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RichardSolomon's picture

Just about all the state antitrust laws provide that the Federal

antitrust rulings will apply to interpreting the state statutes. That makes them essentially "in pari materia" - the same statute as the Sherman Act. It is unlikely that a state AG will waste resources trying to go his own way if a well respected Federal Court has spoken on an issue and the ruling is not about to be dealt with on appeal. Besides, state AGs don;t have the meney to chase these will o the wisps.

Bob Frankman's picture

Burger King "treat their franchisees like ground beef"

Everyone in retailing is familiar with using loss leaders in attracting customers. But here is the danger of using it when it comes to franchisees.

On average, development costs can range from $1.2 million to $2.2 million for a typical ROC 40 or ROC 60 type restaurant."

Suffice it to say that those who own BK franchises have more than grease in the game -- in addition, they must pay for BK branding and recover all other costs from in-store revenue.

"Value Meals" are not like video-game consoles sold below cost to profit on software, or razors given away to sell the blades; they're one-off bargains. It's absurd to force retail franchises to lose on a high-volume item without proving the efficacy of doing so with a well planned, transparent go-to-market strategy. Not only does BK appear to lack one, it prefers to treat their franchisees like ground beef, rather than letting them sell it for a profit. - From the blog SpendMatters by William Bush

RichardSolomon's picture

I suspect that the only reason there has not yet been a mass

lawsuit about these extreme low price food promotions is that the consumer transaction, taken as a whole, still yields a margin dollar contribution to the franchisee, even if there is no royalty relief on such consumer sales. While they may make little or nothing on the sandwich, when you consider the fries and a drink, the entire transaction may be a net positive.

Now I know some in here think me very stupid. Anyone wanna take me on about this?

Hey Solomon

If that regular customer came in and was willing to pay twice the amount for that burger and now gets it free, then duh, the owner lose out on the profit they would normally would have gotten versus the lowered revenue now. The formula is how much money do you lose by regular customers who would have paid the old price versus the new customers who came in to buy just because of the reduced price. I guarantee its a loss for the franchise owner to offer the lower price. In the long run, its a bad strategy because the newly attracted cutomers will balk when prices increase.

Now Solomon I dont think you stupid, just ignorant of the way retail consumers purchase behaviors work. Look at Panera Bread. They never lowered prices last year, they actually raised them and look at them now. Do a search on their company earnings Richard and report back after you are informed.

RichardSolomon's picture

Hey - Guest - Panera is not the same as BK - BK customers

are more price sensitive - so everyone thinks.

Besides - you are talking about imaginary profit that assumes there is no price pressure either from the competition or from economic circumstances - wrong assumption per se.

No one today is assuming that they can make the same number of sales at pre 2009 prices - and have you tracked the Panera closings lately? Here in Houston, Panera isn't staying open except in their very best locations. I love Panera bread and not have a very long way to drive to get good bread. And I am the unusual customer who really will drive across town for good bread.

If we knew who you are and had more reason to think that maybe you knew what you were talking about, this might become an interesting conversation.

Fries, chips and drinks

I know a lady that is still holding her head above water with a Quiznos. She told me that most people are coming in and buying the 2 and 3 buck crapola and nothing else. They go back to their offices and get a soda and chips from the machine or bring their drinks and snacks from home. Says she's down at least 50% since the start of the recession. It boggles my mind how she's managing to stay open.

RichardSolomon's picture

Just the thought that you know a lady boggles my mind.

Quiznos is all by itself in misery level. No one questions burgeoning frugality, but you obviously have no data whatsoever on the profile of the average ticket that might assist in determining whether the low price sandwiches are, all things considered, positive margin dollar contributors rather than losing transactions.

It's just your obviously uninformed opinion about something that is about fact, not opinion. If you thought that blue was really green, should that be taken as an intelligent thing for you to have said?

I know - I do that all the time - according to some in here. I take my lumps and you can take yours

BK got sued for a reason

The BK franchisee association, NFA, is about 97% of the franchisees. Let's assume they know their biz better than anyone else and determined that a $1 dble cheesburger was a net loser for them. I'd be hard pressed to argue with them on the point.

I would have to assume that their customers, who you note are more value concious, might actually buy only the $1 item and skip the high margin fountain drink and fries in enough numbers that franchisees know they will lose $.

RichardSolomon's picture

I agree that the BK association knows more about all this

than I do. I note they are not in here running their mouth about it. How their lawsuit works out will determine the right and wrong of it all - as far as the specific allegations in the suit are concerned.

I'm willing to wait until that gets sorted out. Are you?

BK Franchisee Assoc

I am waiting. I know some BK zees and they know their stuff. I hope they prevail.

They've sued their franchisor, what, 3 times in the last year and a 1/2 and have done well. I know that they've weighed their odds. The hours of ops lawsuit was the only real clunker. I hope that they prevail.

You are absolutley correct, Richard, about them not running their mouth about it. Theya re a very tightly organized and disciplined bunch. Pretty much the model association according to the good stuff I've read on your website.