Unlike some other restaurants where your local franchise will just refuse to participate, Burger King requires all of its locations to take part in the promotion.
They may face an uphill battle, though. MSNBC notes that "an earlier appeals court ruling this year [showed] the company had a right to require franchise owners to participate in its value menu promotions."
"Burger King franchisees sue over $1 promotion" [MSNBC] (Thanks to Howard!)
]]>All those ads with folks desperately digging through the sofa for change to equal a dollar.. reality: they will be charged sales tax, making it more than $1.
]]>When you license a franchise, you're getting a turnkey solution with an operations manual the size of a Manhattan phone book, that regulates everything from minimum operating hours and food preparation standards down to the color of tile in the dining room. You're also buying into a national advertising plan, the company's research and development efforts and reaping the benefits of heightened brand awareness and brand loyalty. Hell, in most cases, the company even picks your locations for you, so you don't even have to worry about doing basic traffic and demographics analysis.
If you want to be independent and free from micromanagement, operating a major brand franchise is absolutely the last thing you should do.
]]>They can make up the cost with the $2.00 soda that costs them all of $.25 to make.
]]>Then again, I don't drink soda.
]]>I mean, before this promotion they were $2.50 EACH!
when they really should've been like $1.50/1.75 each.
]]>It sounds like to me that the burger cost 55 cents so they make 45 cents off each burger.
]]>At least that was how it was in 2007, not sure if it is still ran like that.
]]>those aren't really supposed to be included in the price. Say I open a toy store and sell only one Wii console the first month but my rent and utilities is $1000 and the Wii cost me $150, according to your reasoning, selling it at anything below $1150 would be predatory pricing, only real costs can be figured in
]]>I guess expecting journalists to know even the most basic high school economics is asking too freaking much.
If the franchisees don't like the way corporate is running the business, why don't they just stop being Burger Kings? Oh that's right, they like all the advertising corporate does for them, and they don't know how to run a successful restaurant without all the help from corporate.
They probably still want corporate to run the promotion too, so that people will wander in, be too hungry or lazy to leave, and buy something more profitable. They just don't want to be the ones actually selling the less-profitable burgers.
If they don't like it, they shouldn't be franchisees.
]]>@markrubi: "The franchise owners suing BK are not losing money in my eyes at the end of the day."
In your opinion? Are you an economist? A franchise owner? These people aren't going to seek a class action lawsuit or some other nonsense for their health. The Whopper Junior has been about a buck for quite some time now, and they know about the profitability of a loss leader (or lack thereof). Whether or not one of these burgers does the trick of selling more drinks, fries, etc. has a lot to do with the location of the store. Burger King's own stores are surely located in areas that receive the right kind of business to make this work. The BK franchise in my college town, however, will undoubtedly suffer some serious losses to the crowd that stops in for nothing but a dozen of these burgers and nothing else, then heads home to eat them. Not a moneymaker.
]]>@Scatter: Because while 2 of those burgers are the weight of a whopper, the dont have the angry whopper sauce, onions, peppers, etc.
You can add all that, but using your logic, where volume of food is what you are after, you can eat a 5 pound bag of rice for the amount you pay for your burger if you go to the store.
]]>For some people, their greed knows no bounds...
]]>I think you make a valid point, but the franchisers do have to realize that things like this are going to happen. They bought into a brand name.
This promotion has worked though. I tend to avoid BK at all costs. Rarely eating anything from there. They've gone down hill pretty bad over the past twenty years or so. This promotion has brought me back, as well as many others. You can tell by the long drive through lines they have now, as compared to what was just a few weeks ago.
]]>That's all I would get from BK. Their fries suck, and their tea sucks(I don't drink soda very often). The Whopper has been below par for ages now, which makes BK one of the worst fast food joints in the land.
The double cheeseburgers aren't all that bad though, and this promotion has made me return once already. I might even return again in the near future. but when this deal goes away, BK will once again be an afterthought for me.
]]>Man, i do this all the time. Grab a couple of McDoubles, then drive across the street to the local gas/convenice station and get a 32oz bladder buster for another .69
Awesome wholesomeness
]]>"Unlike some other restaurants where your local franchise will just refuse to participate, Burger King requires all of its locations to take part in the promotion."
