Dollar Concept Hits Burger King

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Dollar Concept Hits Burger King

Burger King Corp. is proposing a limited "value menu" featuring $1 items to stimulate traffic and better compete with its fast-food rivals, the Associated Press reported.

Its domestic franchisees were expected to vote by today on whether to endorse the strategy. Interviews with several indicated approval is likely, according to the report.

"How can we not have $1 items when you look at our two primary competitors?" questioned one Midwest franchisee, who said in the AP report he intends to vote in favor of the menu's national rollout, scheduled for February.

McDonald's Corp. now advertises a "Dollar Menu," while Wendy's International Inc. offers a "Value Choices" lineup of items priced between 99 cents and $1.29.

Burger King's $1 fare would include a Whopper Jr. hamburger, a four-piece serving of Chicken Tenders, a side salad, small French fries or onion rings, a small soft drink and an apple pie. Individual franchisees would have other optional items they could sell at that price -- among them a "Rodeo cheeseburger," AP reported.

Burger King spokeswoman Edna Johnson told Dow Jones Newswires she wouldn't deny the rollout plans, but declined to elaborate. However, she told AP, "we're confident that our direction in this area reflects a highly collaborative approach with our franchisees that will maximize profit and traffic."

Adding a "value menu" to its 7,500 U.S. restaurants would allow Burger King to advertise it nationally. The menu has undergone extensive testing over the past 18 months, including in the Los Angeles and Minneapolis markets. Franchisees said in the report that the $1 offerings helped boost customer traffic in those cities.

Test result documents viewed by Dow Jones said the Whopper Jr. "proved to be a strong value proposition" and that, on average, customers bought three "value menu" items per visit. Charging $1 rather than 99 cents for items could increase the average restaurant's annual profits by $1,500, one document noted, according to AP.

Burger King's timing seems propitious. Not only would such a menu appeal to those squeezed by higher heating and gasoline bills, but it also could boost restaurant traffic and profit during a sometimes slower sales season. Once inside the restaurants, customers are considered likely to "trade up" and purchase more expensive food.

The last time Burger King tried a "value menu" two years ago, it stumbled. While traffic increased, many customers bought only the cheapest items. Also, Burger King lacked several of the premium-priced fare it now features.

"We just took stuff we had and lowered the price to $1 rather than build items with different gross profit margins," said San Antonio multi-store franchisee Robes St. Juste.

In fact, he and other franchisees in Texas have been promoting the $1 lineup for several weeks. "It's worked for me," St. Juste told AP.

According to a report by Nation’s Restaurant News , fast feeders are finding that customers still crave good deals promised by value meals, even after successfully raising prices over recent years with premium products like salads and oversized sandwiches.

Wendy's, which scrapped its longstanding 99-cent Super Value Menu in May for a new program that offered expanded options and price points, could be rethinking its strategy, according to one Wall Street analyst.

The months-old Value Choices Menu has suffered from "poor consumer response and reduced usage," restaurant analyst Peter Oakes of Piper Jaffray noted in a report. He said that "part of the brand's recent poor same-store sales showing appears due in part to the confusion associated with the Value Choices effort," and he expects "management to retool their value offering with fewer items and a singular 99-cent price point."

The Value Choices Menu features 14 items for 99 cents each. These include chicken nuggets, a Jr. Cheeseburger Deluxe, fries, soft drinks, a small Frosty, a sour cream and chives baked potato, a small chili, a side salad, a Caesar side salad and mandarin oranges. The menu also offers a $1.19 Junior Smoky, a $1.29 Jr. Bacon Cheeseburger, a low-fat strawberry flavor yogurt for $1.29, and a $1.29 Fix n' Mix Frosty.

A spokesman for the Dublin, Ohio-based burger chain said Wendy's continues "to evolve and enhance our entire menu," with additional changes slated for 2006. But he added: "We're not in a position to discuss our plans now for competitive reasons."

Joe Cunnane, president and chief operating officer of Crofton, Md.-based DavCo Restaurants, Wendy's largest franchise group with 156 units, described 99 cents as "a magical price point," especially for core items like chicken nuggets and the Jr. Bacon Cheeseburger. "If we can increase our transaction base, we will offset any margin decline," Cunnane said.

Wendy's franchisee Mike Givens, who operates 22 stores in the Minneapolis area, agreed that Wendy's needs "to have a compelling value strategy. The bottom line is that we lost some transactions, and we are figuring out how to bring them back. The customers are speaking loud and clear that they always want a compelling value."

Meanwhile, KFC is advertising three value-oriented dinners for $4 eachi in such markets as Southern California and Chicago. The dinners come with mashed potatoes and gravy, cole slaw and a biscuit, along with the choice of a chicken breast, leg and thigh, or three crispy chicken strips.

Also in Southern California, Subway is advertising for a limited time a daily special after 4 p.m. called "Dinner For Two. Two-Night!" The $7.99 deal includes two regular 6-inch subs, two bags of chips and two drinks. Also, in the same market, the chain is promoting all day on Sundays two foot-long subs for $7.99.

Despite the renewed interest in value, restaurant consultant Stuart Morris, president of Coronado, Calif.-based QSR Consulting Group, warned that too much reliance on 99-cent advertising by quick-service chains could revive a discount war. That would ultimately hurt the industry as it did in late 2002 when McDonald's and Burger King promoted signature sandwiches for under $1, he said.

Instead, Morris, who had worked for Jack in the Box until June, said he would like to see chains follow in the footsteps of Taco Bell, which often is credited with popularizing the value menu concept in the late 1980s and has once again changed the pricing landscape.

More than a year ago, Taco Bell broke the $1 barrier by launching nationwide a seven-item value menu with offerings priced as high as $1.29. Dubbed the Big Bell Value Menu, it features dishes ranging from a half-pound bean burrito for 99 cents to a half-pound beef and potato burrito for $1.29.

Morris predicted that, with efforts like those at Taco Bell, "it is likely that McDonald's, Burger King and most other QSR chains will broaden their value menus beyond a specific 99-cent or $1 price point."

Segment leader McDonald's, the nation's largest burger chain with more than 13,000 U.S. units, launched a national "Dollar Menu" in the fall of 2002. Offerings include fries, soft drinks, a side salad, two apple pies, the McChicken and a Double Cheeseburger. The menu has been controversial with some franchisees, who insist its food costs are too high to sell at a discounted price. McDonald's locations in downtown Chicago, for example, do not always sell the Double Cheeseburger for 99 cents. A chain spokesman explained that there are some limited menu variations in a few markets around the country.