Could Burger King's Big King Be a Big Mac Killer?
Burger King Worldwide continues to fire shots at McDonald's , most recently by beefing up its new Big King burger. Burger King is increasing the size of the beef patties on the Big King to 4 ounces uncooked compared to the Big Mac's 3.2 ounces uncooked. Burger King is rolling out its new national advertising campaign touting its new Big King with bigger beef patties. Could Burger King's Big King become the new king of burgers?
A direct shot at McDonald's
Burger King and McDonald's have been going toe to toe for as long as I can remember. Things were at their worst in the early 1980's when Wendy's weighed in with its famous "Where's the Beef?" commercials. Things quieted down in the burger wars as the chains declared an uneasy truce and refrained from personal attacks.
Now the burger wars are heating up again with Burger King coming out swinging. Over the past year, Burger King has rolled out several new products that copy McDonald's products. For instance, Burger King has launched a Rib Sandwich to go up against McDonald's McRib. Burger King also rolled out a new line of French fries called Satisfries that the company advertises as having 40% less fat and 30% fewer calories than McDonald's French fries.
Burger King looks to tackle breakfast as well
Breakfast has long be an important part of the day for McDonald's ever since it launched the Egg McMuffin nationwide in 1972. Breakfast now accounts for about 25% of McDonald's sales. Matter of fact, breakfast is so important to McDonald's that the chain has looked into serving breakfast all day at its locations, hoping to boost sales.
Burger King certainly wants a piece of McDonald's breakfast business, and I discussed the issues more in depth in "Burger King Wants to Be the New Breakfast King." Last month, Burger King launched a promotion offering a free cup of Seattle's Best Coffee with the purchase of a Burger King breakfast sandwich. Burger King now offers more than 18 different breakfast sandwiches and burritos in an attempt to capture more business during the morning rush hours. A good cup of coffee is certainly a start to getting morning commuters through the doors.
A bigger patty at the same price
Burger King had offered the Big King before on a limited-time basis without the middle bun. Now it's back on a permanent basis with the middle bun, two patties, lettuce, Thousand Island dressing, onions, pickles and American cheese. The only real difference between a Big King and Big Mac besides the size of the burger patties is that Burger King's patties are flame broiled.
The other notable aspect to Burger King's Big King is that the chain is not raising its price--the bigger patties will be provided at the same $3.69 price as before. So customers are not only getting bigger patties, but they're getting the same price as well. Alex Macedo, the president of Burger King North America, told USA Today: "At Burger King, we know that size matters. This allows us to give even more value."
How do shares look?
McDonald's has been the worst performer among the three burger chains in the past year, with shares are trading at year-ago levels. Meanwhile Wendy's has been the best performer with shares up 72% in the past year. Shares of Burger King Worldwide are just slightly behind after having risen 52% in the past year.
The weakness in McDonald's shares makes McDonald's the cheapest of the three, trading at 15 times next year's earnings. McDonald's also has the highest dividend yield at 3.4%. Burger King has the highest operating margin among the three at 44%. Wendy's trades at only 1.4 times sales and 1.8 times book value, which is the lowest among the three.
While I can appreciate Burger King looking to present a bigger challenge to McDonald's, the chain will have to do a lot more than just copy McDonald's. By offering similar menu items, I worry that Burger King will not get McDonald's customers through its doors but will end up getting Burger King customers to swap the Whopper for a Big King.
Burger King will need new innovations like Wendy's and its Pretzel Bacon Cheeseburger; what it doesn't need to do is copy McDonald's menu. Because if us Fools want McDonald's, we'll just go to McDonald's...not Burger King.
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The article Could Burger King's Big King Be a Big Mac Killer? originally appeared on Fool.com.Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and McDonald's. The Motley Fool owns shares of McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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