News + Events

Burger King Hits McDonald’s Where It Hurts

March 17, 2014

Published on The Motley Fool
By Nickey Friedman
March 16, 2014

We probably should have seen this coming. After all, for the last few months, Burger King Worldwide (NYSE: BKW) has taken its royal crown back amid strategic moves aimed directly at dethroning its larger rival McDonald’s (NYSE: MCD) . The latest policy change from Burger King threatens a key McDonald’s demographic as the Home of the Whopper ups the stakes.

McDonald’s getting a bad run of cards
Domestic same-store sales growth for McDonald’s has gone from bad to worse. This started right around the time Burger King began its one-on-one card game with the launch of Satisfries last September. The company boasts that the fries have “40% less fat [and] 30% fewer calories than the leading French fries.” The leading French fries being the ones McDonald’s serves, of course.

In that quarter of the launch, McDonald’s domestic same-store sales were up a modest 0.7%, which isn’t terrible considering the company’s already massive size. From there, domestic same-store sales gained only 0.2% in October, and the tumble began in November with a 0.8% decline. In the fourth quarter, results dropped by 1.4%, which puts the December drop in the 1.5% to 2% range. In January, the downward momentum continued with a 3.3% plunge.

Whopper-size bets
While McDonald’s was busy dilly-dallying with apple slices and Mighty Wings that seemingly nobody really wants, Burger King saw McDonald’s unattended Big Mac and raised it a Big King. The Big King looks and sounds like a Big Mac, with two patties, three buns, and special sauce. The company even pushes the comparison in its marketing.

Next, Burger King saw the McRib sandwich and raised it a $1 BK BBQ rib sandwich of its own, only at a fraction of the cost. This was no coincidence.

Burger King continues to place bets, eyeing a piece of McDonald’s large bankroll. The company announced a partnership to quickly move into France for the first time, one of McDonald’s most successful markets in Europe. Burger King’s goal is to take 20% of the market as soon as possible there.

Burger King’s chips continue to fly into the pot. It’s launching more exotic coffees aimed at the McCafe. It brought on a spicy chicken sandwich similar to McDonald’s spicy chicken sandwich. Then there’s the redesigning, or reimaging, of restaurants that has been going on for quite some time already. Pop into a reimaged Burger King, and you’ll probably notice it looks much like a reimaged McDonald’s. You get the idea.

Burger King moves all-in
On March 4, Burger King announced that its Satisfries will now be the standard french fries with the Kid’s Meal. Burger King says, “This reduced fat, reduced calorie menu item will provide children with a crinkle cut option that tastes so good, kids will never know they’re lower-fat.”

Chief Marketing Officer Eric Hirschhorn points out that kids are picky, but the Satisfries taste tests were a success. Parents get to reduce the fat and calories in their kids’ diets while the kids don’t have to sacrifice taste. It’s a win for everybody.

Recall that McDonald’s felt a bit of the sting surrounding the negative publicity from the documentary Super Size Me. McDonald’s has been often criticized for targeting children with unhealthy food. The child demographic has always been a decent chunk of its sales. Burger King’s latest move to focus more on improving the health of kids but doing so in stealth mode potentially makes Burger King look better while giving McDonald’s a fresh black eye.

Foolish final thoughts
There are two modes we’ve seen over the years in the burger wars: defensive and offensive. Look for McDonald’s to respond in one way or the other; lately it has been in no mode at all, it seems, leaving the company wide open to sneak attacks by Burger King. For Burger King, I suspect we have yet to see the last of its introductions. Look for more to come as well as continued same-store sales improvements, and watch for more slippage of same-store sales by McDonald’s.