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Burger King Posts Sales Growth, Cites New Menu, Marketing

No. 3 Burger Chain Appears to Be on Rebound

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After a lengthy slump in sales, Burger King appears to be on the rebound, posting its second consecutive quarter of positive sales growth.

The chain in the second quarter posted systemwide same-store sales of 4.4% globally, including a 4.4% spike in the chain's U.S. and Canada business.

Sofia Vergara for Burger King
Sofia Vergara for Burger King
Burger King has been struggling in recent years, in part because of the economy but also because the chain had been lagging in menu innovations. But after an active quarter of what it calls its biggest menu expansion ever, and a highly publicized -- and in some cases, criticized -- celebrity campaign promoting the new menu, the chain is turning its misfortunes around.

The chain, which last year fell to the No. 3 burger chain by 2011 sales in the U.S., in April rolled out a menu expansion that was reminiscent of menu innovations McDonald's previously introduced: smoothies, frappes, salads and wraps. BK in total introduced 13 new items, and in June introduced sweet potato fries and a maple bacon sundae as part of its summer barbeque menu; Wendy's also introduced sweet potato fries this year.

Burger King in April introduced the new menu items with a new tagline, "Exciting things are happening at Burger King," enlisting celebrities such as Jay Leno, David Bekham, Mary J. Blige and Steven Tyler in ads to make a splash. At the time of the menu rollout, Burger King was aware that the new items were already available at competing chains, which is partly why it brought in celebrities for the marketing. "The platforms themselves have been out for quite a while," SVP-North America Marketing Alex Macedo told Ad Age in April. "The big challenge is how do you really grab people's attention? And most of all, how do you get them to taste the product?...We chose celebrities to get people's attention faster and to show the diversity that we have with our brand."

However BK went about marketing its new menu items, something worked. The chain in an earnings call this morning pointed to both marketing and the new menu as significant contributors to the chain's sales growth, particularly in its U.S. and Canada division. Steve Wiborg, president of Burger King North America, said that he was pleased with the chain's second-quarter performance and the marketing and new menu, which broadened its consumer profile, especially with women, children and seniors.

And that broadened consumer profile is exactly what BK was hoping for. It had long focused on men, particularly the core fast-food demographic of 18- to 34-year-olds. But that strategy hit the chain hard, especially throughout the recession, as many young men found themselves struggling financially, ultimately cutting back on spending. Burger King last year, when it hired Dentsu's McGarryBowen as its agency, sought to broaden its appeal amongst consumers, hoping to grab demographics that McDonald's had been able to attract.

The chain has since adopted a roster of agencies, including Mother , which created the celebrity campaign, and David, an Ogilvy offshoot, which produced the barbeque campaign, running this quarter. It also enlisted Los Angeles-based Pitch, which has been creating work for Burger King's kids items, as a general-market agency.

Mr. Wiborg also said that the chain felt that the celebrity-laden campaign was the "right approach" for the new menu marketing, and that the April launch of those new items was "integral to our results," adding that the chain's new broad marketing approach will continue to grow sales. The chain also said today that in the first quarter it had intentionally spent less on marketing in anticipation of its celebrity campaign in the second quarter, and indicated that spending in the latter half of the year would increase over the first half.

The Whopper
The Whopper

But the celebrity campaign didn't happen without its own set of problems. The Mary J. Blige ad, which promoted a crispy chicken product, was highly criticized for stereotyping African-Americans and was quickly pulled off YouTube. Burger King pulled the ad quickly, saying that it was taken down because of a music-licensing issue. Ms. Blige said that the ad that was released was not what she was expecting, and that she was told the ad would appear more like a dream sequence.

Burger King initially said it would re-edit the ad, but it never resurfaced. Months after the controversy, Ms. Blige spoke out about the ad, saying it "crushed me."

BK was taken private in 2010 by investment firm 3G Capital, and went public in June under the name Burger King Worldwide after merging with acquisition company Justice Holdings, owned by billionaire William Ackman. 3G Capital received $1.4 billion in cash for the deal, and remains the largest shareholder with a 71% stake.

During the earnings call this morning, Burger King CEO Bernardo Hees said that the U.S. and Canada segment is using a "four-pillar" plan to grow the business. The plan includes a focus on the menu, marketing communications, image and operations. But he said to improve the company's business, "there is no silver bullet," adding that it's "not just about marketing or a new product" because the chain needs all four pillars to work together to sustain long-term growth.

Burger King is working on remodeling many of its U.S. and Canada stores, and as of June 30, the company had 30% of locations either remodeled or committed to remodeling. Burger King is also focusing on selling off almost all of its company-owned locations to franchisees by the end of the year.

Outside the U.S., Mr. Hees said that the chain is focusing on appealing to the emerging middle class in countries like Brazil, China and Russia. Internationally, BK's Latin America and the Caribbean business posted comparable sales growth of 10.5%, driven by strong performance in Brazil and Mexico; its Europe, Middle East and Africa segment had comparable sales growth of 3.3%; its Asia-Pacific business had comparable sales growth of 2.1%.

Burger King's growth this quarter passed that of McDonald's, which posted a 3.6% gain in U.S. same-store sales. McDonald's, though, has had more than eight consecutive years of positive growth. McDonald's President-Chief Operating Officer Don Thompson said in an earnings call last week that while the U.S. continues to increase sales and guest counts, it is "happening at a slower pace amid an unpredictable economic environment and increased competition."

Wendy's , meanwhile, stands to lose from Burger King's gain. Wendy's this year has been focusing its marketing efforts on positioning itself as a higher-end chain restaurant, akin to a fast-casual chain. Wendy's in its first-quarter earnings call in May said that it pulled the plug on promoting its mid-tier W burger, which was meant to get dollar-menu customers to trade up. Instead, the chain found that the opposite was happening as customers who typically bought Wendy's more expensive burgers were trading down.

Wendy's in its first quarter posted its fourth consecutive quarter of positive growth, but North American sales were up less than 1%. Wendy's has not reported its second-quarter earnings yet.

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