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The burger wars rage on. It seems that with each passing week, one of the country’s biggest fast-food operators comes up with a new product or initiative designed to steal traffic and sales from a competitor. The latest attempt is a big move by Restaurant Brands International (NYSE: QSR), parent company of Burger King.
Burger King has announced that it will begin selling hot dogs.
This is a notable move away from the traditional burger-and-fries offerings that dominate most fast-food restaurants. It’s perhaps the biggest menu shake-up at Burger King since the 1970s.
While the company deserves credit for thinking outside the burger bun, other fast-food chains have tried – and failed – to sell hot dogs. It is clearly an attempt to take some of McDonald’s (NYSE: MCD) recent momentum away, but whether hot dogs will be enough to woo consumers is a different story.
BK Rattles the Cage
Restaurant Brands International is the result of the major merger that took place between Canadian coffee and doughnut chain Tim Hortons and Burger King in 2014. The company released earnings Tuesday, and the results were impressive.
The company reported strong comparable-restaurant growth across both Tim Hortons and Burger King. Comparable-restaurant sales is a key metric for restaurants because it focuses on sales at locations open at least one year. Tim Hortons and Burger King grew comps by 6.3% and 3.9%, respectively, last quarter.
For both segments, growth was due to strong customer traffic as a result of new menu initiatives. Tim Hortons benefited from new products such as Nutella pockets and grilled wraps, while Burger King was boosted by new flavors of its chicken fries, which have a cult-like following. In addition, Burger King unveiled a new “2-for-$5” offer and a pitch-black burger that was launched for Halloween.
The results at both Tim Hortons and Burger King beat analyst projections. Analysts had estimated comparable sales growth of 3.9% for Tim Hortons and 3.8% for Burger King. Overall, Restaurant Brands posted earnings of $0.35 per share, as adjusted to exclude non-recurring items, which beat the average analyst estimate of $0.29 per share.
An Interesting Idea, But Success Isn’t a Given
Given the success Restaurant Brands saw last quarter at each of its core businesses – which was directly the result of new product offerings – it’s no surprise to see BK again trying something new. And there are direct strategic benefits to the Burger King hot dogs announcement.
Americans eat an estimated 20 billion hot dogs per year, according to the National Hot Dog and Sausage Council. And Burger King is partnering with Kraft Heinz Co. (NYSE: KHC) subsidiary Oscar Mayer to make the hot dogs. 3G Capital controls both Kraft and Restaurant Brands, so the synergies are there.
In addition, it’s clear that there is a robust hot dog market. What isn’t clear is whether Burger King will succeed. The company promises to offer the “Whopper of hot dogs,” but that is far from guaranteed.
It seems that Burger King has noticed the uptick in sales at McDonald’s, due to its decision to offer all-day breakfast. While management creativity is always a good thing, hot dogs aren’t likely to give BK the boost it needs. The hot dog landscape is dominated by smaller chains with their own devoted fan bases. Burger King built its reputation – and name – on burgers like its flagship Whopper.
As a result, while investors should undoubtedly be pleased by Restaurant Brands’ successful quarter and its new menu offerings like chicken fries, investors should be at least somewhat skeptical that hot dogs are the company’s next major catalyst.
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