Burger King’s Local Ad Cuts Hurt Restaurants

Burger King’s largest franchisee, Syracuse (N.Y.)-based Carrols Restaurant Group, says a lack of advertising is partly to blame for its lower-than-expected sales in the second quarter.

Comparable sales at Carrols’s 560 Burger King restaurants decreased 2 percent, and total restaurant sales fell 2.8 percent, the company announced on Tuesday. “Our sales trends were weaker than anticipated in the second quarter due to several factors, but we believe were most significantly impacted by a reduction in spending on local advertising compared to the second quarter of 2013,” Carrols Chief Executive Officer Daniel Accordino said in a press release. Accordino also cited weak consumer spending and fewer restaurant remodels (renovations tend to boost sales) during an earnings call on Tuesday.

The reduced marketing support for its largest franchisee comes after Burger King unloaded most of its company-owned restaurants to become almost 100 percent franchised: Just 52 of Burger King’s 13,808 stores worldwide are company-owned.

Supporting franchisees’ marketing and branding efforts is a significant part of Burger King’s work. The fast-food chain, which owns 28.9 percent of Carrols, makes the bulk of its money from franchising royalties. Franchisees are required to contribute 4 percent of sales to a national advertising fund managed by Burger King with input from a marketing council made up of franchise owners.

Last year, Carrols—which has locations throughout the Northeast, Southwest, and Midwest—spent about 1 percent of sales, or roughly $6.6 million, on local marketing efforts, an amount Burger King matched from the national fund in many of the markets in which Carrols operates. Carrols will invest more in local marketing in the second half of 2014 but does not expect to see another Burger King match.

“In 2014, in consultation with the Marketing Council—comprised of some of our leading franchisees—we decided to reallocate funds to national advertising,” Burger King spokeswoman Alix Salyers wrote in an e-mail. The results of that decision appear to have hit Carrols worse than other franchisees: Same-store sales for all Burger King restaurants in the U.S. and Canada were up 0.4 percent last quarter.

Carrols, which acquired 278 Burger Kings in 2012, will be particularly sensitive to the company’s marketing decisions as it continues to buy more locations. It could acquire as many as 100 Burger Kings for the full year, said Accordino.

“We’re going to continue to focus on franchisee profitability for the coming months,” said Burger King CEO Daniel Schwartz during an earnings call on Aug. 1. Burger King plans to be more consistent with its marketing and spend its media dollars in “a few high-impact areas,” said North America President Alex Macedo.

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