It's desparation time: Burger King to Cut Price Of Its Flagship Whopper
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In a move that escalates the biggest U.S. fast-food pricing battle since the mid-1990s, Burger King said Friday that its franchisees approved a proposal to sell the Whopper for 99 cents for a limited time in January.
The controversial move, which required backing from at least two-thirds of the company's franchisees, won 70% of the vote. Burger King had lobbied hard for the promotion, saying that it was necessary to hold market share.
If the tactic is successful, it could put pressure on rival McDonald's Corp., the largest fast-food chain, to respond by marking down its flagship sandwich, the Big Mac.
The world's two biggest hamburger chains are fighting for customers by offering big discounts at a difficult time for both companies. McDonald's is seeking to regain momentum at its 13,000 U.S. restaurants after months of disappointing sales. Burger King, meanwhile, is struggling to meet performance goals critical to its pending sale to a private investor group by London parent company Diageo PLC.
Burger King's plans call for the Whopper to be marked down to 99 cents for 17 days in January. The suggested retail price for a Whopper is $2.19, although the price varies by market. The Whopper promotion would follow a current limited-time sale of a double cheeseburger for 99 cents that expires on Dec. 29.
Burger King officials have said that they were being forced to put large-size sandwiches on sale to counter a $1 price point for McDonald's Whopper-like Big 'N' Tasty burger.
"You can never let a competitor take market share away from you with price," a Burger King executive said.
But discounting the Whopper generated considerable controversy among the chain's franchisees.
"A price war with McDonald's will destroy Burger King," a Florida restaurant operator contended in an e-mail sent to others in the system. But the chain's New York franchisee association, which supported the discount, warned that many franchisees were in financial difficulty and that they "will not get through the winter unless immediate and aggressive action" is taken against McDonald's.
Both fast-food chains are offering so-called "value" menus featuring a number of items for 99 cents or $1.
Burger King parent Diageo, which is trying to sell the fast-food chain, has said that the fallout from the menu discounting has pressured it to cut Burger King's selling price. A buyout group led by Texas Pacific Group is balking at its July agreement to buy the 11,500-store chain for $2.26 billion. One person familiar with the deal has said that its value might fall below $2 billion.
The price war between the burger chains erupted early this fall, with hopes of reviving long stagnant sales. But Wall Street is growing concerned that the price cuts will cause more harm than good for investors.
Burger King started the clash in September when it put a 99-cent price tag on 11 items, including its bacon cheeseburger, chili and baked potato. McDonald's responded by slapping $1 price tags on eight items.
It is too early to tell how much market share McDonald's has gained as a result of its price cuts, or the impact on profit. Before the price war, McDonald's controlled 43% of U.S. hamburger sales while Burger King controlled 18%.
-- Richard Gibson of Dow Jones Newswires contributed to this article.
Updated November 29, 2002 12:22 p.m. EST |
