Burger King Dishes out Hybrid Snack Mac ’n Cheetos

Fast food maker tests waters by blending fast food with snack brands

Source: Company's Website
Source: Company’s Website

Fast-food giant Burger King Worldwide Inc., the brand owned by Restaurant Brands International Inc. (NYSE: QSR) and backed by 3G Capital and Warren Buffett, has partnered with PepsiCo Inc.’s (NYSE: PEP) Frito Lay to launch a new product called Mac ’n Cheetos, as reported by Bloomberg on June 22nd, 2016. Keeping in mind changing customer preferences, Burger King is testing waters with a new trend of blending fast food with popular snack brands. Mac ’n Cheetos is deep-fried sticks of macaroni and cheese encrusted in Cheetos-flavored breading and is expected to appeal to a younger target audience.

Burger King’s new strategy is similar to that of Yum! Brands Inc.‘s (NYSE: YUM), Taco Bell, which introduced a taco with a Doritos shell called Doritos Locos Tacos in 2012, to helped revive its sales. Faced with intense competition from McDonald’s Corp. (NYSE: MCD), The Wendy’s Company (NASDAQ:WEN), Chipotle Mexican Grill Inc. (NYSE:CMG) and Five Guys Burgers and Fries, Burger King has been continually offering new menus and a wider variety of offerings to boost sales. In fact, Burger King and Frito Lay worked together for a year to create the new snack. It is the first time the Cheetos brand has been extended beyond chips into other food categories.

Mac ’n Cheetos will be sold for about eight weeks or until supplies run out, according to the Company announcement. Priced at $2.49 for a pack of five bites, Mac ’n Cheetos loads 310 calories, and is already being sold at some Burger King restaurants as part of a pilot phase.

A bite of the hot dogs business

In the highly competitive fast-food market, restaurant chains are under constant pressure to alter their menus to please a variety of palates. Burger King is no exception; earlier in 2016, the Company started selling grilled Oscar Mayer hot dogs, along with an Egg-normous burrito and Chicken Fries Rings. In early February 2016, Burger King stated that it would add Grilled Dogs as a permanent item to its menu, as part of its plan to grab a slice of the volumes-driven hot dog business. Americans eat more than 20 billion hot dogs every year, according to the National Hot Dog and Sausage Council.

Confusing alliances

As part of its Mac ’n Cheetos launch, Burger King has partnered with PepsiCo’s Frito Lay. This comes despite the fact that Burger King’s U.S. restaurants sell beverages from The Coca-Cola Co. (NYSE: KO). However, some of Burger King’s international locations sell Pepsi drinks. Confusing as it may seem, Burger King has clarified that the Company is not switching to PepsiCo as its beverage partner in the U.S.

Restaurant Brands International Inc.’s Q1 FY16 financial results

Restaurant Brands International reported its Q1 FY16 results on April 28th, 2016. In Q1 FY16, the Company swung to profits of $50 million, or $0.21 per share, compared to a loss of $8.3 million, or $0.04 per share, in the same quarter last year. On an adjusted basis, the Company earned $142.1 million, or $0.30 per share, in Q1 FY16, up from $73.9 million, or $0.16 per share, a year ago. Burger King’s Q1 FY16 highlights are shown below.

Source: Company's presentation
Source: Company’s presentation

However, during Q1 FY16, the Company’s revenue slipped to $918.5 million from $933.3 million owing to the negative impact of foreign currency fluctuations. Comparable store sales at Tim Hortons increased 5.6% after adjustments for currency changes, while Burger King saw a 4.6% increase during Q1 FY16. System-wide sales grew 7.9% at Tim Hortons and 10% at Burger King on a constant currency basis. The comparable sales and system-wide sales during the quarter were driven by the Company’s innovative product launches and continued expansion of its global footprint. The Company opened five Burger King units and 25 Tim Horton units in Q1 FY16.

Stock Performance

B3Restaurant Brands International’s stock stood at $43.21, up 2.03%, at the close on Thursday, June 23rd, 2016, having reached an intraday high of $43.33 and a low of $42.58 during the session. The stock’s trading volume was at 567,063 for the day. The Company’s market cap was at $10.07 billion as of Thursday’s close.

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