Burger King Concedes Defeat on Marketing Initiative

MIAMI – Burger King officially waved the white flag in defeat over its latest Iron Man 2 marketing initiative after franchisees voted  it down, according to undisclosed sources. The promotion was seen by franchise owners as a ploy to induce them into a bigger commitment, one giving the franchisor more control of the network’s soft drink operating fund. A company memorandum sent out on June 2 to all U.S. franchisees declared that, regrettably, its Iron Man 2 marketing initiative did not received the the “necessary level of support in its totality” and it is now closed. 

But in an effort to stay on track with its plan to raise restaurant traffic in “this increasingly competitive environment,” Burger King offered an alternative marketing program, labeled as ADVO Show of Support, for what it calls the most critical elements of its fiscal 2010 Leadership Plan. The memo had a tone of urgency, stating that franchisees needed to vote by Friday, June 5 at 5 p.m. in order to carry out this alternative marketing proposal. 

Alleged Deception in the Making

As reported on Blue MauMau, the conflict began last April when Burger King unilaterally made the decision to divert forty percent of the advertising fund to itself, effective 2010, stripping the franchisees of monies they had come to rely on for the past decade under the terms of the soft drink agreements. The owners claim that they are the third-party beneficiaries of the two agreements between the BKC network and Coca-Cola and Dr Pepper.  The fund under the name Restaurant Operating Funds (ROF) currently adds up to approximately $1.5 billion.

But on May 4, the dispute escalated when the National Franchisee Association announced to its members that it had filed two federal lawsuits against Burger King as it was kicking off its annual convention in Las Vegas.  The NFA, which has represented franchise owners since 1988, filed the two separate complaints in U.S. District Court, Southern California against Burger King and Coca-Cola and Dr Pepper, as a class action on behalf of all franchise owners, whether or not they are members of the independent association. There are approximately 6300 Burger King restaurants in the U.S., owned by 850 franchisees, and over 90 percent are represented by NFA.

Burger King, with the support of Coca-Cola and Dr Pepper, responded that the NFA lawsuit is without merit, that they have the right under their agreements to reallocate the soft drink ad funds. BKC wants to use the monies for marketing and other promotional purposes.

On May 26, Burger King then issued a "Show of Support" memorandum and survey concerning the company’s fiscal year 2010 Leadership Plan, encouraging franchisees to vote “yes” on the marketing program to promote its Iron Man 2 Gaming Event. And the company asked franchise owners to provide their positive show of support for the plan “in its entirety.” 

But it looked to some like BKC was using foul play to get franchisees to release their soda rebate to the company. After the Burger King memorandum went out, the NFA immediately issued a notice to franchisees that it had come to their attention that Burger King’s request was a “deceptive attempt to induce franchisees into supporting the entirety of its plan to divert the substantial portion of the soft drink operating fund to its own designated use. NFA Chairman William A. Harloe strongly stated in a memo titled, “Do Not be Fooled: May 27 Memo Further Evidence of BKC’s Deceptive Tactics,” that the message from Burger King’s president is completely contrary to what he said in at least two conversations with franchisees. “. . . his statements serve only to further mislead the franchisees on the issue and its implications.”

Now in a rush to put a new marketing strategy together, Russell Klein, Burger King’s president of global marketing strategy & innovation, also announced in his June 2 memo that in an effort to stay on track for the most critical near-term elements of the Fiscal 2010 Leadership Plan, Burger King has carved out a new program totally separate and apart from the other initiatives previously included.  He asked franchisees to review the latest direct mail program and vote by 5 p.m. EST on Friday, June 5, in order to meet requirements for fall, necessary to help stimulate restaurant traffic in this increasingly competitive environment.

On the same day Klein sent out his announcement conceding to defeat of the pending Leadership Plan, Harloe addressed his NFA members:

“On behalf of all franchisees, thank you for voting in the recent Show of Support. Your overwhelming support and solidarity concerning protecting your rights to your ROF was heard loud and clear, leading to the withdrawal of this plan.

Meanwhile, we are still waiting for our franchisor and our soft drink partners to respond to our requests that franchisees be treated as full partners on decisions concerning our ROF and on other initiatives.

Thank you again for your continued support of the NFA ensuring that your voice continues to be heard concerning your rights to your ROF. We will be vigilant on any additional attempts by BKC to seize our ROF monies and we will continue to communicate with you as the situation warrants.”

Prior to publishing, Blue MauMau had not confirmed whether the latest vote carried on the new, ADVO alternate marketing initiative.

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