Burger King's polarizing menu item should terrify Sonic and McDonald's

Marina Nazario/Business Insider

Burger King's divisive product is paying off for the chain.

Some critics have called Burger King's hot dog a "disgusting disgrace," but the company has reported that the new menu item is driving sales at the chain.

On Thursday, the chain's parent company Restaurant Brands International reported that Burger King's same-store sales grew 4.6% in the first quarter of fiscal 2016, including an increase of 4.4% in the US and Canada.

According to the company, much of Burger King's first quarter growth can be attributed to the launch of Grilled Dogs in February, as well as other successful product launches in the quarter.

The power of the chain's hot dog should come as no surprise, despite early negative reviews. At the time of its launch, the company had gone so far to call it the biggest product launch in decades.

Kate Taylor

From the beginning, analysts have been optimistic about the impact of Burger King's hot dogs.

"On the surface this sounds like a bizarre move given that current menu change is usually geared around providing healthier options," Neil Saunders, CEO of the retail consulting firm Conlumino, said in a note to clients in February. "However, the simple truth is that while Americans like hot dogs, very few national fast-food chains sell them."

Franchisees have had a similarly positive response. In March, a Burger King franchisee told investors on a conference call that the demand for the new line has been "overwhelming," reports Jonathan Maze at Nation's Restaurant News.

According to the franchisee, his restaurant was selling between 80 and 120 hot dogs per day.

Hot dogs are a valuable item for driving profits, because they are relatively small, leading to many customers ordering additional items such as french fries or chicken nuggets. Burger King has emphasized the quality of the dogs, pricing them from $1.99 to $2.29, instead of marketing the hot dogs as a bargain option.

Marina Nazario/Business Insider

Restaurant Brands International CEO Daniel Schwartz said that beyond the launch of Grilled Dogs, the company is aiming for sales success by balancing higher-quality and more value-oriented menu items.

"There's no single silver bullet," Schwartz said in the earnings call on Thursday. "We have good options in the value end, we have good options in core, we have good options in premium."

Burger King is now the biggest chain in the fast-food business to sell hot dogs. Industry insiders believe that the new menu item is intended to compete against Sonic, which previously held the No. 1 spot and sells an estimated one in seven of all hot dogs sold in the US. But let it be known that the hot dog is an item missing from Burger King's biggest competitor's menu: McDonald's.

Further, the success of the Grilled Dog also allows Burger King to be a more viable competitor with its fast-food rivals more generally. McDonald's has found sales success by launching all-day breakfast last October - a new menu category that customers clearly craved. By launching the Grilled Dog and hinting at plans to expand hot dog options in the future, Burger King could have the opportunity to do the same.