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    Case 1 BurgerKing

    Uploaded by

    Ryzelle Anne
    The National Franchise Association (NFA), which represents over 80% of Burger King franchise owners, filed a lawsuit against Burger King Corporation (BKC) regarding BKC's $1 double cheeseburger promotion. The NFA claims the promotion forces franchises to sell the burger at a loss of at least 10 cents each. A Burger King franchisee spokesperson said the cost to make the burger is around 55 cents, not including other expenses like rent and wages. Burger King justified the promotion as necessary to remain competitive during tough economic times. The lawsuit alleges the promotion illegally sets a maximum price and BKC is not acting in "good faith" by requiring franchises to sell

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    Case 1 BurgerKing

    Uploaded by

    Ryzelle Anne
    480 views2 pages
    The National Franchise Association (NFA), which represents over 80% of Burger King franchise owners, filed a lawsuit against Burger King Corporation (BKC) regarding BKC's $1 double cheeseburger promotion. The NFA claims the promotion forces franchises to sell the burger at a loss of at least 10 cents each. A Burger King franchisee spokesperson said the cost to make the burger is around 55 cents, not including other expenses like rent and wages. Burger King justified the promotion as necessary to remain competitive during tough economic times. The lawsuit alleges the promotion illegally sets a maximum price and BKC is not acting in "good faith" by requiring franchises to sell

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    The National Franchise Association (NFA), which represents over 80% of Burger King franchise owners, filed a lawsuit against Burger King Corporation (BKC) regarding BKC's $1 double cheeseburger promotion. The NFA claims the promotion forces franchises to sell the burger at a loss of at least 10 cents each. A Burger King franchisee spokesperson said the cost to make the burger is around 55 cents, not including other expenses like rent and wages. Burger King justified the promotion as necessary to remain competitive during tough economic times. The lawsuit alleges the promotion illegally sets a maximum price and BKC is not acting in "good faith" by requiring franchises to sell

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    480 views2 pages

    Case 1 BurgerKing

    Uploaded by

    Ryzelle Anne
    The National Franchise Association (NFA), which represents over 80% of Burger King franchise owners, filed a lawsuit against Burger King Corporation (BKC) regarding BKC's $1 double cheeseburger promotion. The NFA claims the promotion forces franchises to sell the burger at a loss of at least 10 cents each. A Burger King franchisee spokesperson said the cost to make the burger is around 55 cents, not including other expenses like rent and wages. Burger King justified the promotion as necessary to remain competitive during tough economic times. The lawsuit alleges the promotion illegally sets a maximum price and BKC is not acting in "good faith" by requiring franchises to sell

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Burger King Dollar Double Cheeseburgers

    Recently, the National Franchise Association (NFA) filed a lawsuit against Burger King
    Corporation (BKC) over the pricing of products on its value menu, and specifically its $1
    double cheeseburger promotion. The NFA is group that represents more than 80% of
    Burger King Franchise owners.

    Here are excerpts from the Associated Press1 report on the case:

    The National Franchise Association, a group that represents more than 80


    percent of Burger King's U.S. franchise owners, said the $1 promotion forces
    restaurant owners to sell the quarter-pound burger with at least a 10-cent loss.

    While costs vary by location, the $1 double cheeseburger typically costs


    franchisees at least $1.10, said Dan Fitzpatrick, a Burger King franchisee from
    South Bend, Ind. who is a spokesman for the association. That includes about 55
    cents for the cost of the meat, bun, cheese and toppings. The remainder typically
    covers expenses such as rent, royalties and worker wages.

    "New math, or old math, the math just doesn't work," Fitzpatrick said.

    Burger King justified the move by stating that the company needs to remain competitive
    in a tough economic environment:

    Restaurants, especially fast-food chains, have been slashing menu prices


    because of the poor economy. Executives hope the deeply discounted deals will
    bring in diners who are spending less when they eat out, or opting to stay home
    altogether.

    When the $1 double cheeseburger was announced this fall, analysts said it could
    increase restaurant visits by as much as 20 percent. But despite that boost, a
    Deutsche Bank analyst said as much as half of the gain recorded from increased
    traffic could be lost because customers were spending less when they ordered
    food.

    Burger King Franchisees pay a royalty to Burger King that is typically equal to 4.5% of
    revenues for the store.

    The lawsuit alleges that the value menu restriction illegally sets a maximum price for the
    Burger King franchises, and that Burger King is not acting in “good faith” by forcing

    1
    ‘Food Fight: Burger King Franchisees sue chain over $1 burger promotion’ Ashley M. Heher, Associated Press,
    USA Today, Nov. 12, 2009.
    1
    franchises to sell a product below its cost. The case was filed in U.S. District Court in
    South Florida.

    Case Questions ( Minimum of 3 pages 1.5 space Time New Roman )

    1. As “experts in managerial economics”, do you support the idea that Burger King
    franchises are losing money by selling $1 double cheeseburgers?
    2. What are the relevant costs to a franchise of selling a double cheeseburger?
    3. What other factors need to be considered in making this decision?
    4. There an opportunity cost that needs to be factored in?
    5. What is the goal of a Burger King franchise? What is the goal of Burger King
    Corporate?

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