Back in my college days, I was much more of a consumer of fast food and cheap eats, so I was taken a little by surprise when I read in The Wall Street Journal how well Burger King's (NYSE: BKC) national rollout of bone-in ribs was going.
"The U.S. consumer has really enjoyed this product and purchased it beyond our expectations," Mr. Schaufelberger [a senior VP] said. "That's causing us to run out a bit early."
It's a problem the company's happy to have. Burger King executives have touted the pork ribs as the first product cooked on the chain's new broiler that rivals like McDonald's Corp. [(NYSE: MCD)] and Wendy's/Arby's Group Inc. [(NYSE: WEN)] cannot duplicate. The ribs are among new products like its thicker Steakhouse XT burgers that executives say offer the quality you'd find at full-service restaurants like Brinker International Inc.'s [(NYSE: EAT)] Chili's Grill & Bar, but at a lower price.
After a large expansion of the dollar menu over recent years, margins for franchisees have become razor-thin. In Burger King's case there was even a lawsuit against the parent company for forcing franchises to sell double cheeseburgers at near cost. However, in the fast-food space we are seeing a trend to higher-margin items used to balance out the low-margin offerings. McDonald's rollout of its McCafe coffee drinks, while lower-priced than top competitor Starbucks' (Nasdaq: SBUX) offerings, added a premium product that has been credited with boosting the fast-food giant's financial results.
Of course, that success breeds imitation. Starting this fall, Burger King will counter its rival's McCafe with ... wait for it ... Starbucks brand Seattle's Best coffee. It is also rumored that The King is testing in limited markets "Burger King brunch," a higher-priced, more upscale breakfast featuring the finest mimosa that orange juice and Sprite can make (seriously!).
The nationwide success of BK's ribs is great news not just for shareholders. The premium product trend could usher in significant changes to the industry at large, as the more upscale Paneras (Nasdaq: PNRA) of the world have to compete with increased direct competition from the lower-priced fast-food establishments.
While I likely won't be eating a Burger King rib anytime soon, and many online reviewers appear underwhelmed by the product as well, apparently there are more than enough excited customers to counterbalance our current and future indifference. And more importantly for Burger King, enough support from customers for premium-priced menu items.
Will you be trying BK Ribs before they run out, or are you leery of ordering something that is usually slow-cooked at a fast-food restaurant? Do you think premium-priced items coupled with the dollar menu is the direction the industry is headed? Sound off in the comments section below.
