Burger King, Franchisees Start Making Nice

Fast Feeder to Raise Price on Double-Cheeseburger, Works to Resolve Ad-Spending Issues

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CHICAGO (AdAge.com) -- After months of public acrimony, Burger King appears to be letting franchisees have it their way. The chain will raise the price of its $1 double cheeseburger, and is working to resolve pending litigation related to a proposed advertising increase.

Burger King's double cheeseburger will see a hike in price.
Burger King's double cheeseburger will see a hike in price.
Burger King has been embroiled in two lawsuits with franchisees, one relating to whether the company can set prices -- stemming from the cheeseburger promotion -- and another pertaining to the chain's right to divert rebates from soft-drink companies to boost advertising spending.

During the most recent company earnings call, CEO John Chidsey was grilled over the chain's relationship with its franchisee base, and what management could hope to accomplish while facing staunch opposition from them. At the time, Mr. Chidsey underscored that Burger King was moving forward, and he expected resolutions to both matters within a period of weeks.

A Burger King spokeswoman confirmed that on April 26, Burger King will introduce a $1 double-patty burger with one slice of cheese. The quarter-pound double cheeseburger with two pieces of cheese will remain on the value menu, but priced at $1.19.

"We are excited to offer two great-tasting sandwiches to our guests at prices they appreciate," she said in a statement. "[Burger King] continues to test innovative new products that will appeal to both value-conscious consumers and those seeking premium indulgent products at affordable prices." During the company's earnings call earlier this month, CEO John Chidsey said to expect further additions to the chain's value menu.

This marks the chain's first conciliatory gestures to franchisees, who twice voted against the dollar-sandwich promotion last summer, but soon had to swallow it anyway. Most operators honored the promotion and saw a jump in traffic during the holidays, but average ticket fell, and therefore same store-sales declined 3% in the last quarter. Franchisees have said that sales after the holidays have continued to decline, even with the sandwich offered for $1.

Burger King's solution is exactly the plan McDonald's devised nearly 18 months ago, when franchisees complained that the dollar double-cheeseburger was too expensive to sell for $1. Burger King franchisees had additional reason for complaint: their double-cheeseburger patties are bigger, and therefore much more costly to produce.

Last week, the chain also appeared to be making progress with franchisees on the second legal matter -- whether or not it has the right to take biannual soda rebates that operators have traditionally used for store repair. In a memo to franchisees, National Franchise Association William Harloe Jr. said that he was pleased by Burger King's announcement that it would allow franchisees to keep the first of two annual payments, and thanked "franchisees for your efforts and unified support in protecting" the rebates. "In the coming days and weeks, the NFA will work on your behalf to obtain from BKC a firm written agreement that will preserve your [rebate] rights now, and in the future," Mr. Harloe said in the memo.

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