TakeAway: Though it’s facing a lot of resistance from its franchisees, Burger is mandating a profit killing price for the double cheeseburger.
Why in the world would a global franchisor want to force it’s franchisees to lose money. The answer is, of course the franchisor doesn’t want the franchisee to lose money. The franchisor wants to use the item as bait to bring in customers and increase the sales of other, and most likely, higher margin products.
If Burger King franchisees do not get this logic or have proof that this logic is false, then Burger King may have bigger problems to worry about.
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Excerpted from WSJ, “Burger King Franchisees Can’t Have It Their Way,” By Richard Gibson, January 21, 2010
The price of a double cheeseburger is generating a lot of heat among Burger King franchisees.
In an ongoing dispute that could affect how the nation’s hundreds of franchise organizations set prices, the burger chain is insisting that its two beef-patty sandwich be sold for no more than $1—in line with other items on its “Value Menu.”
But the company’s franchisees claim that at that price, they lose money.
Although the loss on each sandwich may only be a few cents, a typical restaurant might sell several hundred of the burgers each week.
Most franchisees are following orders for now, but the National Franchisee Association for Burger King, which represents restaurant operators across the U.S., filed a lawsuit last fall in U.S. District Court in Florida, asserting that the company’s franchise agreements don’t allow it to dictate prices.
Burger King … says it sees the value promotion as key to competing effectively in the current consumer environment …
A court ruling that’s favorable to Burger King could embolden other franchisers to mandate prices. Many franchisees have long regarded their power to set prices as testament to their independence.
Burger King’s arch rival, McDonald’s, faced a similar issue, when its franchisees rebelled against a $1 double cheeseburger. The matter was defused when the fast-food giant removed one of the sandwich’s two slices of cheese and renamed it the McDouble, cutting the cost of ingredients …
Burger King’s franchisees say they usually get the chance to sign off on price changes, and that they’ve twice rejected a $1 double cheeseburger. Burger King confirms that it previously didn’t dictate prices on individual items, though it did require a $1 maximum price on Value Menu items.
The company won a separate case in 2008 requiring franchisees to offer the Value Menu, which is core to its efforts to attract price-conscious consumers.
A company might choose to set prices if it thinks the stores are charging so much that its royalties—and its reputation—are being diminished. But most companies don’t like to rile their franchisees …
Some franchises … say they recommend prices, especially in connection with national marketing campaigns. For example, Papa John’s is offering a special Super Bowl pizza for $11.99, though it notes in advertisements that the price is valid only at “participating” restaurants.
“Most franchisees follow our recommended national offers,” says Burger King’s SVP … since customers might argue with the store’s workers if they’re charged more.”
Edit by TJS
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Full Article
http://online.wsj.com/article/SB20001424052748704320104575014941842011972.html#mod=todays_us_section_b
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