Judge Dismisses Burger King Franchisee Lawsuit Over Pricing Limits

A year ago, a group representing around 75% of Burger King franchisees filed a lawsuit against BK corporate, claiming that they were losing money on some products because they were not allowed to sell them for more than one dollar. And now a judge in Florida has dismissed the lawsuit, saying the King was within his rights.

When the lawsuit was filed, a rep for the National Franchisee Association had said that the all-inclusive cost to a franchise for a double cheeseburger was around $1.10/sandwich, meaning the restaurants were losing cash for each one they sold.

In April, Burger King Corporate raised the maximum price to $1.29, but franchisees still believed that the company didn’t have the right to unilaterally impose maximum prices.

However, the judge in Florida disagreed:

There is nothing about the pricing decision that suggests BKC was doing anything other than seeking to promote the performance of its franchisees. Nothing about this action suggests bad faith.

The South Florida Business Journal quotes an anonymous source as saying that the franchisees are still considering more legal action:

While franchisees are disappointed with the court’s ruling, the right to price is vital to entrepreneurs’ ability to run successful business operations. The NFA is reviewing all legal avenues before it including the right to appeal this maximum pricing issue.

What do you think — Should franchisees be able to determine their own pricing? Or should fast food companies be able to tell them that they might lose money on some sales if they think it will lead to greater overall sales?

Burger King franchisee suit dismissed [bizjournals.com]

Comments

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  1. ClaudeKabobbing says:

    You sign the contract you gotta play by the rules

    • Loias supports harsher punishments against corporations says:

      This lawsuit attempted to bring clarity to the rules. By dismissing it, it did. Don’t be so quick to judge, as laws change constantly.

  2. Skellbasher says:

    If the franchise agreement says that the parent can dictate pricing, then the parent can dictate pricing.

    Object to the rules before you sign, not after.

    • Plasmafox says:

      That’s easy to say, next to impossible to do. The contract is probably a “take it as is or there’s the door” sort of deal.

      • Griking says:

        And people should have decided to take the door rather than purchase a franchise of they didn’t like it.

  3. Alvis says:

    I long for a world where all franchises have to play by the same rules. If Arby’s emails me a coupon, I damn well expect any restaurant with “Arby’s” on the door to accept it. Now I have to keep a mental list of “good Arby’s” and “bad Arby’s”.

    Isn’t the one thing franchising is supposed to promote is a homogenous brand identity?

  4. framitz says:

    To the whining franchise owners; If you don’t like the business model that you signed on for then GET OUT OF THE BUSINESS.

    Thank You

  5. qualityleashdog says:

    There’s several McDonald’s in a 30 mile radius from my house that we may visit during any given month. Well, six locations, actually, that we pass by and may choose to patronize over the course of a month. One franchise owns five of the six, along with many others we are not geographically close to. The sixth we avoid like the plague. They proudly proclaim that they are ‘family owned’ and ‘independent.’ Sounds like a good thing, right? No. All it means is we have the opportunity to purchase the same McDonald’s items available at any other location, at a higher price. And they have a horrible attitude, and customer service is much worse than the usual McDonald’s (as bad as they are to begin with). If the manager fails to solve your problem, you can complain to corporate, but they can’t force them to do or honor anything. This ‘family owned’ location has not, does not and will not participate in Any Size Coke or Tea for $1. They will not honor coupons. The price of all menu items are jacked sky-high. And they’re not in Alaska, they’re not even out-of-the-way. There’s no delivery hardships because they are in a rural area. They’re not. They’re just greedy. If you complain to corporate about them and are lucky enough to receive mailed coupons from corporate, the location won’t honor them.
    There’s you an example of a ‘franchise’ that doesn’t want to play ball and get on board. The end result? We won’t give them any business. Anyone passing through that’s in the know avoids the place as well. The only customers that location attracts are the motorists that don’t know what they’re getting into and the locals that don’t want to drive out of town.
    Offering items at a sale price means you may lose money if the customers only purchase the sale item. But like any other business, the sale item is meant to lure customers and take the chance they will purchase other items (markup on the soda would more than makeup for the dime they lose) and make out like bandits on the total sale. It’s a gamble, and they better play the game if they know what’s good for business.

    • Gulliver says:

      Generally speaking those franchisees do not last long int he McDonalds system. McD has some of the most stringent rules on their owner operators (a McD term, they do not call them franchisees).
      I have known several who have not had their agreements renewed and those stores become corporate stores. Remember this about McDonald’s. REAL ESTATE. In most instances McDs owns the property. I know 100’s of owner operators, and many were not thrilled with the whole coffee/ McCafe thing. Corporate rolled it out and now suddenly the o/o’s are on board. Accepting credit cards was a huge thing with them several years back, until they showed the owners the higher check averages. McDonalds also gives owners MONEY to do what they want. Things like becoming 24 hours. If you do it, they will pay your a cost differential if you do not have the sales to justify it.

