Burger King Aims to Perk Up Breakfast With Starbucks Deal

The battle for your morning cup of joe just got a lot more interesting: Burger King (BKC) and Starbucks (SBUX), which counts Seattle's Best Coffee among its brands, are joining forces, in a manner of speaking.In a keen move that I predicted a few weeks ago, Starbucks is planting a Trojan horse behind the fast-food perimeter, offering its Seattle's Best Coffee brand in Burger King restaurants nationwide. The phased roll-out will begin this summer and will extend to all 9,000 Burger King outlets.

When I wrote about the future for Seattle's Best Coffee last month, I called the idea of SBC in Burger King or KFC "a bit far-fetched" and, to be clear, I thought it would be a far distant culmination. While SBC has been served at Subway restaurants throughout the country for about a year, Howard Schultz, CEO of Starbucks, says it's so the sandwich chain can better capture a portion of the morning food dollar. I'd thought it would be a stretch for Burger King, already secure with its variety of monstrous breakfast offerings (who can forget the Meat'normous Omelet Sandwich?).

But, as it turns out, for the past few years, Burger King's breakfast business has not been meat'normous, nor has it been java'normous, nor profit'normous, and the heart-attack-on-a-hoagie-roll is long gone from U.S. menus. Burger King's same-store sales declined 2% in the second quarter of fiscal 2010, according to results released earlier this month. It was the third consecutive quarterly decline, and behind the scenes, executives were apparently pointing fingers toward the breakfast business.

Bye-Bye, BK Joe; Hello, Mellow SBC

In the analyst call for the company's second-quarter earnings, splashes of near-desperation rippled through the comments. "In the U.S., traffic was positive and increased quarter-over-quarter and all day parts except breakfast, which continues to be negatively impacted by record high unemployment and underemployment," CFO Ben Wells remarked dryly. A new product, "funnel cake sticks," was "uniquely positioned to drive both profitable dessert and breakfast sales." An analyst's question about breakfast had to be asked twice to get an answer, and it was a typical corporate non-answer. "Yeah, we ... we obviously have a lot of activity happening in our pipeline against breakfast. We do have upcoming in April, some breakfast value news that we will be advertising in the market," said Mike Kappitt, Burger King's senior vice president of global business intelligence and strategy.

As everyone waits on the edge of their seats for that breakfast value news -- will it be additions to the value menu, a la McDonald's announcement of December 2009? -- it is clear that Burger King and Starbucks executives have been huddling in conference rooms and greasy kitchens, plotting this mass-appeal move. SBC has, let us remember, the taste that fast-food customers prefer. Schultz described it a "mellow flavor profile" that is much preferred to Starbucks' regular brews by most of the coffee-drinking public.

Evidently, SBC is also preferred to Burger King's five-year-old brand, BK Joe, which will be retired as the brand licensed from Starbucks is rolled out this summer. "We'll be delivering a better cup of coffee," John Schaufelberger, senior vice president of Burger King's global product marketing and innovation, told the Associated Press. He added that jazzing up BKC's breakfast biz is among the chain's "top strategic priorities."

For both Starbucks and Burger King, this looks like an ancient strategy of war: As Sun Tzu taught us, "My enemy's enemy is my friend." McDonald's is the enemy here, and Burger King and Starbucks are fast becoming the best of friends.
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