Nov. 20 - Burger King Corp., in a move that could ignite a fast-food discounting war, plans to test a $1 double cheeseburger that would challenge one of McDonald's Corp.'s best-selling items.
"It is our belief that the dollar double cheeseburger is the most powerful weapon our competitor has to continue their growth and steal disproportionate share from the category," a note emailed recently to Burger King employees and franchisees from the company's chief marketing officer said in disclosing the upcoming test.
The nation's No. 2 hamburger chain, Burger King said it will feature a larger double cheeseburger than McDonald's at a heavily discounted rate in three unnamed U.S. markets early next year.
Burger King restaurants now typically charge well over $2 for that sandwich. At times the price is just a few cents less than the brand's flagship Whopper.
At most Burger Kings, a single-patty Junior Whopper is the lone hamburger now on the Value Menu. But some Los Angeles-area Burger Kings said Tuesday they have been selling double cheeseburgers for 99 cents for several weeks. Franchisees generally are allowed to set their own prices, reflecting market conditions.
McDonald's double cheeseburger has headlined the fast-food giant's Dollar Menu for years and is considered a key attraction, particularly among bargain-hunters.
While risking a repeat of costly burger battles in 2000 and 2003 that hurt many industry players, Burger King apparently believes it has little choice but to launch a frontal assault on category leader McDonald's.
"The fact remains that we are still at a double-digit disadvantage to McDonald's and Wendy's in 'Best Value for the Money' ratings," the message from Russ Klein, global marketing, strategy and innovation president, said.
He cited market research revealing that Burger King's Value Menu accounts for about 12% of total sales while McDonald's Dollar Menu contributes 23% to that chain's top line and Wendy's Super Value Menu brings in about 25% of that rival's business.
"...There can be no debate over the consumer insistence for value," Klein's note said, contending that the Dollar Menu brought in more than $450,000 of an average McDonald's annual sales compared with $140,000 for the average Burger King from the brand's Value Menu.
Klein's email noted that McDonald's relies heavily on its double cheeseburger. "By their own admission this has been the engine driving their incredible growth machine," he wrote. The note's contents were reviewed by Dow Jones Newswires.
In an interview Tuesday, Klein said the forthcoming test is "simply another tactic we want to have experience with, knowing that we have a superior product to McDonald's." He said the test would be backed by advertising pointing out advantages Burger King believes its sandwich enjoys.
His email said Burger King would test a $1 double cheeseburger "with a competitive claim that our product is 30% larger than McDonald's double cheeseburger...
Klein said no decision has been made on a national rollout of such an item, insisting that franchisees would be consulted first. But his email to them and employees said, "I'm sure you would agree that with McDonald's extreme dependency on the double cheeseburger...a superiority tactic like this one may prove to be one that we want in our arsenal...
"We feel this could be the most direct route into tapping our competitor's growth and gaining our fair share of the business...as they have certainly spared no expense to use it to gain the disproportionate share that they currently occupy," the message said.
How McDonald's might respond will be closely watched by competitors as well as by Wall Street.
"McDonald's isn't going to let its same-store sales flatten out," predicted Richard Adams, a consultant who works primarily with McDonald's owner-operators. If the company retaliates by putting a bigger sandwich on its value menu, he said, that could be "extremely expensive for the franchisees."
Adams noted that McDonald's has sought to blunt inroads into its important breakfast business by Wendy's International Inc. (WEN), by introducing a discounted breakfast menu in markets where Wendy's has rolled out breakfast.
Should Burger King discount its double cheeseburger, the move could run into stiff resistance from its franchisees.
Michael Simmonds, who owns several dozen Burger Kings in the Midwest, said Tuesday he is "very much opposed to this program.
"In Omaha and Des Moines we have positioned our Double Cheeseburger, which has more than one-fourth pound of beef, to compete against McD's Quarter Pounder. It is my Number-2 best-selling Value Meal and it's sold at full margin," Simmonds said. "It would be impossible to recover the revenue lost by selling this product at a dollar."
In recent days, some McDonald's franchisees have balked at keeping the double cheeseburger on their Dollar Menus, and have marked up the price so as to cover the rising cost of cheese and other commodities as well as higher labor and other operating expenses.
A recent email from the head of McDonald's national franchise group said "we hate the fact that the dollar menu/double cheese (burger) is the foundation" of the Dollar Menu "but the fact is it works. Everything else that has been tried has failed." His message said options to the $1 double cheeseburger were being explored.
Responding to that earlier this month, a McDonald's spokesman said there were no immediate plans to replace the sandwich on the Dollar Menu.
Shares of Burger King were trading recently at $25.02, unchanged. Those of McDonald's were priced at $58, down 60 cents, or 1%.