Shop Talk
Retailers, consumers and prices
Check Out Line: Burger King goes for a pricey $3.26 billion
Check out Burger King agreeing to be bought for $3.26 billion.
Burger King is letting itself be bought out by the relatively unknown New York-based private equity firm, 3G Capital, for $3.26 billion, or $24 per share, net of debt.
That is a Whopper (sorry, we couldn’t resist) of a premium – 46 percent – over Burger King’s stock price earlier this week, before all this buyout chatter started.
The price did indeed strike some analysts as rich, considering how poorly Burger King has done compared to “Golden Archrival” McDonald’s in recent years.
Stifel Nicolaus’ Steve West said on Wednesday $23 would be enough for shareholders and Burger King’s current private equity owners, TPG Capital, Goldman Sachs Capital Partners and Bain Capital Investors. And Deutsche Bank’s Jason West said a price as low as $19 or $20 could make sense.
Apparently 3G sees a lot of potential in Burger King. The chain — whose diners are disproportionately young and male, i.e. most vulnerable to unemployment — has fallen far behind McDonald’s. Analysts agree going private will give Burger King time and room to do what it needs to narrow the gap with McDonald’s: fix up its old restaurants and upgrade its technology.
The deal is set to close by the end of 2010, though in theory Burger King could solicit higher bids until Oct. 12
Why Carl’s Jr is happier in L.A.
Here’s another reason to love L.A.
The city’s downtown business district is home to the only Carl’s Jr restaurants that serve beer.
“We market to the young, hungry male. He’s also thirsty,” said Julie McLean, a spokeswoman for the chain, which has used controversial celebrities like Paris Hilton to push its generously-portioned, indulgent hamburgers.
Jennifer McGrath, the marketing manager whose region includes the three beer-serving L.A. restaurants, said happy hour specials have boosted business at those restaurants.
The company said the restaurants inherited their liquor licenses from previous tenants and that the chain has no plans to add beer at its other outlets.
“We don’t plan on adding alcohol sales to any locations at this time,” McGrath said.
Full-service hamburger chains like Red Robin and regional operators like Counter and Smashburger offer beer and wine, but big boys like McDonald’s, Burger King, Wendy’s, In-N-Out and Five Guys do not.
Starbucks drive thru menu getting makeover
Starbucks’ drive thru menus are getting a facelift — as the cafe chain takes a page from the fast-food industry’s playbook.
At the end of August, the menu boards at Starbucks’ 2,600-plus drive thrus in the United States and Canada will have more pictures and fewer words. Fast-food chains like McDonald’s, which has been going after the Seattle coffee company’s core business with espresso drinks, frappes and smoothies, commonly use simple, photo-based menus to tempt diners.
“People eat with their eyes,” said Clarice Turner, Starbucks’ senior vice president in charge of the menu makeover.
To make room for the additional photos and larger print, the number of items featured on the new menus will be cut from about 75 to around 25. Despite that, everything available inside the cafe will still be available in the drive thru lane, Turner said.
Starbucks has turned the spotlight on quality and its premium market position since the U.S. economy went south and McDonald’s and other chains jumped into coffee and beverage business with me-too products.
To that end, it is planning an autumn launch for Starbucks Reserve – a line of “ultra-premium”, single-orgin coffees that will be sold in its top U.S. coffee markets.
While coffee costs have been soaring, Starbucks told Reuters that price hikes currently are not on the menu. Picture that.
Starbucks testing green coffee drinks
Starbucks will begin testing summer drinks with a base of green, unroasted coffee in San Diego today as it works on new products to drive sales and put more distance between itself and rivals like McDonald’s — which is rolling out the kinds of drinks that Starbucks built its business on.
The drinks, called “Refreshers,” will be offered in cool lime and very berry hibiscus flavors. They are made with fruit and are low in calories and caffeine, said Julie Felss Masino, Starbucks’ vice president of global beverage.
Ingredients include a “flavor neutral” powdered extract made from unroasted green coffee and formulated to have less of a caffeine kick than regular coffee, Felss Masino said.
“It’s coffee that doesn’t taste like coffee,” she said, noting that the test is a response to customer requests for more “overtly” thirst-quenching drinks.
Starbucks has been focused on introducing new drinks like Via instant coffee and create-your-own Frappuccino after a massive restructuring that resulted in the closure of roughly 900 cafes around the globe. Both new drinks efforts have helped to boost sales amid a still weak U.S. economy.
Meanwhile, McDonald’s has built a profitable new beverage business based on Starbucks’ core products, including espresso-based drinks, fruit smoothies and frappes.
The green coffee-based drinks are a first for Starbucks. While some companies are marketing green coffee on the Internet as a weight-loss aid, the world’s biggest coffee chain does not promote Refreshers to shed pounds, representatives said.
Check Out Line: One view on McDonald’s US sales
Check out a bullish view on McDonald’s June same-store sales.
Janney Montgomery Scott analyst Mark Kalinowski raised his forecast for U.S. same-store sales at the hamburger chain to an increase of 4.6 percent from an increase of 2.4 percent.
His revised forecast is based on his survey of 30 McDonald’s franchisees, representing 215 restaurants.
The survey also led Kalinowski to raise his July same-store sales forecast to a 4.4 percent increase from a 2 percent increase, Kalinowski said in a research note.
McDonald’s has been adding menu items likes coffee drinks, frappes and smoothies and promoting Angus burgers. The coffee drinks, especially, have helped the company perform better than other fast-food restaurants recently.
