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beejmi
| Joined: | Sat Oct 13th, 2007 |
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Posted: Fri Nov 13th, 2009 03:00 pm |
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Story below. Corporate dictating pricing to a franchise community that is very very very questionable.
Burger King's franchisees are taking their fight against the company over sandwich pricing to court.
The National Franchisee Association filed a suit this week in U.S. District Court in Miami against Burger King, arguing that the company does not have the authority, under the franchisees agreement, to ``dictate maximum pricing.''
The motivation for the suit comes after Burger King forced all franchisees to sell its double cheeseburger for $1, starting in October. Franchisees had twice during the summer voted against the $1 double cheeseburger promotion.
The franchisee association, which represents more than 80 percent of U.S. Burger King franchisees, filed the lawsuit after unsuccessful attempts to negotiate with Burger King. They are asking the court to acknowledge that Burger King does not have the right to set prices and that power rests with the independent franchisees.
``Our franchisee community is united in protecting our entrepreneurial rights as independent business owners,'' said William Harloe Jr., chairman of the NFA and a Maryland BK franchisee.
As of Thursday morning Burger King had not yet been served with the lawsuit, a company spokeswoman said.
During an earnings conference call last month, Chief Executive John Chidsey told analysts he was encouraged by the early results of the double cheeseburger promotion.
During an 18-month test, the $1 double cheeseburger had a negative impact on gross profit margin, Burger King said, buts restaurants saw an increased gross profit because consumers added on high profit items like sodas and french fries.
Franchisees argue that Burger King is using the promotion to boost sales to satisfy Wall Street investors at the expense of franchisees' profits. The company's most recent earnings report showed a 6 percent drop in profits, a 5 percent decline in revenue and a 4.6 percent fall in sales at stores open in North America more than a year.
Based on numbers Burger King provided to franchisees, the company projects that the double cheeseburger will lead to a 5 percent increase in restaurant sales. That will translate into an increased bottom line profit of $365 per restaurant based on $105,000 in sales, according to the analysis.
But financial models run by one Illinois franchisee and circulated among franchisees across the country suggest that those numbers are too optimistic and won't drive enough sales to offset the margin pressure. The franchisee models suggest that the bottom line impact for restaurants would be a loss of between $489 and $930 depending on the percentage of total sales generated by the value menu.
Stifel Nicolaus restaurant analyst Steve West agrees with franchisees that it is a dangerous move for Burger King.
``They're going to pressure margins and lower their average check, `` said West, who in September downgraded Burger King's stock to a ``hold'' rating. ``If you don't get enough sales, you're shooting yourself in the foot. History has shown that this doesn't work.''
Other analysts say that promotions have become the cost of doing business in an economic climate that has seen consumers cut back on eating out.
``I think the benefits outweigh the costs right now,'' said Tom Forte, restaurant analyst with Telsey Advisory Group. ``What's the alternative? Not discounting and losing traffic to the competition.''
At the end of last year, McDonald's stopped selling its double cheeseburger for $1 because of profit margin concerns.
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The Ultimate Sin
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Posted: Fri Nov 13th, 2009 05:56 pm |
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Corporate mother companies are famous for this shit. When I owned a food/pop vending company we'd get pricing guidelines from corporate.
National companies like The Home Depot would contract with a national vending company, and they would subcontract to us. They would direct our prices and what had to be stocked. We were mandated to stock a fruit machine, that no one bought from. My friend who worked there said it was nicknamed the Wheel of Death, because no one bought from it so the shit stared looking shoddy br Friday. They also mandated our price on pop, which was bullshit, because Michigan has a 10 cent deposit, and the price mandated meant we had to sell it at a loss. They adjusted the mandated price for us, but the prices seemed quite arbitrary.
Coke and Pepsi were the biggest whores. Coke put at machine in the doorway at The Home Depot for 25 cents cheaper than our machine in the breakroom. We couldn't get the pop from them that cheap much less pay deposit and turn a profit.
Pepsi was worse. Their driver would go to our clients on the way to our warehouse and offer them Pepsi cheaper that they would sell it to us. When we called corporate they couldn't see the problem with their drives underselling their vendors.
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beejmi
| Joined: | Sat Oct 13th, 2007 |
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Posted: Fri Nov 13th, 2009 05:59 pm |
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It's an issue. In this case if a customer does not buy something besides "double cheeseburgers" they LOSE 10 cents for every one they sell.
The franchisees are screwed here. The company is positioning itself to make their top-line better (either for Wall Street or for a potential sale) while the franchisee foots the bill.
