7/3/2012 6:02 PM ET|
Why Burger King is no Big Mac
The Home of the Whopper is clearly taking a page from the playbook of the bigger McDonald's. But copying a menu doesn't necessarily mean duplicating success.
Burger King just launched what may be the most disgusting dessert concept I've ever heard of: bacon sundaes.
But I'll write off this yucky-sounding sundae as a publicity stunt timed to coincide with the public offering of Burger King Worldwide (BKW), which re-entered the stock market two weeks ago.
As you consider whether to buy the fast-food shares -- fresh off the private-equity griddle -- don't let the gimmicks fool you.
Burger King's menu offerings are now pretty much a carbon copy of those at McDonald's (MCD). That's no accident. The undisputed king of fast food, McDonald's has launched several "healthier" premium offerings in recent years -- from Snack Wraps and the Angus beef burger to McCafé real fruit smoothies and specialty coffees.
All of this stuff has been a big hit, which is exactly why Burger King is in copycat mode. Its new menu is part of a campaign by the private equity shop 3G Capital which has been in charge for two years, to revitalize Burger King -- a key player in the burger wars since it was launched in 1954, in Miami.
Does this relaunch signal the start of a new round of burger wars that will threaten McDonald's, making Burger King stock a buy? Or will the Home of the Whopper turn out to be a flopper once again?
Of course, to be a good investment, Burger King wouldn't have to beat McDonald's. With a stock price at around $15, it would just need to show the potential for the same sort of growth that McDonald's - which has a stock price close to $90 -- has delivered for years.
But I don't think this is on the menu for Burger King, because the two businesses are in very different situations. "I think there's going to be tough sledding ahead," agrees veteran retail sector expert and financier Howard Davidowitz of Davidowitz & Associates, a retail consulting and investment banking firm.
Let's round up the chief challenges facing the "new" Burger King as it comes public yet again.
Burger King's McMenu
I suppose a company can make a successful business model out of imitating the leader in its space. But in fast food, it's no slam-dunk. There's a lot more to creating a successful fast-food menu than merely lifting the most popular ideas from your competitor.
After all, fast food is more complicated than you might think. Behind the scenes, there are a hundred things that have to happen to get that chicken wrap or smoothie to you with the consistently right taste, at the right price. To do so successfully takes years of planning and research.
McDonald's does that at its huge Innovation Center in Romeoville, Ill., where it painstakingly develops its offerings. Morningstar analyst R.J. Hottovy recently visited the center and came away citing it as key reason he thinks McDonald's will hold off competitors like Burger King well into the future.
"We're convinced McDonald's can put more distance between itself and its quick-service restaurant rivals in the years to come," says Hottovy.
A big part of the reason, I think, is that when it develops new menu items, McDonald's solicits feedback from everyone -- suppliers, equipment-makers, employees and more -- before giving one the green light. And for good reason. It's complicated to roll out new menu items that succeed, says Davidowitz.
I'm sure Burger King has test kitchens. But I see nothing in filings that hints at anything as elaborate as the McDonald's Innovation Center. And we haven't seen evidence of it in any regular stream of original menu items -- bacon sundae excluded.
This could be a problem for Burger King.
A company like McDonald's that develops products internally -- with feedback from all the key players involved -- is probably going to consistently do it better. "The bottom line is if the price is not lower than McDonald's, and the taste and service are not better, this whole plan could collapse. And I think probably will," predicts Davidowitz. "They are trying to catch up. But they could face problems in quality and taste."
Another problem is that the pricier and healthier items don't exactly fit in with the Burger King image typified by the Whopper, nor with the basic, no-frills -- and often worn -- look of a lot of restaurants. "It's incongruous," says Davidowitz.
Burger King declined to comment. But in filings it says it plans to upgrade 40% of its U.S. restaurants over the next three years.
This is going to be a challenge, though, because of the next big problem facing Burger King.
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Soembody needs to tell Burger King Worldwide about demographics ... The corporate executives need to do two things:
1) Clean the damned stores
2) Try to market the product to a more upscale clientele.
I know this is not gourmet food but I gotta tell you ... if you do a survey, the cleaner stores are probably the most profitable and productive stores. And can somebody tell me ... why I am telling BKW this and doing their job? Maybe BKW needs to start reducing the fat in the CORPORATE OFFICE.
Every Burger King I ever been in ... All to a Store ... WERE FILTHY ... the last one I went into, it was a Saturday around noon this time of year ... I was returning from my annual physical where I received news my blood cholesterol levels were all looking great ... so I figured what the hell. This store looked cleaner than any in my prior experience. Anyway, I ordered a BIG WHOPPER with cheese, the usual large COKE and FRIES. I sat down to eat my BURGER ... after a few bites I thought ... WOW this must be the best BURGER KING WHOPPER I ever had in my life ... I was about half way through the burger when I felt something on my tongue ... turned out to be a 12" red hair from one of the cooks. I took my tray with the burger to the manager. He apologized and offered to replace the burger ... NO THANKs ... NEVER HAVE RETURNED and NEVER WILL. Burger King Fries still suck ... but the COKE is generally acceptable.
There is no right or wrong here: to each his/her own, but I still prefer the flavor of the Burger King flame broiled burgers to the fried burgers at Mickey D's. I also like that Burger King has onion rings, and dip sauces. Last time I asked for a packet of mayo at McD's, they charged me an extra 30c. Also feel that the lettuce at Burger King is fresh, where it seems like the lettuce at McD's seems to be the prepackaged stuff, which I am not fond of.
That being said, I DO love the 'secret sauce' on the Big Mac. ("Burgerville" sauce is better, but More's the Pity for the rest of the country, it's only available in the Pacific NorthWest.)
I think we all understand that 'fast food' is high is fat, salt, and sugars, and not the best choice for every day eating.
But once in a while....that Whopper Jr w/ Cheeze is pretty danged yummy!!
Burger King had cini mini's and Big Kid Meals before Mc Donalds had mighty Kid meals and cinnamon melts. All fast food steal ideas from each other it's just the way it is.
McDonald's is the winner every time because they're a PR powerhouse, NOT because their food is generally better. (Give me a Whopper any day over a mushy, bready Big Mac.) The only thing worth eating on a McDonald's menu are the fries--easily the best of the bunch. Other than that, everything else at McDonald's just tastes like salt, salt, salt.
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