Burger Wars, Part 3: Better Burgers Go International

Douglas J. Peckenpaugh, Community Director of Content & Culinary Editor

Ah, cheeseburgers Jimmy Buffett has famously crooned at length about his adoration for this venerable food, selecting it as his companion of choice in a tropical paradise. And just after some lyrical commentary about freedom, politics and social unrest in his 1968 song, Livin in the U.S.A., Steve Miller chimes, Somebody give me a cheeseburger!

Just like rock-and-roll, burgers are undeniably American.

Although the hamburger was little known in the United States before 1920, likely only identified as a form of the novel, ethnic-German item then known as the Hamburg sandwich, or perhaps Hamburg Steak as it appeared on the menu at tony Delmonicos in New York circa 1834 (inspired by the not-a-meatball, not-a-patty Frikadeller, which differs markedly from our American burger), today burgers are a big-market staple of American food culture. And the love for burgers continues to grow.

As Chicago-based foodservice market-analysis firm Technomic noted at the beginning of this month, the limited-service burger segment is the largest menu segmentin terms of revenuein the restaurant industry. Although half of that business comes from one chainthe undisputed heavyweight burger champion of the world, McDonaldsthe better burger segment, classified as fast-casual, is rapidly expanding, with growth of over 20% last year compared to just under 4% growth for limited-service chains (see Better Burgers Still Thriving for more details). Quickly growing better-burger giant Five Guys Burgers and Fries has not only been dominating the fast-casual better-burger segmentwith some competition coming from rival Smashburgerit is the fastest-growing restaurant chain in the country, period, with growth of 792% since 2006, per Technomic. It currently has over 1,000 units in this country and has plans in motion for another 1,500; all current Five Guys franchise opportunities in the United States and Canada have been sold.

An International Market

But like rock-and-roll, the quintessentially American cheeseburger isnt sequestered to the Statesand hasnt been for some time now. But with this current domestic attention to the merits of better burgersacross the board, including menu shifts by the big threeand their ongoing domination of the industry, the lands outside our borders were bound to sit up and take notice. The big three burger chains have long penetrated foreign markets, and better burger chains are following suit. Even initially hesitant Paris has caught on to the inherent beauty of a well-crafted burger, with the American-owned Le Camion Qui Fume better-burger food truck selling out on a daily basis (see Food Trucks in Paris? U.S. Cuisine Finds Open Minds, and Mouths).

Although any plans for international expansion have yet to surface from the Five Guys team, it will only be a matter of time. Smashburger currently has around 160 locations, with plans to open around 40 more by the end of the yearand has agreements in place for a total of over 500 locations. The chain has been ramping up growth of late, and overall sales for Smashburger were up 71% in 2011 (compared to 26% growth in 2011 for Five Guys). One notable difference between Five Guys and Smashburger is that Smashburger has already begun expansion into international markets beyond Canada, with a location in Kuwait City and more to come this year (the chain has said 23 are eventually planned for the Kuwait area, which has a strong economy), in Latin America and elsewhere in the Middle East (Bahrain, the United Arab Emirates and Quatar have been mentioned). Danny Meyers Shake Shack has also started getting into the international arena with locations in Dubai and Kuwait City. Five Guys currently has nearly 40 units across Canada, with several other stores opening soon. Smashburger has also recently opened units in Canada.

The big three burger chainsMcDonalds, Wendys and Burger Kinghave long known the benefits of an international presence. Spreading your business into different markets helps offset losses when, for instance, the economy dips in one or two global regions and traffic subsequently slows. Although global sales for McDonalds were up 5.6% during 2011, the chains figures recently took a dip, with losses noted for the first time since 2003. The company reported that even though activity was strong in the United Kingdom and Russia (the former likely due to a U.K. marketing push tied to the Olympics), European sales overall dropped 0.6% due to the weakness of German and other European markets, and sales in the Asia-Pacific, Middle East and Africa region were down 1.5% (see McDonalds Sales Faltered in July). In addition to regionalized economic struggles, increased competition is likely a contributing cause to this current decline.

