Peace breaks out: BK quells franchisee feud

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Burger King Corp. is trying to mend fences with its franchisees after tensions between the two over marketing and other initiatives came to a boil last month.

The top five officers of the National Franchisee Association, which represents 90% of the chain's 2,100 domestic franchisees, stalked out of a board meeting last month and resigned en masse. That followed months of tension with corporate executives.

Until now, the two sides would clash, but generally come to some form of compromise. But franchisees have recently balked at corporate plans with increasing frequency, with some criticizing the fast-feeder's focus on young males at the expense of women and families, a strategy forged in conjunction with its agency, Crispin Porter & Bogusky, Miami.

The franchisees voted down a proposed "King Kong" promotion that they feared would cut into margins, forcing Burger King to devise a new plan that included a limited-time offer for chocolate-banana milkshakes.

In another snafu, Burger King missed an opportunity to promote its "Have It Your Way" gift cards nationally during the crucial holiday season after some franchisees refused to participate in the program. The sticking point was a vendor contract that was originally set by BK's corporate office and was rejected by franchisees unwilling to be locked into a long-term agreement.

The scraps didn't stop there. Franchisees feuded with management over plans to extend restaurant hours and to roll out its BK Joe gourmet coffee. That led to a frustrated Burger King in October severing its ties with the NFA, citing a "disconnect" between the association leadership and the company (AA, Oct. 24, 2005).

Two months later, NFA Chairman Dan Fitzpatrick, Chairman Emeritus Julian Josephson, Vice Chairman Michael Wallstein, Secretary Mike DeRosa and Treasurer Bill Harloe all resigned. Messrs. Fitzpatrick, Josephson and DeRosa declined to comment. Messrs. Wallstein and Harloe didn't return calls.

Since the December board meeting, the NFA and corporate have tried to repair their relationship, according to franchisees and executives close to the situation. Franchisees voted to approve a value menu in mid-December. On Dec. 22, BK Chairman-CEO Greg Brenneman and President John Chidsey met in Orlando, Fla., with representatives of the NFA. "We had a very good meeting discussing thoughts on how the NFA can evolve to continue to benefit the brand," Mr. Brenneman said in voice-mail to the Burger King system, according to a transcript provided by the marketer. "John and I enjoyed the meeting and felt good about the tone and tenor of the conversation. These representatives will be communicating to the NFA Board and membership over the next several weeks."


The marketer declined to comment beyond that.

"We have to reconfigure the NFA," said Don White, the first president of the NFA and one of the seven franchisee reps trying to salvage the relationship. "We're used to being in a battle situation with the parent company for a long time," he said, but "right now we have the best managers of this company I can recall in 30 years." He added, "I don't think the NFA was very good at adapting to a change in the environment."

The rift's roots can be traced to earlier this summer when Mr. Brenneman, at the BK helm since August 2004, took steps to regain control of the annual franchisee meeting and to reorganize the various committees that represent franchisee interests in such issues as marketing, operations, finance and franchisee relations. The committees had originally been made up of members elected by their peers to protect the interests of franchisees.

Burger King's reasoning was that some franchisees were ill-suited to serve on committees, especially those in financial default or perceived as poor operators. Management also saw some NFA members as sabotaging corporate initiatives or merely slowing down efforts in an increasingly competitive environment. To change the dynamic, BK management, eager to turn around sales and take the company public, bypassed the NFA committees and appointed its own group of franchisees to committees, a move some viewed as installing "yes men" to rubber-stamp corporate plans.

That concerns franchisees, who view it as "corporate as dressing up for its planned public offering and they're wondering `what's in it for me?"' said one executive close to the marketer.

"Corporate's idea of success is very different from the franchisee/operator's idea of success," said Susan Kezios, president of the American Franchisee Association. "Anytime a franchiser starts looking to go public, franchisees are always going to get the short end of the stick. It's one of the dirty little secrets in franchising."

For now, many BK franchisees are giving the two sides a chance to work things out. "It's up to [them] to resolve things," one said.

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