Burger King Has a Long-Term Plan for Success

By Markets Fool.com

Burger King may be "Home of the Whopper," but it's also the home of some new fast-food innovations. Image source: Burger King.

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After a challenging quarter in which Burger King sales grew only 0.6%, Restaurant Brands International (NYSE: QSR) CEO Daniel Schwartz admitted the chain was operating in a challenging environment, but noted that the company has a long-term plan.

During the company's Aug. 4 earnings call, which was transcribed by Seeking Alpha, the CEO made it clear that short-term changes in the market won't distract it from carrying out its long-range plan. "We did see some softness in the industry," Schwartz said. "We feel like we made the right adjustments, kind of short-term. But we have been doing this now almost six years and the industry changes from time to time. We try not to get too focused on macroeconomic changes. ... What I would say is we're very confident in our strategy."

What is that strategy?

Burger King plans to innovate, not launching as many products as its rivals, but trying to make each new launch a big deal.

"We continue to launch fewer and more impactful products and maintain a balanced approach on menu and marketing,Schwartz said. "We achieved strong sales from Grilled Dogs and new product launches like the Mac n' Cheetos, which we launched late in June, as well as from promotions such as the two for $10 Whopper meal."

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Schwartz noted in his remarks that "Mac n' Cheetos actually became one of the most covered product launches in Burger King's history, with 3.2 billion earned impressions, surpassing the previous record set by our launch of Grilled Dogs this past spring." He also said that patrons at the company's eateries were "highly engaged" with its Mac n' Cheetos Snapchat filter, sharing their personal tasting experiences across social media accompanied by the company's branding.

"While our sales results were slower for the quarter, we're very confident that we have the right strategy in place to grow the U.S. business for the long run," he sad.

Is this going to work?

The problem with building a strategy around innovation is that a company has to keep topping itself. Yum! Brands' (NYSE: YUM) Taco Bell has experienced that to an extent with its Doritos Locos Taco. That product has been a huge hit, spinning off a number of variants, but each one feels a bit like a '90s movie sequel where each entry in the series gets a little more ridiculous.

That makes the Fiery Doritos Locos Taco Supreme sort of the Police Academy: Mission to Moscow of the fast-food world. People may still want it, but it does not generate the excitement of the original.

Schwartz acknowledged that keeping up with past successes may be a problem on a quarter-by-quarter basis, but he believes in the company's innovation-first strategy for the long haul. He did address what happened in Q2 during the earnings call.

"We had some good full price or premium products like the Chicken Fry Rings, the Mac n' Cheetos, some limited time offerings around our Grilled Dogs, so I wouldn't really point to anything that kind of worked or didn't work, per se," he said, "We did see things slow down a little bit. But the same strategy that we've had in place for the past five years is going to continue regardless of if things slow down or accelerate within a quarter."

What's next for Burger King?

Going forward, the CEO expects the company to take big swings and find more hit launches. That dovetailed with news that broke after the earnings call that Burger King plans to take a product it had been testing in limited markets, The Whopperito, and launch it nationwide Aug. 15. By putting the ingredients of the famous burger in a flower tortilla, and replacing the mayonnaise with queso sauce, the company hopes to win some customers from Taco Bell and Chipotle.

That clealy fits the CEO's vision for the Burger King brand.

"When I look at ... the innovation pipeline coming down the road, I do feel good that the platforms that we're looking at are going to be few and, obviously, we're planning on them to be impactful," Schwartz said.

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Daniel Kline has no position in any stocks mentioned. He would not eat any item mentioned in this story. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. 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.