      Out of all franchise groups, McDonald’s probably has it down as good as anybody.

      • zealeus says:

        As somebody with family in the business who owns multiple franchises, I’ll echo Gulliver’s sentiments. From what I know, there is a rather lengthy and somewhat invasive vetting process to become a franchise owner. Plus you need like a $million+ in assets to even be considered. I found it interesting to learn that while a lot of franchises across the board are just handed down do kids with no issue, it’s not so with McD. The kids need to be vetted just like a new franchisee and can corporate can say no.

    • SuperSnackTime says:

      I know! Its almost like one of the most successful worldwide consumer brands in the world, across multiple generations, PROBABLY knows a little more about proper marketing strategy than Joe Schmoe, Proud McD Owner in Anysville, Anystate, USA since 1998.

  6. Judah says:

    These people need to look up ‘loss leader.’ Plus if it was in a contract, they must follow the contract.

  7. fortymegafonzies says:

    Seems like the corporation has a distinctly different interest than the franchises here since, I’m pretty sure, they take a percentage of *gross* sales and consequently don’t have any interest at all in whether or not their franchises are profitable except to the extent that they are just barely able to stay afloat.

  8. psm321 says:

    Depends on what the contract says

  9. eskimo1981 says:

    It irks me when I see ads put out, but that locations can opt out. If I see an ad for Burger King, I expect all Burger Kings to be involved in that promotion. I consider it deceptive if my local isn’t participating in a promotion I see on TV, or hear about on the radio.

    I think that if you’re a franchise, you should be bound by whatever promotions the franchise runs.

  10. PLATTWORX says:

    Do not sign a franchisee agreement if you do not plan to abide by the terms. In order to be a “Burger King” and not “Bob’s Burgers” you have to follow the rules. If not, take down the signs. Enough said. Quizno goes through this all the time. Franchise owners refuse coupons, etc. Horrid.

  11. jeff_the_snake says:

    it’s not really good for consumers to have inconsistent policies across chain locations but I can see why a franchise owner would get upset about selling at a loss while corporate still maintains a profit on a particular product. by doing this theyre effectively requiring them to pay additional dues that aren’t a part of any contract previously signed. bk should probably be absorbing the loss if this loss leader is such a guaranteed money maker.

  12. TasteyCat says:

    What next? KGC franchisees won’t want to promote grilled chicken? If the king wants to advertise a dollar menu, which thereby drives traffic to your store, you’ll have a dollar menu and like it.

    Last couple of times I went there, I ordered from the dollar menu (and only the dollar menu). Those loss leaders led to a loss. So I could certainly see the argument of the franchises. However, they can’t pick and choose which part of corporate’s strategy they wish to follow and which they don’t. The point of the chain is you can reliably get the same thing at one location as you can get at any other.

  13. TheGary says:

    Heck no, they shouldn’t. They carry the BK name, they gotta play by BK rules.

  14. SG-Cleve says:

    Potatoes for french fries are very cheap, and a $1 Coke costs them more for the cup and straw than the Coke. Sell all three as a package and they make money.

  15. Mr.Grieves says:

    In Canada that dollar menu is well over a dollar.

  16. zantafio says:

    Judge: “Shut up slaves! Next case!”

    • MMD says:

      Nice try. Franchisees know what they’re getting into when they choose to run a franchise. And if they don’t, it’s because they didn’t do their homework. But thanks for trolling! I was getting pretty uncomfortable from the general tone of consensus in the comments on this story!

    • dvdchris says:

      in the morning?

  17. JoeTheDragon says:

    Where do the rest area ones fall?

    As they some times have higher prices and even you see non BK uniforms there as well.

  18. MMD says:

    I find it funny that the statement from the franchisees actually makes the claim that they’re “entrepreneurs”. Bullshit. Entrepreneurs *create* their business, they don’t piggyback on someone else’s business model.

  19. kosmo @ The Soap Boxers says:

    Rolling fixed costs into an all-inclusive cost of $1.10 can lead to the impression that selling at $1 is a loss when it actually isn’t. If the promotion is successful, you can make up the difference in volume by spreading the fixed costs (rent/mortgage, for example) over a larger number of units (essentially, driving the fixed costs down to a lower cost per unit the next time you run your calculations). Any price that exceeds that variable costs is chipping away at the fixed costs.

    I wrote about this more depth a while ago.

    http://www.thesoapboxers.com/are-fast-food-restaurants-being-forced-to-sell-burgers-at-a-loss/

  20. FrugalFreak says:

    Should franchisees be able to determine their own pricing?

    NO, They can’t profit off the name and popularity but want to be independent of it also. How popular would it be if every store had different prices? They should have built thier own named joint.

  21. verbatim613 says:

    The point of running a business is to make money. Otherwise, these franchisees are running a charity organization. If a business can’t set prices to make money, it might as well close up shop.