Actually, I applaud Burger King for that. So many chains have had their images trashed by franchise owners who refuse to particpate in advertised promotions... at least BK was smart enough to put an end to that.
If you own ANY franchise and do not want to honor a promotion DO NOT reject customers, keep your mouth shut and bring up your concern with corporate or call your lawyer. I have seen a few franchise food places shut down eventually because they slapped signs on their windows refusing to take certain coupons and customers, rightfully, stopped eating there.
Refusing promotions from your own brand distroys customer goodwill. Just not worth it.
But, at my store, given the prices, you can get a two cheeseburger meal for 4.80, or... a mcdouble meal and another mcdouble for 4.80. *shrug*
]]>Where are you getting an 80% markup? The 55 cent figure is the food cost alone, the franchisees still have to pay for salaries, rent/mortgage, taxes, utilities, etc. The whole point is that generally there is no markup whatsoever. rtfa.
]]>@Powerlurker:
I was actually shocked that it costs as much as it does--by far the most expensive thing is the beef, and it's not exactly prime (as you point out), there's only an 1/8th pound of it and the price must be much, much lower for BK than retail in that they buy millions and millions of pounds annually.
I am still amazed that BK still mentions their competitors (Wendys and Ronalds) in a large percentage of their ads. I would think one important rule of advertising is to never mention the competition by name.
]]>It should also be noted, though, that a previous court order found that corporate could force franchisees to participate in value menu promotions.
So, it seems like there's some tension in the way the contracts were written.
]]>Actually, it's being reported that the franchisees are suing b/c their contract doesn't allow corporate to "dictate maximum pricing."
It should also be noted, though, that a previous court order found that corporate could force franchisees to participate in value menu promotions.
]]>@phildogger: I'm sure the franchises would have absolutely no problem with this if the customer was required to buy fries and a drink to get the deal (like 99% of other promotions). These people aren't stupid; it's hard work to run a successful fast food franchise. If 80% of franchises think there's a problem here I'm inclined to give them the benefit of the doubt.
]]>@zibby: Is there anything more satisfying than firing a client?
]]>Burger King provides the building, the advertising and the food plus more. If you can't make a profit, too bad. You should have researched Burger King Corp before you started selling fat, salt and carbs to fatten Americans and your wallet.
As for Burger King, it would be wise to take care of your franchise owners. Afterall, they are on the front lines with the public.
It really doesn't make that much sense to buy expensive meat for ground beef. A large part of what makes a cut of beef high quality or not is the distribution of fat throughout the muscle. If you're just going to be grinding up the meat and homogenizing the fat and muscle together, you might as well just buy cheaper, less marbled cuts.
]]>"Excuse me, I ordered... two.... double... cheese... burger!"
"Yeah, we have special price for that."
If people don't know about it, it is not going to help boosting the sale greatly. And if this kind of loss leader is not boosting the sale greatly, it is just loss. (However in suh case the loss should be very limited.)
]]>I can see the goal here - After all Walmart is undercutting itself on items just to keep marketshare and hoping to regain lost profit from people buiying more things - but BK should probably reimburse the franchises for those sales. It should be the corporate level that loses money, not the franchise owners.
]]>Yes - I think these franchisees need to quit whining for that reason and many others. I was simply addressing the fixed/variable cost argument as an additional reason I feel no sympathy for the plaintiffs.
If you read a post of mine a little further down the page, I make reference to some profit figures I've gotten from a friend that owns several McD's franchises.
No sympathy from me...
]]>Let's not forget the profit on the accompanying soda and/or fries which are also purchased. At a fast food chain I worked at, I calculated it cost us $0.10 per 16oz of fountain soda (a little more to factor in the CO2).
You'll easily make up the loss on the burger as the overhead on serving fountain drinks is negligible.
]]>Buying into a pre-established restaurant chain is *not* independence! A franchisee buys into the brand name, gets its supplies from predetermined sources and is directed to serve specific menu items cooked to predetermined specifications. How can any of that be considered independence? Would we be having this conversation if a BK franchise owner decided to stop offering Whoppers? No, because a customer reasonably expects to be able to get a Whopper at a BK - it's part of the brand.
