NEW YORK ( TheStreet) -- Even as Burger King ( BKW) reports third-quarter earnings, it faces new competition from sit-down restaurant chains like Buffalo Wild Wings ( BWLD) and DineEquity ( DIN) . Those companies are going head-to-head with the maker of the Whopper and other fast-food foes like McDonald's ( MCD) by building new brands with healthier, more unusual menus.
Tuesday, Burger King reported its fourth consecutive same-store sales increase in its U.S. and Canadian division. Same-store sales rose 3.6% in the third-quarter, quicker than the 0.4% pace in the second-quarter, and better than the 3.3% decline delivered by McDonald's. "In the U.S. and Canada, we posted our best quarter of comparable sales growth since 2012 due to our consistent strategy of impactful new product innovation balanced by compelling value offerings," noted Burger King CEO Daniel Schwartz.
But that successful streak of sales by Burger King may be at risk in 2015 and beyond, while McDonald's faces a tougher hurdle to jump in returning to sales growth in the U.S. Shares of Burger King were up 0.9% at $32.58 in Tuesday morning trading, while shares of McDonald's were up 0.8% at $94.37.
On Oct. 30, fast casual pizza player PizzaRev, minority-owned by chicken wing purveyor Buffalo Wild Wings, announced the addition of five franchise groups throughout Denver, Washington D.C, Las Vegas, Long Island, N.Y., and Columbus, Ohio. In total, PizzaRev plans to open at least 40 franchise locations across these markets, many of which will be led by existing franchisees of Denny's (DENN) and Burger King, as well as former Buffalo Wild Wings franchise operators.Must Read: Buffalo Wild Wings CEO Sally Smith Spills the Company's Secret Sauce
Buffalo Wings had previously announced intentions to open five company-owned Rusty Taco locations. Buffalo Wings acquired a majority stake in the Mexican food-themed business this past summer.
In an Oct. 29 interview with TheStreet, Buffalo Wild Wings chairman and CEO Sally J. Smith shared this on the topic of acquisitions, "We want fast casual, or casual dining, preferably the fast casual space." Smith added, "We want it to have a broad appeal, so we think it would work from Los Angeles to Des Moines to Charlotte, N.C. We want simple operations, so that's both franchise-able and company-owned."
For owners of the upstart brands, an established chain in Buffalo Wild Wings, says Smith, affords the company the luxury of "piggybacking on some of our purchasing contracts."
Comments from Smith echoed those previously made by DineEquity chairman and CEO Julia Stewart to TheStreet. "A third brand is certainly a way to grow and give value to our shareholders, and certainly our franchisees. Frankly, they are probably the ones that want us to buy a third brand the most," told Stewart to TheStreet in an Aug. 19 interview. Stewart concluded at the time, "there could certainly be an opportunity for a third brand."
That viewpoint from Stewart came before DineEquity's completion of a $1.4 billion securitization refinancing on Sept. 30, which gave the company greater financial flexibility. DineEquity announced on Oct. 30 that it would raise its dividend by 17% and hike its share repurchase program to $100 million from the remaining previous authorization of about $40 million.Must Read: Dunkin' Donuts CEO Is Pushing to Win the Battle for Breakfast
An emerging-brand acquisition by DineEquity could come in 2015 and be expanded nationally using the same franchise business model found at the company's Applebee's and IHOP businesses.
"It's also our intention to explore the potential of investing in a growth vehicle beyond our current two brands," Stewart said on an Oct. 28 call with analysts. "We believe that our scalable shared services infrastructure can accommodate a smaller concept to drive long-term shareholder value."
DineEquity's sights look set on restaurant assets similar to those eyed by Buffalo Wild Wings.
"An ideal strategic fix would be an emerging concept with a potential for domestic and international expansion, and it would not compete directly with our existing brands and would need to be a very attractive development opportunity for our current franchisees," remarked Stewart.
McDonald's founder Ray Kroc pioneered the lucrative practice of opening fast food restaurants using a franchise business model. Today, about 80% of McDonald's 35,000 restaurants opened around the globe are franchised. Burger King has found financial success by selling off company-owned restaurants since 2011, something referred to as refranchising. The home of the Whopper and chicken fries now has approximately 100% of its 13,000 worldwide restaurants in a franchise format.
That the race to open franchised restaurants carry an important consideration that could ultimately impact profits: Dwindling prime real estate opportunities in the U.S. could send prices higher.
"While the market overall has become more competitive for the kind of sites we are looking for, Chipotle remains a very desirable tenant with strong financials," said Chipotle co-CEO Monty Moran on an Oct. 20 call with analysts.Must Read: Papa John's Founder, CEO on the Pizza Wars: "Now We're Back to our Culture of Tinkering"