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MIAMI -- Burger King franchisees, who are suing the company over its $1 double cheeseburger promotion, claim they are losing a dime or more per sandwich and are challenging their franchisor's ability to set prices, Nation's Restaurant News reported.
The National Franchisee Association (NFA) in Atlanta, which represents approximately 80 percent, or 5,200 locations, of Burger King's U.S. franchise base, filed a suit last week in U.S. District Court for the Southern District of Florida, claiming Burger King Holdings Inc. "does not have the authority under the franchise agreements to dictate maximum prices."
In a statement, Burger King said it "believes the lawsuit is without merit." The company noted a U.S. 11th Circuit Court of Appeals earlier this year ruled Burger King "has the contractual right to require franchisee participation in its BK Value Menu program."
Twice since mid-summer, franchisees have rejected the $1 double cheeseburger promotion, saying they would lose money, according to the report.
Competitor McDonald's raised the price of its double cheeseburger late last year amid similar franchisee dissent that the item was not margin friendly. The chain then added a McDouble to its Dollar Menu, which still holds two burger patties but only one slice of cheese.
Burger King has looked to a value-driven promotion to combat a same-store sales slide -- same-store sales fell 4.6 percent in the September-ended quarter. In today's economy, most consumers are drawn toward deals, and restaurants across all segments have dipped to lower price points, couponing and buy-one-get-one offers, NRN reported.
Still, Burger King franchisees said they're losing on average between 10 cents and 15 cents on every $1 double cheeseburger sold. "You could conservatively indicate that it costs us between $1.10 and $1.15 per double cheeseburger that we sell with all of our fixed and variable costs being covered," said Dan Fitzpatrick, a franchisee from South Bend, Ind. "So when your revenue is only a dollar, it's pretty clear that we're not making money."
This is the second class-action lawsuit NFA franchisees have initiated against their franchisor this year. In May, the group filed lawsuits against Burger King and its soda vendors over the diversion of soda machine rebates to corporate advertising from what in the past had been used by the franchised restaurants for repairs.
Burger King has more than 12,000 stores in 74 nations.
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