My earlier point stands - if a promotion is nationally advertised and a franchise doesn't go along with it, the customer is alienated. I'm not saying that there shouldn't be discussion between corporate and franchisees about what works and what doesn't as far as the economics of these promotions - but a franchisee "independently" opting out doesn't help either entity.
]]>@Cant_stop_the_rock: That's what I was thinking. Fixed and variable costs are different animals. I could understand adding in the labor needed to make one sandwich as a reasonably direct cost, but the others are fixed costs and shouldn't change drastically with an increase in customers.
]]>@phildogger:Maybe "no one goes there and just gets a burger" applies to the folks you know, but spend any time in fast-food restaurants in the inner city, or really any economically depressed area, and you will observe a steady stream of customers with exact change for a single item. And if it's a "loss-leader" style of promotion, for the owner it's all "loss".
]]>Except they don't have to simply "live with it," they can file suit, which they've done. I've no idea if they'll be successful (I personally doubt it) but I do know this--if the corporation decides that the litigation costs more than the incremental advantage of the burger promtion adds to the corporate bottom line, than it is corporate that will be living with not having this pricing structure.
Moreover, franchise agreements have been overturned before.
I understand the franchisee's point of view but if they did agree to participate in promotions like that they really should. But Burger King has got to realize the financial strain they are putting on the owners. And if some franchises refuse to partipate that hurts Burger King.
Corporate must not do squat for the Burger King owner. And that would explain why I had great difficulty getting a south Florida BK manager to honor an apparently expired deal sign they still had prominently posted. It increased the order by almost 2 dollars. They argued it was expired. I argued the sign is displayed with no dates. And all this while some kind of BK higher up was training/supervising someone. Even if it was some kind of corporate test or inspection you don't subject your customers to arguments like that.
]]>Repeat a few hundred times a day and BK can post "market share growth" to happy investors against the main competitors. Standard Oil back in the day would price themselves below production cost to kill the competition. Fair? No. But BK doesn't nearly have the stranglehold that SO had so it'll probably be ok.
Also, increased market share is related to increased consumption, which can lead to negotiations for better wholesale prices on ingredients for more profit in the future.
Kinda sucks that the franchise owners don't have the billions in the bank to weather these tactics, though. Why doesn't BK corporate just give them a break on ingredients bought specifically for use with this sandwich?
]]>Could they negotiate a better deal before signing? Dunno. But they could have bought a McDonalds instead.
Jeff Yablon
President & CEO
Answer Guy comments on Business Change and Dollar Menus
Being a franchise *is* being (mostly) independent. Sure, participating in promos consistently is good, but corporate can't just arbitrarily pick promos that are clearly hurting the franchisees. Corporate needs a smackdown every now and then - they need to remember that their main customers are *franchisees*, not the public.
]]>@Scatter:
Well, I'll explain why I do it--I actually like the meat/bun ratio of the larger sandwiches, and I don't feel like doing a meat and topping-transplant to achieve it. I'll pay the extra dollar, thanks.
]]>Except you've left out all the other costs: rent, salaries, utilities, taxes
]]>Yeah, including the fixed costs is wrong. They're not taking a loss. If they were taking a loss, each additional burger they sell would decrease their profits. That is not the case.
]]>Maybe it's cost is offset when it finally gets out of the ground and gets the security deposit back.
]]>I always get a drink and fries and without this promo I wouldn't go to BK. Before the promotion a Double Cheese combo was $4.69 now it is $3.18 (The same price it was three years ago).
]]>@phildogger: Ok, Most people don't go there just for the burgers. Some of you may, but I would guess 95% of the people buy a drink and fries.
]]>@temporaryerror: Good idea in theory, but how often did you finish the burgers before the oven had already preheated? That's the only problem with oven fries.... they take too long.
]]>@floraposte: Good point. I had a guy that I did business with that wanted me to do everything for him as a "loss leader". It was his favorite term. Didn't take me long to realize that this deadbeat's entire custom consisted of loss leaders and I kicked him to the curb.
