February 18, 2010 / 2:22 AM / 8 years ago

Burger King pulling slice from double cheeseburger

LOS ANGELES (Reuters) - Burger King Corp is taking a page from the playbook of McDonald's Corp and pulling a slice of cheese from its $1 double cheeseburger.

Starting on April 26, the fast-food chain will sell a "BK Dollar Double" with two burgers and one slice of cheese, Burger King said on Wednesday. That's six days after the company raises the price of the $1 double cheeseburger to a suggested $1.19.

Burger King and McDonald's have successfully used $1 burgers to lure diners into stores. McDonald's raised the price of its popular double cheeseburger to a suggested $1.19 from $1 in December 2008.

Stifel Nicolaus analyst Steve West estimated that every cheese slice costs 1 cent to 2 cents -- translating into roughly 1 to 2 percent of the gross revenue from double cheeseburgers.

"When fully loaded with labor and other overheads, franchisees told me it was being sold at a loss," he said.

Burger King recently signaled plans to end the $1 double cheeseburger promotion in the spring and to replace it with another item. The double cheeseburger boosted traffic but angered franchisees.

The promotion prompted the National Franchisee Association to sue Burger King in November in Miami federal court. The association said the company did not have the right to enforce maximum pricing rules.

A spokesman for the association, which represents Burger King franchisees, was not immediately available for comment on the new double cheeseburger pricing.

Burger King franchisees, including some in high-rent markets like New York City, also have clashed with the company over its $1 menu, saying that it has hurt their profits.

Fast-food companies use low-priced food like $1 burgers to lure diners into restaurants, but if those items are priced below cost, franchisees can suffer.

That's because franchisees pay royalties to the parent company based on overall sales. While $1 menu items can boost traffic and boost sales, restaurant operators can lose money if too many of those sales come from money-losing items.

A Burger King spokeswoman said the company also plans to test higher prices for its $1 Whopper Jr.

McDonald's launched a breakfast Dollar Menu in January to combat the negative effect unemployment has had on morning food sales.

Burger King, which is switching its house brew to Starbucks Corp's Seattle's Best Coffee as the fast-food coffee wars rage and McDonald's pulls ahead with its McCafe espresso drinks, already has announced plans to promote breakfast value deals in April.

Shares of Burger King closed up 11 cents at $18.40 on Wednesday on the New York Stock Exchange.

Editing by Gunna Dickson, Steve Orlofsky and Bernard Orr

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