BK Franchisees Sue Over Dollar Double-Cheeseburger Promo

Against Sliding Sales, Suit Alleges Fast Feeder Can't Set Maximum Menu Item Prices for Sandwiches

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CHICAGO (AdAge.com) –- Burger King's franchisees are suing the company again. The latest action, filed Tuesday in Miami, is related to a controversial, nationwide dollar double-cheeseburger promotion that operators say they can't afford. The suit, brought by the National Franchise Association, alleges that Burger King Corp. doesn't have the right to set "maximum prices" for certain menu items.

"Our franchisee community is united in protecting our entrepreneurial rights as independent business owners, but we are also disappointed that we need to take legal action against our franchisor," association chairman William Harloe, Jr. said in a statement.

"Burger King Corp. believes the lawsuit is without merit. The U.S. Court of Appeals for the Eleventh Circuit decided earlier this year that [BK] has the contractual right to require franchisee participation in its BK Value Menu program," the company said in a statement.

The chain's National Franchise Association represents about 83% of the U.S. franchised restaurants, or 5,200 stores. The group is made up of 19 regional associations, which voted unanimously to proceed with the suit. Franchisees have fought hard against the dollar cheeseburger promotion, calling it unsustainable. But the chain's domestic same-store sales have been sliding since March, for losses of nearly 5% for the last two quarters. BK admitted in June that it needed to build up its value offerings and asked the franchise system to approve a double cheeseburger promotion in July. After the franchisee system voted "no" twice, BK corporate announced that it would proceed with the promotion anyway.

"Our franchisor has declared they have the right to set our menu board prices even though our franchise agreements do not give them this right," BK franchisee Julian Josephson said in a statement. "Despite franchisee profitability concerns with recent price-point initiatives, BKC decided to move forward and disregard franchisees' best interests or their rights to set their own menu prices."

A franchisee interviewed for this story said that traffic in his stores has picked up some since the cheeseburger arrived -- sales are down 3% to 4%, compared to down 9% to 10% before the cheeseburger. However, the average check is down, as is gross profit margin.

This is the second advertising-related lawsuit the group has filed against the company this year. The other suit relates to an increase in advertising spending, which the corporation has said will result in a 25% increase in advertising impressions. But the increase is funded by a diversion of soda-machine rebates that had previously been given back to franchisees to fund restaurant repairs. The franchisee said that because Burger King has refused to budge on this matter, the chain is likely getting additional blowback on the dollar sandwich.

The chain announced Monday that longtime chief marketer Russ Klein had resigned for personal reasons. Mr. Klein was on a leave of absence that began in September.

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