Why Are Burger King and Domino’s Pizza Pushing Chicken? The Answer May Surprise You

The latest move may have to do with costs.

Apr 26, 2014 at 10:00AM

It was hard to tell if it was a belated April Fool's joke or not. First Domino's Pizza (NYSE:DPZ) announced it would start selling chicken. Not chicken-topped pizza. Just chicken. Then Burger King Worldwide (NYSE:BKW) announced its Big King will also come chicken style. The timing appears odd, but it may have something to do with a recent hike in food inflation.

Source:  Domino's Pizza

Get the door...it's chicken
On April 14, Domino's Pizza announced its intention to be seen as a "legitimate player in the chicken business" with its new Specialty Chicken. To jump-start the launch, Domino's Pizza gave away 25,000 orders to people on Facebook.

The product sounds like a fancy adult version of Chicken McNuggets from McDonald's (NYSE:MCD). It is breaded white breast meat with different flavors, cheeses, sauces, and toppings.

Domino's Pizza seems to expect the bizarre introduction to be met with skepticism, and it's decided to embrace that skepticism rather than deny it. The company dubs its marketing campaign "Failure IS an option," which highlights Domino's Pizza not being afraid to take risks (considering adding a chicken product to a pizza store's menu seems like a bold move).


Source: McDonald's

Mighty Wings lessons
McDonald's learned the hard way. The burger, salad, and sandwich chain apparently jumped the shark some when it tried to add spicy Mighty Wings to its menu. In two words: it flopped. And so did McDonald's domestic same-store sales a bit.

McDonald's may have cost itself some business, at least temporarily, for its other items; a few guests disappointed by the Mighty Wings may have been turned off to the brand more broadly. Burger King has been quick to capitalize on that every chance it can get by offering similar looking and sounding McDonald's menu items on the Burger King menu.

For Domino's Pizza, it's therefore a risk. It knows this, but perhaps the marketing is perfect. It cushions the blow if there is failure while grabbing attention and curiosity, which will of course help if it's a success.

Russell Weiner, Domino's Pizza's chief marketing officer, explained that the company has had to take a number of risks over the year in order to be successful. Some ideas were failures, some were successful, but "sometimes you have to fail in order to be great." It's that whole trial-and-error thing.

The King is eyeing new lands
Meanwhile, Burger King has launched its Chicken Big King sandwich, which has the same toppings, sauce, and buns as the beef version only it comes with two fried chicken patties instead. Alex Macedo, one of Burger King's presidents, stated, "With the success of the original [Big King] sandwich and the growth in demand for chicken, we thought it was time to bring the two together."


Source: Burger King

Increased chicken demand certainly would partially explain why Domino's, McDonald's, and Burger King are all trying to launch more chicken products. The month of April, though, for two of the launches is quite interesting because beef prices have been soaring to their highest levels since 1987.

Droughts, the smallest cattle supply since 1951, and increased export demand has the price of beef jumping to dizzying heights, up 25% in the last four months alone. No doubt beef burgers will feel a pinch on profit margins, and this makes attempting new chicken products more enticing.

More specifically to Burger King, the announcement comes about a week before earnings. Would Burger King be declaring the success of its new Big King launch this close to earnings unless the numbers and/or news it has to share are impressive? It would seem unlikely.

Foolish conclusion
The fact that both Burger King and Domino's Pizza are taking such risks with chicken against potentially tarnishing their brands now suggests their internal operations performance metrics are going as well or better than expected. Look for uplifting reports from Burger King on April 26 and Domino's Pizza on May 1.

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Nickey Friedman 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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