Burger King plots growth at McDonald's expense

MIAMI -- Confronting difficulties is nothing new to Burger King. That's why the perennial No. 2 chain is keeping close tabs on the troubles at rival McDonald's.

McDonald's still enjoys a 40 percent share of the fast-food market, but it is burdened with a stale menu, consumer grumbling about taste and discontent among restaurant operators.

Just five years ago, Burger King was warring with franchisees and raising prices to make up for fewer customers. Since then, Burger King engineered a turnaround that refocused the company on its trademark Whopper, boosted average restaurant sales and made peace with restaurant operators.

After coming as close as it dared to bottom, Burger King executives are closely watching McDonald's troubles and intent on keeping a step ahead as the sleeping giant begins work on its recovery. "I do not underestimate my competitors for a moment," said Dennis Malamatinas, who came to Burger King as CEO last year. "I'm paranoid. We have to make sure we outsmart them and outthink them."

Burger King could offer some lessons on rebuilding a brand, but it probably won't. Back in 1993, the company had eight straight years of flat or falling sales. Its marketing was unfocused, it was the last of the major fast-food companies to recognize value as a strategy and product quality was an issue.

Part of the answer was cutting 27 menu items and reviving promotions for the Whopper, flame-broiling and the "Have It Your Way" slogan. Burgers actually got bigger as the price went down.

Burger King mended relationships with franchisees by a combination of buying out 200 faltering restaurants and listening, some would say for the first time, to restaurant operators.

The owners were so disenchanted with the Miami-based parent in the early 1990s that they were investing in other fast-food brands, but they have been driving Burger King expansion in recent years.

Restaurant operators have been polled this year on everything from offering 15 million bags of free fries in a one-day promotion for its new coated fries and rolling out Cini-minis, cinnamon rolls made by sister company Pillsbury, both of which are owned by London-based Diageo. At least two-thirds of franchisees have been voting in favor of the company proposals.

"That is a major competitive edge we have moving forward," Malamatinas said.

Of course, surprises are part of the business. When Hudson Beef, one of Burger King's major hamburger suppliers, was hit with an E.coli outbreak last year, sales took a full eight months to recover even though no fast-food customers got sick. Even with the temporary sales dip, Burger King built its share of fast-food traffic from 14 percent in 1993 to 17 percent this year, and restaurant traffic was up 8 percent from January to March.

About 9,400 worldwide restaurants produced $9.8 billion in sales last year, up from $9 billion in 1996. But it's not resting on its numbers. The company wants to raise its consistency and standards, starting with a close examination of its produce, buns and packaging under an in-house campaign called "Make Every Bite Right."

Malamatinas is convinced McDonald's will be vulnerable for a couple of years. He considers breakfast a big opportunity, something that puts McDonald's average restaurant sales at $1.4 million compared with Burger King's $1.1 million. Malamatinas has set a goal of $1.6 million.

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