How a leaner menu could fatten Burger King’s bottom line


BUrger King ceded the #2 market share position to Wendy’s (NASDAQ:WEN) in the domestic burger category early last year, and it has struggled to regain its footing ever since. frames of Burger King and its parent company International restaurant brands (NYSE: QSR) recently provided a preview of their playbook to try and get back into second place, including streamlining its menu and removing worst-selling items.

This strategy can speed up service and improve order accuracy, which should make customers happier. It could also make it easier for employees to fulfill orders, essentially making their jobs less complex — an industry-wide goal as labor shortages persist.

Simplified menu, smoother service

The American company began simplifying its menu late last year, removing low-selling items to create more efficiency in restaurants. While this “first wave” of simplification didn’t immediately improve sales, executives expressed confidence that this effort will ultimately keep customers coming back more often.

If those customers come back more often, as expected, it will likely create more sales for franchisees, allowing them to stay open later, as executives have witnessed so far.

To coincide with this simplification, Burger King’s menu boards are also less cluttered, creating an overall better experience for customers and staff and avoiding overwhelming customers with too many choices. Burger King is also looking to expand its flagship products, including adding new variations of the Whopper that have performed well in the company’s international markets. This could be an effective way to entice customers to visit, without making it harder for employees or straying too far from what those customers know and love about the brand.

Stick to the value

Despite these menu changes, Burger King still leans heavily on its value proposition, recently creating a $5 menu your way to drive additional traffic. Value menus are essential for the quick-service category, which tends to attract more than 30% of its consumers in the lowest income brackets. Inflation is really hurting these customers, and as the cost of food at home rises, they’re more likely to turn to relatively cheaper value deals at restaurants.

Notably, Burger King wouldn’t make such menu adjustments if they didn’t boost profits. Burger King added the Double Whopper Jr. to its value options, for example, and added the Big King and Quarter Pounder King to a new two-for-five deal. The company said these slight changes have increased profitability for franchisees in recent months.

Finally, menu simplification should allow Burger King to better manage food price inflation, perhaps the biggest challenge operators face today. Inflation slashed profits for Burger King’s U.S. franchisees in 2021, though executives noted the company began to make progress against those headwinds towards the end of the year — not coincidentally, when it started to simplify its menu.

Leaner times call for lean menus

Burger King could use that kind of momentum. According to data from Technomic, Burger King operates 1,200 more units than Wendy’s, but generated just over $10 billion in sales in 2021, compared to Wendy’s about $11.1 billion. (McDonald’s (NYSE:MCD) seems untouchable at this point, with nearly $46 billion in sales in 2021.)

With meat prices up nearly 15% year over year and chicken up more than 16%, most restaurant chains have raised prices to protect their profit margins. May’s Consumer Price Index showed that limited-service restaurants raised prices 7.3% over the past year, for example. However, menu prices have been rising for most of the past year and consumers are starting to hit their limits as restaurant traffic begins to slow and gas prices rise above $5 a gallon.

Burger King’s tactic of shrinking the menu in favor of higher-volume signature and value items may be the next best tactic, and it could be the tailwind the company needs right now. That said, executives noted that the chain was still adjusting its menu, with a long way to go to regain market share from its peers. It may take some time before fast food stock investors see the progress in Burger King’s quest to reclaim his second-place throne.

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Dumb contributor Alicia Kelso holds no financial position in any of the companies mentioned. The Motley Fool recommends Restaurant Brands International Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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