Burger King Franchisees Sue Chain

CHICAGO — Burger King franchisees sued the hamburger company this week over its $1 double cheeseburger promotion, saying they're losing money on the deal and the company can't set maximum menu prices.

The National Franchise Association, a group that represents more than 80 percent of Burger King's U.S. franchise owners, said the $1 promotion forces restaurant owners to sell the quarter-pound burger with at least a 10-cent loss.

While costs vary by location, the $1 double cheeseburger typically costs franchisees at least $1.10, said Dan Fitzpatrick, a Burger King franchisee from South Bend, Ind. who is a spokesman for the association. That includes about 55 cents for the cost of the meat, bun, cheese and toppings. The remainder typically covers expenses such as rent, royalties and worker wages.

"New math, or old math, the math just doesn't work," Fitzpatrick said.

After testing the $1 deal in markets across the country, the discounted burger went on sale nationwide last month even though franchise owners, who operate 90 percent of the company's 12,000 locations, twice rejected the product because of its expense.

"The current management team has disregarded rights that Burger King franchisees have always had," Pennsylvania franchise owner Steve Lewis said in a statement.

Denise Wilson, a spokeswoman for the nation's No. 2 hamburger chain, said the Miami restaurant company believes the litigation is "without merit," particularly after an earlier appeals court ruling this year showing the company had a right to require franchise owners to participate in its value menu promotions.

Restaurants, especially fast-food chains, have been slashing menu prices because of the poor economy. Executives hope the deeply discounted deals will bring in diners who are spending less when they eat out, or opting to stay home altogether.

When the $1 double cheeseburger was announced this fall, analyst said it could increase restaurant visits by as much as 20 percent. But despite that boost, a Deutsche Bank analyst said as much as half of the gain recorded from increased traffic could be lost because customers were spending less when they ordered food.

The lawsuit was filed Tuesday in U.S. District Court in Southern Florida.

Burger King shares fell 18 cents, or 1 percent, to close at $17.12 Thursday.

Comments

[Sievehead]

I'd like to throw in my own personal support for the folks at In-N-Out Burgers who, in addition to using high quality products and selling them at affordable prices, are among the few companies in the food service business who treat their employees with a little more of the respect due to people who are literally putting their lives on the line under extremely dangerous conditions to serve you your $2.75 cheeseburger and $1.50 sack o' fries in as short an amount of time as possible. It makes your burger taste even better when you know you're not screwing someone over too badly to get it (note that I said "too badly" because obviously there's still going to be several elements involved in the operation of these facilities that aren't going to pass the economic, political and environmental smell tests). How do they do it? Quality of product, Simplicity of menu and Volume of service, period. Why more restaurateurs haven't caught on to the basic logic of this scheme never ceases to amaze me.

[NoMoreBail2]

We, the American people, dug ourselves into this hold for which there is no escape.a

hat tip to: http://financeopinionss.blogspot.com

[jasev01]

1. now the truth comes out 2. sell more burgers, your fixed cost remain the same and the variable cost account for only about %50 of cost

[zombywulf]

Stop whining and read your franchise agreement. Your already making a 90%+ return on all the 2 oz of colored water with the 18 oz of ice you call a 20 oz soda, and try not soaking your fries in sugar water you could save a few bucks there too.

[6465billy]

The solution is quite simple: Since MOST of the employees of fast food are teen agers or kids why NOT have a dubmin. wage law?Most teens the way the economy is right now gladly wor for say 4 dollars an hour, and that would lower the cost of fast food alot. It is stupid to pay a kid the same as an adult.

[BoVandy]

YEAH! Screwing over kids is certainly the answer! Equal pay for equal work is sooooooo overrated.

Yikes

[Prakosh]

As Jon Stewart said about Shawn Hannity--"we expect this stuff from him."

[mjb5406]

Well, part of entering into a franchise agreement is to agree to abide by promotions (the "rules")... can you imagine the chaos that would ensue if Subway's franchisees decided to ignore the 5 dollar footlong promotion? It wuld be crazy... one location offering it for $5, another 2 blocks away for $5.49, etc. McDonald's has the same rules... but the key there is, if I remember correctly, that a franchisee must offer the Value Menu pricing at $1, but are not required to serve all of the items. For example, in my area, you often see the McDouble but not the McChicken at some locations, while others serve both.

