QSR

How a Slimmer Menu Could Fatten Burger King's Bottom Line

Burger King ceded the No. 2 market share position to Wendy's (NASDAQ: WEN) in the domestic burger category early last year, and it's struggled to regain much footing since. Executives from Burger King and its parent company Restaurant Brands International (NYSE: QSR) have recently provided a glimpse at their playbook to try and jockey back to the runner-up spot, including streamlining its menu and removing lower-selling items.

That 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 industrywide objective as labor shortages linger.

Streamlined menu, smoother service

The U.S. business began simplifying its menu late last year, removing low-selling items to create more efficiencies in restaurants. Though that "first wave" of simplification didn't immediately improve sales, executives have expressed confidence that the effort will ultimately keep guests coming back more often.

If those guests do keep coming back more often, as predicted, it will likely create more sales for franchisees, which will allow them to stay open later, as executives have witnessed from the effort so far.

To coincide with this simplification, Burger King's menu boards are also less cluttered, which creates a better guest, and staff, experience overall and avoids overwhelming customers with too many choices. Burger King is also looking to expand on its signature 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 get customers excited about visiting, without complicating employees' jobs or straying too far from what those customers know and love about the brand.

Sticking to value

Despite these menu shifts, Burger King is still leaning heavily into its value proposition, recently creating a $5 Have It Your Way value menu to drive incremental traffic. Value menus are critical for the quick-service category, which tends to draw more than 30% of its consumers from lower income brackets. Inflation's really hurting these customers, and as the cost of food at home rises, they're more likely to turn to relatively cheaper value offerings 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 instance, and added the Big King and quarter-pound King to a new two-for-five offer. The company said these slight modifications have increased profitability for franchisees in recent months.

Finally, menu simplification should enable Burger King to better manage food cost inflation, perhaps the biggest challenge operators are currently facing. Inflation cut into profits for Burger King's U.S. franchisees in 2021, though executives noted that the company started making progress against those headwinds toward the end of the year – not coincidentally, when it started simplifying its menu.

Leaner times call for slender menus

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

With meat costs up nearly 15% year over year, and chicken up over 16%, most restaurant chains have raised prices to protect their profit margins. The Consumer Price Index in May showed that limited-service restaurants have raised prices by 7.3% in the past year, for instance. However, menu prices have risen for the better part of the past year, and consumers are starting to hit their limits, as restaurant traffic begins to slow and gas prices surpass $5 a gallon.

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

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Fool contributor Alicia Kelso holds no financial position in any 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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