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Burger King Worldwide Inc (BKW)’s Focus on Coffee Should Reward Shareholders

Despite losing market share to Wendy’s and falling into the number three burger chain role for a brief moment, Burger King Worldwide Inc (NYSE:BKW)is not giving up. For the longest time, Burger King has played second fiddle to McDonald’s Corporation (NYSE:MCD), but held onto the number two spot. In fact, the recently public restaurant chain made an announcement that should get shareholders and future investors excited.

“Perk up and take your morning from good to great with the new, brewed and specialty coffee offerings at Burger King restaurants,” read an official statement from the company. Burger King will offer ten new beverages, including brewed smooth roast coffee, smooth roast iced coffee, and a series of lattes.

Burger King Worldwide Inc (NYSE:BKW)Burger King Worldwide Inc (NYSE:BKW) has 12,600 locations around the world. Since going public, the chain has focused on selling off its units to franchisors. In return, the company earns a steady stream of franchise royalties and rental income. The company’s main goal is its international expansion, which has been on a tear recently with several joint partnerships. The additional income generated from new products like coffees should help lure potential franchisors, and also increase same store sales.

Back in 1993, a McDonald’s in Australia launched McCafe. In fact, the first McCafe chains acted as full coffee shops and carried smoothie products as well. It wasn’t until 2001 that the United States saw McCafe-branded coffee. Since that time, the coffee has helped McDonald’s take market share in the huge consumer category. The coffee products have also helped McDonald’s increase its same store sales and overall revenue.

McDonald’s has over 34,000 locations and has counted on the McCafe brand to extend its store sales. McDonald’s leading franchisor Arcos Dorados Holding Inc (NYSE:ARCO) has been a benefactor of the growth of the McCafe brand. With 1,800 locations in 20 countries, Arcos is the leader in its regional coverage of McDonald’s and the McCafe brand. Arcos even owns several McCafe-branded stores that operate on their own, independently of Big Macs and french fries.

The Wendy’s Company (NASDAQ:WEN) trails Burger King and McDonald’s in terms of store count. The third place chain has over 6,500 locations, with a strong domestic presence. The chain is only in 27 countries, which is part of the reason why it has remained number three. This burger chain will be the one that Burger King Worldwide Inc (NYSE:BKW) can do the most damage to. In January, Burger King reported that it ranked last of the three in average unit sales. The average Burger King brings in $1.18 million, while Wendy’s ($1.49 million) and McDonald’s ($2.52 million) earn more.

Wendy’s does not have coffee listed on their menu, other than normal brewed coffee. There are no lattes or iced coffees available at the chain. In the battle of the three, McDonald’s will be the winner for the long term. However, Burger King has a great opportunity with a product that is not offered at Wendy’s locations and a strong advertising campaign coming with it. Burger King will be able to compete against McDonald’s, while at the same time offering additional products to lure customers away from Wendy’s.

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