]]>It's a cheap meal, under $2.50 after tax + a $.35 can of pop from home.
]]>They might lose money on that particular line item. I have a friend that owns 6 McD's franchises. After enough drinks, he finally told me all about the Double Cheeseburger P&L (before they went to the McDouble... actually just weeks before).
He said that before gas prices shot up, they made $0.02 on a Double Cheeseburger, on average, over a year. That margin fluctuated with the price of cheese more than anything else until they started getting fuel surcharges from the trucking companies.
The fuel surcharge, he said, cost him about $130-140k per store per year. He said a well run restaurant in a good location makes $300-400k/year for the owner (made...before the fuel surcharges hit).
There are a lot of factors going into the franchisee's bottom line. Focusing in on the profitability of one loss leader is missing the forest for the trees.
]]>@wagenejm:
The McDonald's patty is a 10 count (1/10 pound). BK is 8 count (1/8 pound). wagenejm is right - it is the equivalent of a QPC.
@Benguin:
I don't think you can jump to that conclusion, unless I'm just glazing over blatant sarcasm. :) I'm certain that a regular cheeseburger costs them less than a McDouble. I've never understood that.
I get the concept of a loss leader, but even so, part of my brain grinds to a halt every time I see someone order a regular cheeseburger at McDonald's for $1.40. I don't understand why the price is higher than a sandwich with double the meat, and I don't understand why anyone would buy it.
]]>This is a PROMOTION, though, right? I assumed when specials like this happened corprate would absorb some of the 'cost' to the store. I guess I now know that isn't true...
To be successful in the lawsuit the stores will have to show that the are losing money on the bottom line, not just on $1 burger sales.
]]>I was not aware of the $1 Promo until I read about the "lawsuit". Nice free publicity for BK!
]]>@treimel:
Based on an earlier post, it looks like the incremental variable cost of the burgers is about $0.55, leaving another $0.55 for the fixed costs.
If the $1.10 "cost" of the burger is based on X burgers sold in a day, then really any incremental burgers sold over X only cost $0.55. Conversely, if the restaurant sells fewer than X, the burgers cost more than $1.10.
Therefore, in the scenario mentioned before about someone buying 8-10 at a time, the question is, "did the franchise count on those sales?"
It's less a matter of how many are made in a given order, and more a matter of how many are made in a given shift.
As long as the variable cost (food & wrapper cost) is < the price, then the more sold the merrier.
]]>@phildogger: For real? This is my favorite game! The "make them lose money" game. Sometimes, I'll even request an ice water, which McDonald's always provides with a smile.
3 McDoubles
2 McDoubles and a McChicken
The Wendy's Trifecta (JBC, Double Stack, Crispy Chicken)
3 Whoppers Junior
$3.
No fries and no drink. The drink is just stupid. The fries are an upsetting loss, but it is worth it to have the satisfaction of shopping exclusively loss leaders.
Sure, once in a while I will get some nugs, a filet o' fish, a spicy chicken sandwich, maybe a baconator... I can't deprive myself all the time just to save a buck. But, it IS kind of amazing that the same amount of food can either cost me $7 or $3, with very little difference in satisfaction level.
]]>As I despise BK with a passion, this makes me want to spend my savings on $1 burgers there, then go to the grocery to buy a 2-liter and some tater tots.
]]>Let's not forget fries and PR. I don't buy it that they lose money over this promo. I just think they're shortsighted.
]]>A friend of mine owns a diner and he told me that a cup of coffee costs him about 15 cents and a huge cup of soda costs him about 20 cents. Those two things plus desserts and fries are his highest profit margin items.
]]>Forgive me my ignorance, but isn't that the *whole point* behind franchising?
If BK wants to micromanage these stores down to the Nth degree, why bother with franchising at all?
I don't understand...
]]>A loss leader or leader is a product sold at a low price (at cost or below cost) to stimulate other, profitable sales. It is a kind of sales promotion, in other words marketing concentrating on a pricing strategy. The price can even be so low that the product is sold at a loss.
One use of a loss leader is to draw customers into a store where they are likely to buy other goods. The vendor expects that the typical customer will purchase other items at the same time as the loss leader and that the profit made on these items will be such that an overall profit is generated for the vendor.
