Burger King Seduces Franchisees into Giving Up Ad Fund Monies

MIAMI –  Blue MauMau has obtained from unidentified sources a memo sent out Thursday by the National Franchisee Association, addressing new revelations in the heated dispute between Burger King Corp and its franchisees concerning the reallocation of monies from the system’s soft drink operating fund.

The dispute first erupted when Burger King announced last April its intentions to move a substantial percentage of funds out of the beverage Restaurant Operating Funds (ROF) and appropriate the monies for its own designated use. As a result, on May 4 the NFA, which represents over ninety percent of franchise owners, filed lawsuits against Burger King and its two distributors, Coca Cola and Dr Pepper. According to the complaints, NFA asserts that Burger King’s intention was to divert to itself up to 40 percent of funds owed to franchisees under the soft drink agreement, effective February 2010. According to sources, that amounts to approximately $1.5 billion over the balance of the contract. 

NFA Chairman William A. Harloe, Jr. doesn’t pull any punches in warning against Burger King’s latest offer to franchisees. He cautions upfront, “Do Not Be Fooled: May 27 Memo Further Evidence of BKC’s Deceptive Tactics.” Harloe declares that Chuck Fallon, president of North America Burger King, had attempted to explain away the discrepancies and deception in BKC’s “Show of Support” memorandum and survey concerning its 2010 Leadership Plan. He states, “His message is completely contrary to what he said in at least two conversations with franchisees, and his statements serve only to further mislead the franchisees on the issue and its implications.”

The NFA leadership discovered that Burger King’s “Show of Support” memo only mentions the money in connection with the Iron Man 2 Gaming Event, according to other communications. The association has told members that a “yes” vote on the Show of Support survey does not just mean approving the use of the refund for the Iron Man 2 Gaming Event. Rather, a “yes” vote means approving all soda refunds away from individual restaurant owners and into the hands of BKC.

Harloe’s memo yesterday disputes Fallon’s latest claim that encouraging “yes” votes is not an attempt to seduce franchisees to unknowingly reallocate the soft drink funds generally. Harloe emphasizes, “But that is precisely what it is!” He said Fallon told franchisees the 2010 Plan applies to taking the full 20% of ROF monies for media and advertising expenses. Harloe continues, “It is therefore no coincidence that BKC’s memo reiterates several times that your vote pertains to the entirety of the 2010 Leadership Plan includes reallocation of 20% of ROF funds.”

Harloe says that Burger King’s promise to file a binding notice with the court stating that “yes” doesn’t really mean “yes” is unacceptable and improper. He reports, “The NFA’s counsel confirms that no such binding notice has been filed with the court, nor does any legal procedure exist for BKC designed to induce franchisees into voting “yes” on an issue that authorizes the diversion of ROF monies.

Harloe stated that he and the NFA board members have cast their “no” vote, and they encourage all members to vote. He says, “Keep in mind that not voting skews the results in favor of approving any show of support, so please vote.”

In contacting the National Franchisee Association headquarters in Atlanta regarding William Harloe’s memorandum to members, a spokesperson responded: "Our messages to our members speak for themselves and we still desire a return to the status quo as an amicable resolution".

Burger King could not be reached for comment today, but has responded to the dispute over the soft drink fund stating that the lawsuits filed by NFA are without merit. "BKC and the soft drink suppliers have the right under their agreements to reallocate these funds, which will be used for marketing and other promotional purposes," says a statement released by company spokeswoman Denise T. Wilson.

Atlanta-based Coca-Cola released a similar statement from spokesman Scott Williamson: "We believe this lawsuit is without merit. We value our relationship with the Burger King system and support their desire to grow their business and the value of their brand."

Dr Pepper is also behind Burger King on the issue. "We support Burger King's strategy to fuel growth and add incremental value to their entire system," Greg Artkop, a spokesman for the Texas-based company, said in a statement. "The more consumers know about Burger King the better it is for all parties."

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