Harrington's Sort & Cull
John Harrington DTN Livestock Analyst

Friday 06/11/10

Memo To BK: Reorder

(WSJ) -- Make no bones about it: Burger King Holdings Inc. restaurants are running short of ribs.

Amid brisk demand, some Burger King outlets have already exhausted their supply of the relatively pricey new pork ribs, and the company expects to use up its entire rib order in the next week or so, said John Schaufelberger, Burger King's senior vice president of global product marketing and innovation. That means the limited-time offer on the ribs, slated to end June 20, may be cut short.

The results suggest fast-food customers are willing to splurge for higher-priced items, a promising sign after chains used low prices to lure traffic. It also helps ease Burger King's strained relations with its franchisees, who want to sell more profitable products.

The chain had scheduled national ads featuring a pig with wings convincing a skeptic that a fast-food chain can cook up a mean rib, which were to run from May 24 through June 20. Burger King now plans to shuffle its advertisements over the next week to feature a different product so it's not broadcasting an out-of-stock product.

The company based its rib allotment on results from test markets of Indianapolis, Las Vegas, Greensboro, N.C., and Orlando that showed customers favoring the three-piece order, which sells at a suggested price of $2.99 on its own or $1.99 as a combination meal add-on. Burger King placed the order at least four months in advance to give supplier Tyson Foods Inc. enough lead time and to secure the best price for the ribs, which are cooked on the bone.

But since the product has been sold nationally, customers are indulging in the six- and eight-piece servings, which sell at suggested prices of $5.69 and $7.19, respectively. Burger King has already run out of packaging for the larger portions. The company didn't say how many ribs it ordered, but recently sold its 10 millionth rib.

"The U.S. consumer has really enjoyed this product and purchased it beyond our expectations," Mr. Schaufelberger said.

Burger King's franchisees are desperate to move away from the discounting spree, which many have said has put severe pressure on operating margins. The ribs cost about 50 cents a rib, according to one franchisee, and selling them in the larger sizes yields what Burger King has said is the highest "penny profit" on any item the chain's sold. Burger King declined to reveal the rib cost.

"For us, it's been a good thing," one Burger King franchisee said of rib sales. "We've been ahead of projections right from the get-go."

Sort & Cull Comments: What a great story, and on multiple levels. The corporate big wigs at Burger King have to be elated, the once mutinous franchisees must be in complete party mode, and pork producers should be very excited by evidence of a successful new product.

Finally, those who pan through mountains of economic data in search of promising nuggets of recovery can hardly wait to take this one to the assayer's office. The overwhelming success of the relatively pricey ribs flies in the face of the dollar-menu mentality, the fast-food industry's austere strategy to survive recessionary times.

Could this represent a reliable sign that defensive consumers are at long last emerging from their cautionary coma? Does better rib demand today significantly foreshadow strong chop and steak demand tomorrow. Yes, it's too early to tell. But no one would deny that this snapshot is at least hopeful in that regard.

For what it's worth, I think it's a tasty and valuable addition to the BK menu. I've never been a big fan of the McRib with its reconstituted ambiguity. It always reminds me of the "mystery meat" served by the hair-netted minions of school lunch.

But I'm not here to endorse one rib offering over another. Let's have both. Indeed, let's have as many as the market will bear.

While I understand the desire to celebrate at BK, I hope the marketing department doesn't take its eye off the ball. After all, running out of product marks both a success and opportunity. Surely someone is already on the phone with Tyson ordering the next delicious rack.

They should be happy to learn that wholesale rib prices have moved past the spring rally with the primal now trading near late winter levels.

For more Harrington comments check out

www.feelofthemarket.com

(KM)

Posted at 2:28PM CDT 06/11/10 by John Harrington
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