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Principal_Raditch
| Joined: | Mon Feb 18th, 2008 |
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Posted: Sat Nov 14th, 2009 01:26 am |
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| When I was in college I pissed of the company that stocked the pop machine in our dorm. The machine sold a can for 75 cents. Well our dorm had 2 mini kitchens per floor, 4 floors. So I figured out quickly that if I bought 24 packs of coke for @ $4.00 back then it worked out to @ 16 cents a can. So I just started putting cases of coke and a few other flavors in each fridge, and told people to drop 50 cents into a box in each kitchen. I'd lose out on a few cans a week with people not paying, but pretty much everyone just bought from me, and not the vending machine. It was a really easy way to make some extra spending $$$ while pretty much doing nothing other than buying a bunch of cases each week and dumping them in fridges.
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Married Jo
| Joined: | Fri Dec 21st, 2007 |
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Posted: Sat Nov 14th, 2009 02:13 am |
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The Ultimate Sin wrote: Corporate mother companies are famous for this shit. When I owned a food/pop vending company we'd get pricing guidelines from corporate.
National companies like The Home Depot would contract with a national vending company, and they would subcontract to us. They would direct our prices and what had to be stocked. We were mandated to stock a fruit machine, that no one bought from. My friend who worked there said it was nicknamed the Wheel of Death, because no one bought from it so the shit stared looking shoddy br Friday. They also mandated our price on pop, which was bullshit, because Michigan has a 10 cent deposit, and the price mandated meant we had to sell it at a loss. They adjusted the mandated price for us, but the prices seemed quite arbitrary.
Coke and Pepsi were the biggest whores. Coke put at machine in the doorway at The Home Depot for 25 cents cheaper than our machine in the breakroom. We couldn't get the pop from them that cheap much less pay deposit and turn a profit.
Pepsi was worse. Their driver would go to our clients on the way to our warehouse and offer them Pepsi cheaper that they would sell it to us. When we called corporate they couldn't see the problem with their drives underselling their vendors.
lol..dude, I've worked for a vending company for 14 years now..I know of what you speak, especially the Home Depot situation. Fuck Best Vendors, International Vending Management, Sodexho Vending, National Vending Management, etc, etc..
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Kid_Naitch
| Joined: | Tue Oct 30th, 2007 |
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Posted: Sat Nov 14th, 2009 04:10 am |
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Married Jo wrote:Sodexho Vending
Fuck these guys.
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TerryWWWF
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Posted: Sat Nov 14th, 2009 06:12 am |
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| BK can't make up the loss on the double cheeseburger by charging $1.29 for 15 cents worth of Coke, ice and cup?
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Papa Voo
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Posted: Sat Nov 14th, 2009 12:09 pm |
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Has anybody watched this, yet?
 Last edited on Sat Nov 14th, 2009 12:11 pm by Papa Voo
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beejmi
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Posted: Sat Nov 14th, 2009 12:57 pm |
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TerryWWWF wrote: BK can't make up the loss on the double cheeseburger by charging $1.29 for 15 cents worth of Coke, ice and cup?
I don't think it works. One double cheeseburger (Costs $1.10) and your scenario (.15 for a Coke with a menu price of $1.29) gives them a cost of $1.25 on a $2.29 menu price. 55% cost (double the industry average) and you haven't paid anybody. Or paid rent off of that. And what if you "only" have 800 customers that day.
The other issue and it's the 500 pound elephant in the room (and why it is IMO potentially their financial ruin) is this ......
What about all of the people that normally buy the $3/$4 chicken sandwich (that they do make money on) that now "switch down" for this "good deal" on the doublecheeseburger?
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TerryWWWF
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Posted: Sun Nov 15th, 2009 03:35 am |
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beejmi wrote: TerryWWWF wrote: BK can't make up the loss on the double cheeseburger by charging $1.29 for 15 cents worth of Coke, ice and cup?
I don't think it works. One double cheeseburger (Costs $1.10) and your scenario (.15 for a Coke with a menu price of $1.29) gives them a cost of $1.25 on a $2.29 menu price. 55% cost (double the industry average) and you haven't paid anybody. Or paid rent off of that. And what if you "only" have 800 customers that day.
The other issue and it's the 500 pound elephant in the room (and why it is IMO potentially their financial ruin) is this ......
What about all of the people that normally buy the $3/$4 chicken sandwich (that they do make money on) that now "switch down" for this "good deal" on the doublecheeseburger?
From what I read, the actual burger in question costs 55 cents to make. The rest of the $1.10 includes the pro rata costs for employees, rent, etc.
Chicago Tribune: "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."
And again, I'm sure there's a corresponding profit margin on drinks, fries, desserts and all the other things that people are likely to order. Only the truly cheap (like me) go in and get a sack of the $1 burgers.
I can only speak for myself on this, but I'm not buying the $3/$4 chicken sandwich if they don't have the $1 burger. My alternative to the $1 burger is the $1 McDouble at McDonald's or whatever Wendy's calls its $1 burger. 90 percent of my fast-food purchases are tied to a special, a coupon or the dollar menu. The exceptions are the limited appearances of the McRib when it's around and Wendy's in general, because I like their stuff and generally find it to be reasonably priced for fast food.
