Burger King has reclaimed its status as the number two fast-food hamburger chain behind McDonald’s. That’s a feat partly attributed to the chain’s “Reclaim the Flame” investments in revamping its stores, and partially to rival Wendy’s struggles.
Launched in 2022, the program saw Restaurant Brands International commit $250 million to a “Royal Reset” involving restaurant technology, kitchen equipment, building enhancements, and high-quality remodels and relocations.
“This investment will work to enhance ongoing Franchisee investments to modernize the Burger King restaurant portfolio, and when combined with our brand re-positioning plan, menu enhancements, and focus on operational excellence, will help drive our overarching goal of improving the guest experience and attracting more traffic back to the brand over time,” the company shared in a press release.
It’s an investment that has been working, but franchise operators have to make their own investments to receive corporate funds. That has become a problem, as rising beef prices have created a major drag on Burger King’s profitability.
Burger King tries to win with chicken
Burger King recently ran a series of commercials where it admitted that its chicken nuggets weren’t great. It showed the chain’s chef addressing the problem and improving the nuggets.
It’s framed in the commercial as an effort to fix a problem for customers, but in reality, it also helps solve an underlying problem for the chain. With beef prices elevated, Burger King needs more customers to order chicken.
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Those efforts have worked, according to CEO Joshua Kobza, who spoke during the chain’s third-quarter earnings call.
“Our new nuggets feature crispier breading, juicier chicken, and more premium packaging, and we paired them with the revamped sauce lineup. These improvements directly address an opportunity we identified through guest feedback, and the response has exceeded our expectations,” he said.
The nuggets, Kobza noted, have been a success.
“We’re attracting new guests, increasing nugget incidents, and closing the gap with competitors in a category that’s particularly important for kids and families,” he added.
Burger King has a beef problem
Burger King had a great quarter.
“In Q3, we delivered 3.8% same-store sales and 3% net restaurant growth, driving 6.2% system-wide sales growth and 6.7% organic adjusted operating income growth. This marks our fifth consecutive quarter of same-store sales above 3%,” Kobza shared.
Burger King sales were strong, and the CEO noted that the chain drove 19% of the company’s profits.
“After an awesome first half of the year, we accelerated our outperformance in the third quarter with U.S. same-store sales up 8.4% and system-wide sales up 7.5%. We widened our gap to burger QSR peers to nearly 10 points. And after years of hard work, we are incredibly proud to have reclaimed the #2 position in the U.S. burger category,” he said.
The CEO, however, shared a clear problem facing the chain that has slowed down its turnaround efforts and forced franchise operators to delay remodels.
Oppenheimer’s Brian Bittner asked about extending the timetable for remodels during the call, and CFO Sami Siddiqui answered.
“Yes. And Brian, I can jump in on your question around the timing of remodels. And I think we’ve talked about this a little bit in the past; it’s just beef costs and record-high beef inflation that have been a headwind to the system’s profitability,” he said.
That is creating problems for some franchisees.
“So despite the amazing progress on the top line, we’ve — our franchisees have had to manage through this. The good news is we’re starting to see a little bit of relief on that front, and we expect to see a little bit more next year. And I think that will naturally cause the pace of the remodels to pick up,” he added.
Beef prices are a road bump
While beef prices have been a drag on profitability for the chain, Burger King has made significant progress on its remodels.
“The uplifts are really good, but we’re still probably around 60% of the system done. So we’ve got a number of years in front of us and a lot of stores that still need to get to the right image there. So I expect that will be a driver for quite some time,” Kobza said.
Beef prices, however, will remain a concern as the USDA forecasts prices will be 8.6% higher for beef in 2026 compared to the previous year.
“Prices for beef have risen as U.S. consumption of beef has increased and domestic production has contracted,” according to the Kansas City Fed.
That’s not something Burger King can control, and RTM Nexus CEO Dominick Miserandino thinks that the company has shown the long-range vision needed to work through any pricing concerns.
“Burger King’s turnaround is a good reminder that there usually isn’t one magic promotion that fixes a restaurant chain. They’ve been putting money into the stores, improving operations, fixing the menu and getting franchisees healthier,” he told TheStreet.
Making an impact, he added, takes time.
“Eventually the customer notices. The growth in same-store sales tells you they’re not just getting existing customers to spend more. They’re giving people a reason to consider Burger King again,” he said.