Kalinowski also noted that McDonald’s comparisons in the United States get easier later this year.
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Diners say Olive Garden, Papa John’s are tops
Papa John’s and Olive Garden got top marks in their respective restaurant categories in the University of Michigan’s 2010 American Customer Satisfaction Index, while McDonald’s and Chili’s Grill & Bar were laggards.
Papa John’s took the lead in the limited-service category from Domino’s Pizza. Notably, this year’s win for Papa John’s came as Domino’s was getting a sales bump from its reformulated pizza recipe and crowing about how its new pies were beating rivals in taste tests.
Papa John’s earned an ACSI score of 80 (out of 100), up from 75 last year. Little Caesar, Pizza Hut and Starbucks each made gains versus 2009 and were close behind with scores of 78. Domino’s score of 77 was flat from a year ago.
McDonald’s, which has outperformed most other quick-service restaurants, was the only major fast-food company to post a decline. Its score fell to 67 from 70 last year.
“Price was behind much of the improvement, but new products also contributed,” said Claes Fornell, a professor at the University of Michigan’s Stephen M. Ross School of Business.
Pizza Hut offered any pizza for $10, while Papa John’s combined similar pricing promotions with what customers perceive as high quality products.
“As increasingly frugal consumers have made price more salient, McDonald’s has acquired more customers. These newcomers seem less satisfied, and were it not for the economy some of them would rather eat somewhere else,” Fornell said.
Check Out Line: Weak euro to take bite out of McDonald’s too
Check out the weak euro’s latest victim.
McDonald’s reported better-than-expected global sales in May at stores open at least 13 months, but warned that full-year profits would be hit by unfavorable currency exchange rates, specifically calling out the euro.
The No. 1 hamburger chain gets about one quarter of its operating income from the euro zone, and that region will result in foreign exchange rates hurting the full-year profit instead of being slightly positive as it previously forecast. However, the company said that issue would not affect second-quarter results and the European stores posted far stronger-than-expected May sales, so the real impact of the weak euro is still to come.
It’s been a mixed bag of late for McDonald’s, which recently recalled at least 13.4 million “Shrek”-themed drinking glasses in the United States and Canada due to the presence of toxic metal cadmium in the designs.
Euro worries don’t just apply to McDonald’s. Rival Burger King on Monday warned that unfavorable exchange rates, primarily related to the euro, would reduce the profit in the current quarter by 1 to 2 cents a share.
The euro hovered near a four-year low against the dollar on concerns over a widening European debt crisis that has struck financial markets.
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Check Out Line: Taking on Starbucks paying off for McDonald’s
Check out how the McCafe keeps perking up McDonald’s sales.
Last month, Ronald McDonald and company reported a strong first-quarter profit, showing that their bet on taking on Starbucks on its home turf has paid off. And judging from McDonald’s April sales, that McCafe business — with its expanded lower-priced roster of coffees and new frappes — continues to caffeinate its results.
In April, sales at restaurants open at least 13 months (same-store sales, in the industry’s shorthand) were up 3.8 percent stateside, and did even better overseas, for a global average of 4.9 percent.
It wasn’t just Frappes that gave Mickey D its boost- old stalwart products such as its Chicken McNuggets did very well in April. French fries with that, anyone?
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Olympic Gold for Coke, McDonald’s and Visa
When is Olympic sponsorship money well spent? A Performance Research poll shows it may depend on how the funds are used.
Coke, McDonald’s and Visa dominate consumer awareness when it comes to the Olympics, according to a study by the Rhode Island-based research firm that evaluates the sponsorship industry.
Sixty-eight percent of Americans polled confirmed the Olympic sponsorship of Coke and McDonald’s, followed closely by 66 percent for Visa, Performance Research said. Those three companies also were listed as having consumers’ favorite Olympic TV commercials and doing the most to support the Games.
“They start their advertising early and they’re continuous with it,” Performance Research President Jed Pearsall said of the three companies’ success. “They’re always reminding people they’re Olympic sponsors.”
Other sponsors trailed far behind in consumer awareness — AT&T (36 percent), Procter & Gamble (27 percent), Polo Ralph Lauren (26 percent), GE (25 percent), Samsung (24 percent) and Panasonic (20 percent), according to the study.
Meanwhile, ambush marketing is alive and well at the Games despite the efforts of the International and U.S. Olympic committees as restaurant chain Subway was associated with the Olympics by 26 percent of respondents, Performance Research said.
Nearly half of respondents saw Subway’s ad with swimmer Michael Phelps, who won eight gold medals at the Beijing Summer Games in 2008, and 79 percent of those believed Subway supported the U.S. Olympic team.
Check Out Line: McDonald’s February sales rise
Check out McDonald’s overseas boost.
February sales at McDonald’s restaurants open at least 13 months rose 4.8 percent, even though such sales rose just 0.6 percent in the United States.
The world’s biggest hamburger chain attributed some of the gain to Chinese New Year celebrations. Same-store sales jumped 10.5 percent in the Asia/Pacific, Middle East and Africa (APMEA) region.
Meanwhile, Subway President Fred DeLuca said his sandwich chain hopes to match McDonald’s China store count in 10 years. Right now it has 150 stores in China. McDonald’s has more than 2,000.
David Keir, Subway’s development agent in Shanghai, said Subway was testing sandwiches such as Beijing roast duck and local sauces like hot spicy Szechuan sauce as it expands into different provinces.
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