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Burger King Shifting into Value Mode

Burger King Worldwide barely had an opportunity to feel good about strong full-year 2012 results that validate last year’s ambitious menu makeover before announcing that it needs to adjust menu/marketing strategies to deal with a slower Q1 2013.

In today’s quarterly earnings call with analysts, Burger King executives reported a 3.2% rise in global same-store sales for 2012 and 3.5% gain for U.S./Canada stores. Systemwide sales for 2012 were $15. 84 billion. But North America President Steve Wiborg said first-quarter sales are soft, hurt not only by the payroll tax shift and weather but also by “an uptick in competitors’ value messaging” that BK failed to anticipate. “We did not promote enough value” in the first weeks of the quarter, he said. McDonald’s has been heavily focused on its Dollar Menu and other low-price options in Q1.

As a result, Burger King this week has begun to shift its marketing focus more heavily to the value side of the pricing “barbell.” The first effort is a $1.29 Whopper Jr. promotion that lowers the price still further on an already-low-end end item. Wiborg says the value segment accounts for 30% of Burger King business. More value-targeted advertising will follow. That said, the chain will continue to balance its menu mix with premium products such as the Wisconsin White Cheddar Whopper it introduced in October, the Angry Whopper and other LTOs.

Discounting Whoppers to 55¢ was a successful Q4 promotion.

In answer to the lone question on a hot topic, Burger King CEO Bernardo Hees said the chain’s Q1 sales in the UK remain strong and unaffected by the ongoing scandal over traces of horsemeat found in some of its suppliers’ supermarket product. There has been no indication that any of it was served to BK customers.

Menu and Marketing Communications are two of the “Four Pillars” by which BK management says it steers the brand. The remaining pillars are Image and Operations, about which the company had some news:

Burger King “reimaged” 600 U.S./Canada units in 2012, increasing to 19% the share of its domestic locations that have been modernized. That process has averaged $300,000 per store in cost and resulted in a 10% to 15% sales uplift.

The chain is growing again. Burger King closed 2012 with 12,997 stores worldwide, a net increase of 485 (5.9%) compared with 261 stores (1.7%) in 2011. The U.S./Canada, however, saw a net decrease of 24 stores (versus a net loss of 50 in 2011).

The company refranchised 871 stores, making it at 97% franchised. It hopes to be essentially 100% franchised by the end of this year. The exceptions will be 53 stores around its Miami headquarters and three in Singapore that will continue to be company-owned.

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