CATALYST: Burger King has signed marketing deals with DreamWorks and Nickelodeon.

Following the wake-up call delivered in Diageo's earnings report last month, Burger King is trying hard to prove its worth. The new initiatives mark the latest in a string of bold moves to revive the flagging chain and create a winning proposition for Diageo to spin off. The marketing pacts should both aid and last Burger King's transition to being a standalone company.

Diageo has been trying to shed its food interests for a long time now and the latest earnings report has only strengthened this resolve. Last month, Diageo announced a strong performance with underlying profits in premium drinks rising by 11% to $2.13 billion. Largely responsible for the sales growth was Smirnoff Ice, the alcopop claimed to be Diageo's most successful ever launch. Smirnoff net sales rose by a whopping 52%.

In comparison however, Burger King's operating profits dropped 12% from $301 million to $264 million, with margins slashed by 4% to 17%. In all, Burger King contributed just 6% to Diageo's profits. Although problems have been blamed on the foot-and-mouth disease outbreak, this is not enough to excuse the poor performance in 2001. For example, Burger King now owns nearly a quarter of US fast food burger stores but receives only 18% of the overall revenue.

In the hope of fixing some of the problems, the marketing deals will enable the company to pull in more youngsters (and thus revenue) through the joint promotion of the next five DreamWorks animated movies and an aggressive expansion of Burger King's existing kids meal programs with Nickelodeon.

Burger King has made other bold moves in the past month. A revamp of its marketing team has resulted in seven new appointments or promotions in the past month. A break with its chief creative advertising agency, McCann-Erickson, is hoped to provide more flexibility and encourage more promotional types of marketing. Underlining this aim, the "Cash is King" promotion, with nearly $2 million in prize money, kicked off this week.

Yet another step towards self-supporting profitability came with the appointment of Perot Systems to take over operations of Burger King's data center and global network. With such sweeping changes, Diageo might not have to wait too much longer to be free of its fast-food chains.

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