Burger war franchisees seek truce

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As McDonald's and Burger King slash prices and drag down profits in a heated burger battle, a former McDonald's franchisee is calling for a grassroots cease-fire.

But Burger King said it would not support such a truce, which it said could be interpreted as "price fixing."

Dick Adams, president of the Owner/Operator Consortium, an association of McDonald's operators, sent an open letter to 70 Burger King franchisees Dec. 3 about "stopping the madness" of discounting. Both chains have launched value menus of items priced at a dollar or less; McDonald's is offering two large sandwiches for $1, causing its rival to retaliate by slashing its signature Whopper to 99 cents.

Burger King Corp. blamed the "senseless subsidized price war" waged by McDonald's Corp. for its lowered sale price. After a month-long delay, Diageo agreed to sell the chain to Texas Pacific Group last week for $1.5 billion, well below the original tag of $2.26 billion.

"I have been asked to contact Burger King franchisees in hopes of discussing a franchisee-driven `truce' in the current discount wars," said Mr. Adams' memo, a copy of which was obtained by Advertising Age. "Most of us would agree that unit economics in the [quick-service restaurant] industry are being severely damaged by the fact that the major brands are owned by publicly held companies trying to satisfy Wall Street's demand for `growth."'

Mr. Adams, who is not affiliated with McDonald's Corp., suggested in the e-mail missive that the franchisee groups align to "share strategies for dealing with the corporate behemoths that own these brands."

future threat

He asserted that the market-share war threatens franchisees' futures. "It's obvious that franchisees are cannon fodder," the memo said. "This letter may be of most interest to the one-third of your peers who voted against the 99-cent Whopper and to those who voted in the affirmative but did so against their best judgment. I can assure you that only a small percentage of McDonald's franchisees wanted the dollar menu, but in their system, marketing decisions are about as democratic as elections in Iraq."

Rick Dow, senior VP-marketing and sales for Burger King, said he wasn't aware of the letter, but that Burger King wouldn't support such a joint decision. "That would be price-fixing," he said. "We can't engage in discussions about pricing." McDonald's Corp. executives did not respond to queries.

no price fixing

"I think it's the opposite of price fixing," countered Mr. Adams. "It's exchanging information to avoid being forced to price fix." In the memo and in an interview, Mr. Adams insisted he was not suggesting that the rivals share "proprietary information or marketing plans" or halt competition.

It's a slippery slope, according to legal experts. "Generally when competitors get together, there's a danger it will be bad for consumers," said Chester Kamin, senior partner specializing in anti-trust and litigation at Chicago law firm Jenner & Block. "The question here is whether there would be a purpose in a collaboration between McDonald's and Burger King franchisees that would benefit the consumer. Trade associations can get together in that context and promote common standards."

In his memo, Mr. Adams likened his effort to that of a trade association. "If the thought of communicating with McDonald's franchisees is a little shocking, please consider that several times a year McDonald's Corp. and Burger King representatives [lawyers] meet though the auspices of the International Franchise Association," it said.

"We have nothing to do with [Mr. Adams' memo] nor should we consider that," said a Burger King franchisee who requested anonymity. "The respective fast-food giants have to do what they think is right for their brands, individually."

Mr. Adams said he received about 20 polite replies from Burger King franchisees but no formal answers.

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