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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I have been in both places a few times. What I saw was mostly gross obese people stuffing food in their mouthes. Regarding the food, it isn't fit for human consumption loaded with fat and calories.
Today I'd be embarassed to be seen in either establishment. According to Mickey D's commercials only minorities eat there, and they don't appear to be the brightest of the bunch.
There used to be decent places to eat in this country, but they have disappeared. Any measure of quality just can't compete with crap, and even the crap is getting expensive.
MCDonalds and most restaurants are serving you (what the sceincetist named it) " PINK SLIME" YES it is Mfg. in Iowa, and two other states. It is meat scraps that use to be used for animal food. But it is trimmed from the tallow (beef fat) somehow they spin out the fat and sterilize it with amononia YES that is correct. The product is real dry and sold as hamburger. Our HyVee grocery, Mc D , BK and your taco joints all serve it. You know it is that crap because there is no fat drippings. From a pound of real hamburger w/ 15 to 17% fat in it is very tasty and usually pour off 1/4 cup of fat when making chili or meat balls from about a pound. Believe me I got a hold of some pink slime unfortunately, and my hamburger stuck
to the pan. I had to add olive oil or butter. Your schools serve this to your children and senior citizens meals for over 55 meal sites use it also. It is awful!!. Whats the long term effect of amononia addition to prevent e- coli poisoning on our health???
Yes BK needs to get their act together and clean the place 6 x a day! I quit going to Mc and Bk.
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