Burger King Worldwide Inc. Delivers Greater Opportunity

Expansion of delivery service separates burger joint from its rivals.

Jul 16, 2014 at 3:58PM

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As part of a family that's owned pizzerias over the years, I'm well acquainted with the notion that delivery is a necessary evil. Once the competition starts delivering, you're virtually required to as well or you'll lose business. But it's an added expense that comes with risk, including food quality, labor, and liability.

Burger King (NYSE:BKW), however, is boldly embracing those risks, and apparently profiting from it, as it's rolling out its delivery service to four new markets, bringing it to more than a dozen major metropolitan markets where customers can call and order a burger and have it brought to their door. As the program continues to expand nationally, we're likely going to see BK's competition forced to accept the challenge and offer a similar service themselves. In fact, McDonald's (NYSE:MCD) has said it may consider the option itself, though some local restaurants in New York City offer it already.

But Burger King has moved forward more broadly, and yesterday announced it was adding its BK Delivers program to Atlanta, Fresno, Kansas City, and Montgomery, Alabama,, joining markets in Boston, Chicago, New York, Miami, Phoenix, the San Francisco Bay Area, Sacramento, and elsewhere that have already experienced and responded to the opportunity. Customers have to place a $10 minimum order between 11 a.m. and 10 p.m. for delivery to a physical address that falls within a participating restaurant's delivery zone. There's a $2 fee for delivery.

Burger King first began testing delivery in 2012 in Washington, D.C., and expanded to Miami and Houston. It followed that last year by rolling out in Chicago, Los Angeles, and San Francisco, but it first had to develop "proprietary thermal packaging technology" that allowed food to stay fresh and warm while being delivered. 

While pizza delivery seems natural, as evidenced by national chains like Domino's Pizza and even Yum! Brands' Pizza Hut offering the service, and Chinese food from your local shop is virtually de rigueur, burger delivery is much more novel and provides a point of differentiation for Burger King.

Yet it's actually not such a foreign concept to the burger joint, which has offered delivery in a dozen countries or so internationally. The model it's using here in the U.S. is one it has honed around the globe.

Indeed, McDonald's also delivers in its international markets such as Mexico, Brazil, and China, but analysts at Euromonitor estimate that delivery accounts for as much as 5% of the fast-food segment in the Asia-Pacific region and in Latin America, despite the dining category having a much smaller footprint than here in the U.S., where delivery represents less than 1% of the total. It might be strange to think of a stateside 7-Eleven making deliveries, but in China and Japan it realized $98 million in delivery sales in 2012.

Even as the program expands for Burger King, it's still a nascent initiative and there are more than 7,400 locations in North America that could take up the service. There are no numbers attached to delivery yet, but it's notable that where rivals like McDonald's reported miserable first-quarter results with declining same-store sales supposedly because of a tough winter, Burger King actually enjoyed positive comps. 

How much delivery played a part is anyone's guess, but as popular as it seems to be, we just might notice BK Delivers vehicles becoming as ubiquitous as your local pizza shop's car.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and 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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