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TerryWWWF
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Posted: Sun Nov 15th, 2009 03:36 am |
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>>>At the end of last year, McDonald's stopped selling its double cheeseburger for $1 because of profit margin concerns. <<<
And they replaced it with the $1 McDouble, which is the same product, but with one slice of cheese instead of two. It's actually better with one.
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stingmark
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Posted: Sun Nov 15th, 2009 10:14 am |
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beejmi wrote: TerryWWWF wrote: BK can't make up the loss on the double cheeseburger by charging $1.29 for 15 cents worth of Coke, ice and cup?
I don't think it works. One double cheeseburger (Costs $1.10) and your scenario (.15 for a Coke with a menu price of $1.29) gives them a cost of $1.25 on a $2.29 menu price. 55% cost (double the industry average) and you haven't paid anybody. Or paid rent off of that. And what if you "only" have 800 customers that day.
The other issue and it's the 500 pound elephant in the room (and why it is IMO potentially their financial ruin) is this ......
What about all of the people that normally buy the $3/$4 chicken sandwich (that they do make money on) that now "switch down" for this "good deal" on the doublecheeseburger?
Actually, the "price" of a soda these days is mere pennies. I remembert years ago, my buddy used to manage a movie theater. He told me and a bunch of us that it cost them about 3 cents a cup for soda(you're paying for the syrup), and that if you break it down in unit costs, thats what it will cost you, approx. Say one of those syrup boxes costs 20 bucks....if you sell 20 drinks for 1.87, you've made your $$$ back and then some. Plus, you're bound to get ALOT more than say 20 drinks out of one box.
I would imagine the burgers thing is the same way? it cant cost them too much dough to buy in bulk, or else, they wouldnt do it.
Perfect example is Little Squeezers Pizza, and their "$5 hot and ready"pizzas. It costs them about $1.76 for a pizza w/everything on it, they make about 3 bucks off it...they sell a shitload.....the volume makes up for the costs of something, if it should cost them a bit more. If Little Squeezers didnt make $$$ off them, their pizzas wouldnt be $5 bucks....
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beejmi
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Posted: Sun Nov 15th, 2009 01:13 pm |
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Chicago Tribune: "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."
Well you have at least half point there. The franchisees throwing out "We are losing 10 cents for every sandwich we sell" with that calculation including things besides just the actual the cost of the sandwich is bull.
Still 55% cost on a single item in food service is high (but I would concede to you that it is not out of the question)
Corporate going with something that 80% of it's franchisees does not want to do (basically because they sell a whopper jr for $1 also) is interesting though. Over time Burger King has become more and more like Taco Bell ~ just trying to sell for as little as possible and just doing anything to get something in the cash register tills. If I was a franchisee paying royalty and advertising costs and this is what they come up with I'd still be pissed.
____________________
"A good friend will help you move, but you need a really good friend to help you move a body."
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The Ultimate Sin
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Posted: Sun Nov 15th, 2009 03:19 pm |
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Married Jo wrote: The Ultimate Sin wrote: Corporate mother companies are famous for this shit. When I owned a food/pop vending company we'd get pricing guidelines from corporate.
National companies like The Home Depot would contract with a national vending company, and they would subcontract to us. They would direct our prices and what had to be stocked. We were mandated to stock a fruit machine, that no one bought from. My friend who worked there said it was nicknamed the Wheel of Death, because no one bought from it so the shit stared looking shoddy br Friday. They also mandated our price on pop, which was bullshit, because Michigan has a 10 cent deposit, and the price mandated meant we had to sell it at a loss. They adjusted the mandated price for us, but the prices seemed quite arbitrary.
Coke and Pepsi were the biggest whores. Coke put at machine in the doorway at The Home Depot for 25 cents cheaper than our machine in the breakroom. We couldn't get the pop from them that cheap much less pay deposit and turn a profit.
Pepsi was worse. Their driver would go to our clients on the way to our warehouse and offer them Pepsi cheaper that they would sell it to us. When we called corporate they couldn't see the problem with their drives underselling their vendors.
lol..dude, I've worked for a vending company for 14 years now..I know of what you speak, especially the Home Depot situation. Fuck Best Vendors, International Vending Management, Sodexho Vending, National Vending Management, etc, etc..
Best Venders was who we dealt with on The Home Depot situation. Happily we sold the food and drink section of the business, and are just dealing smokes now.
____________________
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carpetbeggar
The Ayatollah Of Rock & Rolla
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Posted: Sun Nov 15th, 2009 04:00 pm |
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Beej do know approximately what it costs for a Burger King Franchise now?
I assume the cost would be different if you were to buy an existing franchise than starting a new one from scratch?
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