BKC - RIBS AT BKC… WHAT ARE THEY THINKING?

As a point of reference, MCD’s McRib was a complete failure.

If I’m wrong about this, I will eat BKC’s ribs every day for lunch for a week.  Nation’s Restaurant News reported that BKC is rolling out its new Fire-Grilled Ribs to major markets this week.  BKC management said on its most recent earnings call that the ribs would be introduced as an LTO and would help to strengthen the company’s premium offerings as an offset to the recent pressure on average check as a result of the $1 double cheeseburger.  Specifically, average check is down 5% since the introduction of the $1 double cheeseburger as value menu sales mix has moved to 20%, up from about 12%.  Although I understand the need to support average check, I do not think this high-ticket item that rivals casual-dining prices will prove successful.    

According to the article, the new bone-in ribs, which have been tested in various markets and use the chain’s new batch broilers are now in nearly all domestic Burger King units, and are priced at $7.99 as a six-piece combo meal in Dallas and $7.49 in Chicago. An eight-piece ribs meal is available in both markets for $8.99. The meals include French fries and a drink.

Many QSR chains are pursuing barbell pricing strategies, like BKC, by offering both value items priced at $1, as well as more profitable, higher-ticket sandwiches.  In 2008/09, we saw some consumers trading down to QSR from FSR, but that secular trend is over as casual-dining chains have responded by dropping prices to drive consumer traffic.  BKC’s batch broiling system may give it the ability to sell products like wings, but that does not mean the consumer is going to buy them. 

In the most recent quarter, Burger King’s same-store sales in U.S. and Canada worsened sequentially, which the company attributed to severe winter weather, a weak labor market and lower levels of guest spending due to value promotions, like the $1 double cheeseburger.  Comparable sales trends improved significantly in March and traffic turned positive, largely due to the $1 double cheeseburger promotion.  Those same consumers are not likely to come back and spend $8-$9 for ribs. 

Management commented that its average check improved sequentially through its fiscal third quarter following the February 22 nationwide launch of its premium Steakhouse XT burger line, which it said “continues to receive favorable consumer response.”  This premium burger line ranges in price of $3.99 to $4.49.  Its recent success does not leave me convinced that Burger King will also be able to sell products that are priced about $4 higher.

Only increasing my conviction that this higher ticket item will not drive traffic is Malcolm Knapp’s comment about recent casual dining trends:

“The 71.5% of households below an income of $70,000 are still not thawed yet which is why value is so critical and we are seeing pull backs in spending after an increase in purchases such as occurred in March.  The consumers are still reducing credit card debt outstanding and are trying to live on their monthly incomes.”

BKC - RIBS AT BKC… WHAT ARE THEY THINKING? - BKC ribs

 

Howard Penney

Managing Director