A product launch key to Diageo's Burger King Corp.'s massive $2.26 billion leveraged buyout has flopped.
The chain planned to spend $80 million for its fiscal year ended in June 2003 for Back Porch Grillers, the centerpiece of Burger King's "Men in Black II" promotion and hyped as one of its biggest introductions of the year. Its success is crucial for Burger King, pressed to pump up flat sales prior to its leveraged buyout with Texas Pacific Group, Bain Capital and Goldman Sachs. While the consortium agreed to pay $2.26 billion for the No. 2 burger concern, the price is contingent on key sales metrics through October.
But just four months into its lavish media program, the smoky-flavor, one-third pound Grillers failed to draw incremental sales. Grillers are expected to be taken off the menu soon, but whether the line will be retooled or scrapped entirely is unclear. Burger King did not return calls for comment.
"I personally loved it, but it just didn't catch on," said Mahendra Nath, CEO of Nath Cos., the chain's fourth-largest franchisee with 102 stores.
Dan Fitzpatrick, chairman, president-CEO of franchisee Quality Dining, conceded the national introduction has disappointed. "As we launched out to the system, they're not working well."
During testing, the burgers drew 15% sales growth without cannibalizing sales of other Burger King products, but several executives said that in national distribution that was not the case. Mr. Fitzpatrick contended he did not know the fate of the burgers, and cautioned, "It doesn't mean it's over. We'll see."
The full gamut of agencies worked on Grillers. The advertising was handled by Amoeba, Los Angeles; Interpublic Group of Cos.' Campbell-Mithun, Minneapolis; Bcom3 Group's Bromley Communications, San Antonio; and WPP Group's Uniworld, New York. WPP Group's VML, Kansas City, handled interactive and Interpublic's DraftWorldwide did the merchandising.
The likely culprit for the Grillers failure is the inconsistent cooking system, said executives close to the company. At the time of the launch, only 700 of the chain's 8,248 domestic units had installed new grills designed to accommodate the thicker patties, so the remaining restaurants used two patties to build sandwiches. Insiders questioned the wisdom of introducing the double patty product since it had not been tested against the single-patty version. Critics contend the single patties are too dry and reinforce a negative experience for consumers.
A Burger King spokesman said Grillers are a "limited-time" product and will be coming off the menu soon. Without Grillers, the company is losing a leg of its three-tier marketing strategy. In addition to the core menu and the just launched 99 cents BK Value menu, what's now missing is a premium burger to provide a "trade up" menu option.
Now the pressure's on the value menu as the clock ticks on the buyout. When Diageo reported results for its fiscal year ended June 30, worldwide same-store sales were flat and North American same-store sales up just a half percent.
BK, meanwhile, said it's pulling a value menu ad that upset the American Association of Community Colleges. The ad, from Interpublic's Deutsch, Los Angeles, is set on a junior college campus and features a talking menu board that pokes fun at co-eds. "It doesn't seem very smart that they would offend a large section of their market," said Norma Kent, VP-communications for the association.