quarter net income came in at $215.2 million.

    Burger King’s financials popped across the board. Systemwide sales growth was 12.3 percent in the three months ended December 31. A year ago, it was 8.5 percent. Comps, again, were 4.6 percent. They were 2.8 percent in the prior-year period. And Burger King is growing as well, reporting 6.5 percent net restaurant growth compared to 4.9 percent in the year-ago period. There were 7,226 Burger Kings in the U.S. as of December 31 after the company added a net of 70 new restaurants. And speaking of the U.S., Burger King’s comparable sales stateside were up 5.1 percent in the fourth quarter compared to just 1.8 percent in 2016.

    Josh Kobza, RBI’s chief financial officer for the past five years, who recently transitioned into a new role as chief technology and development officer, broke down Burger King’s growth potential in the call.

    “Our accelerated development was a product of achieving incremental unit growth in many countries around the world,” he said. “But it was primarily led by some of our higher growth markets, including China, Russia, France, and Brazil.”

    Burger King ended 2017 with more than 875 restaurants in China, up from about 650 at the end of 2016. The company opened its 500th restaurant in Russia this past year and closed 2017 with more than 520 units—growth of about 100 restaurants. France grew its footprint over 200 locations. Brazil ended 2017 with nearly 700 locations compared to about 600 the prior year.

    “The pace at which partners like these are opening around the world highlights the strength and scale potential of our master franchise development model,” he said. “To further accelerate that growth all around the world we set up a number of new partnerships for Burger King in 2017.” This includes Africa, Japan, Taiwan, the United Kingdom, and the Netherlands.

    “We believe that accelerated growth in the U.S. is a testament to the meaningfully improved franchisee economics resulting from years of increased average revenues per store,” Kozba added. “We hope to further accelerate our U.S. development heading into 2018 and beyond.”

    For fiscal 2017, Burger King saw its comps rise 3.1 percent.

    RBI’s other brands didn’t report quite as bullish results. Tim Hortons posted comparable same-store sales growth of 0.1 percent and Popeyes slid to a 1.3 percent decline, although improvements are showing for the company’s most recent acquisition.

    Tim Hortons' comps fell 0.1 percent in fiscal 2017. Schwartz said RBI made progress, especially in regards to technology, with the concept. Tim Hortons launched its mobile app in 2017 as well as an espresso-based beverage platform in Canada and the U.S. The chain also opened its first restaurants in Asia, Europe, and Latin America.

    Schwartz said some of the chain’s success with breakfast, both with sandwiches (steak and simply sausage offers were hits) and new coffee products, was offset by soft lunch results.

    “We’re happy with the amount of feedback from guests who did sample these products, many of whom now enjoy our espresso-based beverages on a daily basis,” he said. “However, there are many guests who have yet to try these products and we believe this represents a big opportunity for our business in the long run.”

    As for Popeyes, like in recent quarters, Schwartz said the integration was a work in progress. Popeyes reported 1.5 percent comparable same-store sales declines for the year. Systemwide sales were up 5.1 percent driven by net restaurant growth of 6.1 percent, offset by the comp drops. The chain struggled in the U.S. as well, posting negative 2.2 percent comps.

    RBI purchased Popeyes for $1.8 billion last winter. “In the U.S., heightened competitive activity, with a particular focus on value discounting, continued into the fourth quarter. Although we still have work to do, U.S. comparable sales have improved sequentially in the fourth quarter and we have been testing a number of marketing initiatives in recent months we believe will help us build momentum for improved results this year.”

    There were 2,212 Popeyes in the U.S. as of December 21.