And if you pay 55 cents for the ingredients, I find it very hard to believe that another 55 cents goes to labor, rent, etc. It would be interesting to see how their creative accountant comes up with that number. Sounds like a scam just to enable the franchisees to violate their agreements.

I also noticed they don't make any suggestions like changing the offer to let people buy 2 of the $1 Double Cheeseburgers with purchase of a drink... drinks are INCREDIBLY high profit. But, if they use the same accounting methods, I bet they'll claim that their $1 soft drink costs them $1.10, too.

[johnr49]

I was in a town I wasn't familiar with the other week and was feeling hungry. I had a Whopper at a Burger King, which cost me $3.30 before tax, which I thought was outrageous. I did not realize until afterwards that I could have had a double cheeseburger for a buck, because the promotion was only advertised on an outside window, not inside the store.

[bostongreen]

A REAL American would have walked right back in and ordered two double cheeseburgers, nay, four double cheeseburgers.

[caveman1313]

seems like it would be fair to ask the parent corp to not collect royalties and or franchise fees on the promotional burgers that are loss leaders.

[GreshamGuy]

There's a certain irony here. In the '90's, BK was the last major brand to come off the dollar price point for their flagship burger. Big Mac, Jumbo Jack, and Whopper had held at a buck level for close to three years and it was killing profits. When Jack and Mac bumped the price to maintain some profitability, the franchisees at BK forced the parent to hold off for nearly a year - and it nearly bankrupted the brand.

Times change...

[cmdrgmh]

Sometimes you just gotta have a good grease burger. It's a Must.

[handypom]

true dat!

[DeadPhish]

lame slang

[Tom95134]

I have to say I feel sorry for the franchisees. A close friend of mine use to manage a fast food operatoin and margins are very thin. Franchise fees are also pretty heavy. Burger King should step up to the plate (so to speak) and make the losses of their franchisees good. After all, it's the Burger King name that is the one that is gaining by this discounted burger.

[kurtvb]

it's the fault of those $7.25/hr wage earners. They are taking all the profits out of the business.

[BizHippy2]

Are you serious? Don't blame the minimum wage worker - Corporate Greed is the culprit.

From 1973 to 2007, as the minimum wage fell 22% in real dollars, domestic corporate profits jumped more than 50%—increasing the gap between rich and poor.

[Marklar]

The ability of people to recognize sarcasm has dropped 20% since 1950.

[slowtono]

Man and they are great burgers. Hopefully they can squeeze it in to $1.55. Guess thats why McD's doesn't offer a 1/4 for a buck.

[booboo111]

I was disappointed that BK never introduced the 2300 calorie seven patty burger promotion they had in Japan for a few weeks.

[RightWingMarine]

I once had a 6 patty burger at Whataburger. The cook came out to ask if I was serious. It took an hour to eat and after half I wanted to quit but my brother threatened to punch me in the stomach if I didn't finish.

[ImaLibDem]

And to think it all started with a 5 cent burger....how times change. "rent, royalties and worker wages." -- what's the beef. That mega-jumbo-quart of soda that costs $2.49 only costs the retailer 10 cents.

[skippypicasso]

I take it you've never actually run a business. (Don't bother to answer, it was a rhetorical question.)

[Guytar]

I owned and operated a small regional cinema for six years up until a couple of years ago. Only 50,000 customers a year.

I costed a quart of soda at an average of 10 cents for the drink (syrup-CO2 gas-water) and another 10 cents for the paper cup, lid and straw. Sold a quart of soda for $2.50.

Soda drinks are easily one of the most profitable products in the food and beverage industry.

[Tom95134]

Big difference between a cinema and a fast food operation. There is a fair amount of throw out/waste in a Burger King or McDonalds. Profit margins are pretty thin.

[blisster]

Even for a buck, why would anyone want to pass that through their colon?
If you eat them with enough frequency, soon your colon will be a ; .

[skippypicasso]

Flavor, baby. Once a month or so, I have to indulge. Oatmeal gets old after a while.

[GerryS]

exactly----

[Bigrcube]

Yeah......Oatmeal, Prunes, and ALL stuff "healthy" gets BORING.
Need a *Greezy* dbl cheez even now and then......ALL that flavor....MMMmmmmmmmm.

[Dem4Lyfe]

Well, I don't over indulge, but I love them. Plus, it's one hell of a deal!

[handypom]

people mock what they don't understand! .:)

[bostongreen]

You know you like it.