Loss Lead describes the concept that an item offered for sale at a reduced price and is intended to lead to the subsequent sale of other items, the sales of which will be made in greater numbers, or greater profits, or both. It is offered at a price below its minimum profit margin-- not necessarily below cost.
Exactly. BK's royalty rate is roughly 10%, or 10 cents in this case. Add that to the 55 cents materials cost, and you have 65 cents cost, or a 35 gross profit per item sold.
]]>The whole point of a franchise is to have consistency across restaurants. This doesn't mean that corporate should just kick franchise owners around - but if a franchise is going to benefit from name brand recognition, it should be participating in the brand's promotions. If you want independence, don't own a franchise.
]]>@phildogger: If I'm running between classes and work, I'll usually hit up Mcdonald's, BK, or Wedny's and get a couple burgers off the dollar menu and nothing else, and I do this at least once every couple weeks.
]]>@Mr_D:
It is sad that we're taking the time to do this, but your analysis is absolutely correct: the fixed costs like rent, salaries and the like obviously don't change given extra sales of theis burger, therefore the unit cost to the franchise decreases with each additional burger ordered. What I would like to know is what the irreducible costs are. (irreducible inasmuch as the franchise's are held by contract to a captive system of food suppliers)
]]>Nothing. They lose money.
But if they don't sell them - at a decent price - people will go elsewhere to buy all the other stuff.
]]>The franchisees shouldn't be forced to participate in the promotion, and even though some customers will purchase higher-margin drinks because of it, plenty more will buy this instead of a whopper, etc.
But it really should be up to the franchisee, who's $ is really on the line, whether to participate or not.
Obviously none of us has read the contract, but it probably has a vague clause requiring them to participate in "promotions"; but a court can easily find that the clause is unenforceable if it's unreasonable or to their clear detriment.
Good for them for fighting back. If corporate wants to run a promo, let THEM foot the bill. The franchisees have a hard enough time as it is.
]]>And this promotion also push the selling of the always overpriced fries and pop.
]]>I can definitely see both sides of this issue. On one hand, there is the corporation, which requires participation in this promo. They have the law on their side because franchise agreements usually include clauses that allow corporate to force its will on the franchises.
On the other hand, there are the franchisees, who are struggling with higher food costs, and in some cases lower sales (because of lower headcounts and lower prices). In order to generate profit, labor cost has to be kept to a certain percentage, and food cost has to be kept to a certain percentage.
Fifty percent food cost is simply not acceptable. I'm not sure how much the target would be at a BK, but 30% is a good number to start with. Now, a bunch of customers who buy the sandwiches for $1 will buy nothing else. But the other 50% will also buy a soda. Soda is the highest margin item in the store, on the order of 20c for a $1.59 beverage(cup is about 15c of that cost, so refills are negligible). With two burgers and a soda, the food cost is still 36%, but that's manageable compared to 50%.
Corporate runs the risk of alienating some franchisees. When that happens, franchisees are more lax in upholding the brand image of the company, and when that happens, the entire company suffers. It behooves corporate to work with the franchisees and not shove bitter down their throats.
]]>Why am I analyzing this?
]]>I can understand the company WANTING all franchisees to participate, because they get a cut of the gross sales, regardless of whether or not the individual franchises make a profit, and non-participating franchisees leave the customer with a bad impression of the company, not the individual franchise.
]]>@doctor_cos: Quizno's forces its franchises to participate? I have experienced the exact opposite and I think there are some Consumerist posts where readers have experienced the same. I don't think my local Quizno's has honored one promotion.
]]>Also, the $1.10 is BS because it includes a hefty share of fixed costs. They would owe rent and wages (I doubt they pay royalties per sandwich, but who knows?) regardless of whether they sell the burger. By dropping the price to $1 they are probably selling many more of them (I have bought 3 at $1 but never went to BK before that) so their contribution to fixed costs would be higher than before.
]]>I take it these are much more expensive to make than the McDonald's McDouble?
]]>Touch Noogies, No one goes there and just gets a burger. They make their money on the Fries and 2 dollar drinks.
]]>