In 2011, Wendys global revenue was up 2.4% over the previous year, and part of that growth was due to performance in Canada and that countrys favorable foreign currency exchange rate (see the transcript of the 4Q 2011 Wendys International earnings call for more details). Burger Kings 2011 sales were up 1.2%, thanks in large part to positive results from units in Latin America and the Caribbean, Europe, and the Middle East and Africa (see Burger King Holdings, Inc. Reports Fourth Quarter and Full Year Results).

Beyond burgers, specific dayparts that the big three chains compete in, such a breakfast (a point of diversity lacking in most fast-casual better-burger chains), can provide key revenue streams in foreign markets. For instance, Kenneth Chan, CEO, McDonalds China, recently noted that the American-style breakfast of an Egg McMuffin and hash browns has been doing quite well in China, with breakfast accounting for 8% to 10% of total sales in Chinaand he expects those figures to double in the next few years (see McDonalds China CEO on Bringing McMuffins to the Masses).

The net takeaway here is that an international presence serves to not only open new streams of revenue, but help offset periodic losses in struggling markets. Although better-burger chains appear poised for further growth in the United Statesfast-casual sales represent only 3.2% of the limited-service market, so the big three will likely see increased competitionwatch for continued international growth.

Developing a Foreign Accent

Of course, the fare at foreign burger units doesnt always directly reflect American menus. Astute menu developers cater common items to local tastes. In Asia, McDonalds will sometimes substitute the traditional bun for fried rice cakes, offer shrimp (ebi) burgers, and menu a seasonal, limited-time-offer (LTO) Prosperity Burger, available during Chinese New Year, which comes with spicy black pepper sauce and onions. A fried pie filled with taro (a purple root vegetable) has sometimes been available for dessert.

McDonalds Germany has tapped into trendy crowdsourcing to release LTO burgers over the last couple of years, with fans submitting burger ideas and then receiving votes; over 330,000 ideas were submitted this year. The winners this year included one dubbed the Pretzelnator, topped with American and Italian cheeses, ham, lettuce, onions, and mayo on a pretzel bun. McDonalds has noted that when the 2011 crowdsourced LTO winners hit the menu, they spurred strong sales.

Smashburger is known for its regional specialty burgers, and in Kuwait City, it menus a Kuwait Burger with hot pepper cheese, hawaij grilled jalapeños, labneh, baby spinach, tomato and cucumber on a spicy chipotle bun (hawaij is a regional spice mixtureit, along with cilantro, also goes on the Kuwait Fries; labneh is strained yogurt).

Although Shake Shack doesnt alter its burgers in its two overseas locations, it does offer a few frozen options unique to each location, such as The Sandstorm Concrete (dense frozen custard shakes) on the menu in Kuwait City, made with vanilla custard, peanut butter sauce, toffee and chocolate sprinkles.

And although a shrimp burger might be enough to wow some Americans, the offerings at international burger restaurants can often prove downright exotic. To wit, Wendys Japan has positioned itself as a premium destination with offerings like its Foie Gras Rossini burger (butter-fried bun, filet mignon, foie gras and truffles), Iberian Bacon Chili Premium Deluxe (Spanish bacon, chili sauce, jalapeños and Cheddar), Lobster Surf & Turf (with lobster added to a fairly standard Wendys single) and a Premium Caviar & Lobster (like the Surf & Turf, but omitting the burger patty and adding caviar). These items are billed as premiumand with a price to match, ranging from around $12 to $16.

Not to be outdone, Burger King got into the act with its recent Black Truffle Angus XT, released at units in Hong Kong. The XT references the use of its extra-thick burger patties, which are topped with curly endive and a sauce made from Italian black truffles and mayonnaise. Compared to the high price point of the Wendys Japan burgers, this one is downright affordable at around $5.

Granted, not every burger that finds lasting appeal in overseas markets will fall on the premium end of the spectrum, but the better-burger chains have forever changed the playing field, and such activity clearly foreshadows whats to come.

To dig further into the better-burger phenomenon and get an update on related activity undertaken by McDonalds, Wendys and Burger King, review the first two installments of this ongoing series, Burger Wars, Part 1: Game Changers and Burger Wars, Part 2: Ethical & Transparent, as well as the Image Gallery covering Americas Top-Ranked QSRs.