BK franchisees: Management's ideas 'ill-conceived'

AP News
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Posted: Nov 17, 2009 6:11 PM

Burger King Corp.'s franchisees are taking aim at the fast-food chain's management, complaining to the restaurant's board about a series of decisions they say are "ill-conceived" and put the burger joint's business in "deep trouble."

In a letter to Burger King's board, a group representing hundreds of franchisees blasted management for its $1 double cheeseburger promotion forced on them after they twice voted against it.

They also criticized an earlier corporate decision to take back millions of rebate money distributed to franchise owners from soft drink companies.

Franchise owners operate 90 percent of the company's 12,000 locations, making Burger King one of the nation's most heavily franchised restaurant chains.

While disputes between owners and restaurants aren't unusual, the sheer size of Burger King's franchise base could pose a heady challenge for the chain as the battle continues to brew.

"If this continues to fester, I think this could be a serious problem," said Morningstar restaurant analyst R.J. Hottovy.

The letter, obtained by The Associated Press and dated Nov. 11, shows just how frustrated the tone has become.

"We feel this is a very sad time for the Burger King brand," according to the letter from the National Franchisee Association dated the same day the group sued the restaurant chain. "You should be asking yourselves why is this happening and why is it happening now? During the meetings held around our system over the last few weeks, many franchisees in public forums have verbalized that they 'no longer trust or have confidence in the present management.'"

The letter was addressed to nine board members including Chairman and CEO John Chidsey.

Burger King spokeswoman Denise Wilson said the franchisee association is mischaracterizing the $1 double cheeseburger offer.

"BKC takes great pride in our franchise system and the actions we have taken to enhance our competitive position," she said in a statement Tuesday evening. "We remain committed to making the right decisions and constructively engaging our franchisees to strengthen the brand and move our business forward."

Franchisees sued the nation's No. 2 burger chain earlier this month over the $1 double cheeseburger promotion, saying the Miami company couldn't mandate maximum menu prices. Restaurant owners contend that the offer, which was launched in October, forces them to sell the product at a loss.

The company said its actions were allowed.

Burger King, which is locked in a heated battle to attract customers, has seen increased customers because of the deal, according to analysts.

While the quarter-pounder may be popular with diners, it's a thorn in the side of franchisees. While costs vary by location, the $1 double cheeseburger typically costs franchisees at least $1.10.

The latest litigation comes months after the franchise group sued the company to stop it from taking a share of multimillion-dollar rebates from soft drinker makers. The money was paid to franchise owners who used Coca-Cola and Dr Pepper sodas.

In legal filings, the NFA said that decision could take away $25 million in franchisee revenue in 2010 and up to $40 million a year by 2012.

Burger King told franchisees the money would be used to pay for more advertising, according to the filings made in U.S. District Court in Southern California.

Burger King shares climbed 14 cents to $17.37 in trading Tuesday.