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Burger King franchisees have argued that the company only has the right to recommend pricing and it is the independent franchisees who set their own prices. Franchisees had twice voted down the $1 double cheeseburger before Burger King insisted on introducing it nationally.
The suit, which seeks class-action status, came after Burger King started requiring all franchisees to sell the double cheeseburger for $1. They claimed the item was costing them money, dragging down the average check and restaurant profitability.
As of April 12 Burger King allowed franchisees to raise the price of the double cheeseburger to as high as $1.29.
Burger King’s attorney also argued Thursday that the National Franchisee Association does not have the standing to bring a class-action lawsuit against the Miami-Dade fast-food chain. Joblove said the case would require individual franchisees to demonstrate they incurred losses selling the $1 double cheeseburger. Burger King’s fixed costs on the product give a profit margin of about 40 percent, he said.
But Reynolds argued that franchisees were concerned they might get “retaliated” against by Burger King for testifying as individuals. - Miami Herald
Should franchisor Burger King Holdings win, franchisors everywhere may feel free to set prices below franchisees' costs that impact their independent business' profits. Franchisees historically have retained the ability to set their own price. This practice helps offset the point that franchisors receive royalties on top-line franchisee sales, and do not feel the impact to a store's bottom-line profits.
Speculation: If there is absolute control over product pricing, one wonders if the entity is in reality a franchise. Or is the franchisee in fact simply acting as a defacto employee controlled by Burger King Holdings?