Product discounting is one of the most contentious topics in franchising.  Here’s why:  Franchisors make money off the gross sales of their franchisees, regardless of franchisee profitability. 

Some franchisors make additional money marking up ingredients and food products to their franchisees. 

Public franchisors benefit from higher sales – and stock prices – that are not tied to franchisee profitability.

SmartMoney.com surveyed franchisees from different franchise chains regarding the cost to them of some current and recent promotions. The franchisee profitability posts on UnhappyFranchisee.com point out that franchisees generally bear the brunt of a promotions’s cost, including the food, labor, rent and utilities, among other things.

Here’re are links to the data on six recent franchise marketing promotions, posted on UnhappyFranchisee.com: 

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BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

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BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF DISCOUNT PROMOTIONS?  SHARE A COMMENT BELOW.

What they didn’t mention was that Burger King franchise owners had twice voted against the promotion, but BK corporate decided to run it anyway.

Now the franchisees are suing.  Read about the franchise lawsuit at Unhappy Franchisee:

BURGER KING Franchisees Sue Over $1 Cheeseburgers

BURGER KING Franchisees Sue Over Forced Discounting

What’s the franchisee’s beef with the promo?  They claim (among other things) that it costs $1.10 to make and sell the product they’re being forced to price at $1.00.

It’s Finally Here! $1 ¼ Pound Double Cheeseburger Hits The Menu In Participating Burger King®restaurants Nationwide

October 19, 2009

MIAMI – Oct. 19, 2009 – Burger King Corp. (NYSE:BKC) today announced that consumers craving the flame-fresh taste of a quality hamburger can head to their nearest BURGER KING®restaurant for an unbeatable deal – the ¼ pound Double Cheeseburger for only $1. Tested and adopted in multiple markets in the U.S. for the past 18 months, this much anticipated and worthy addition to the BK®Value Menu is now available in participating BURGER KING®restaurants nationwide, providing guests a superior sandwich at a great value.

"During a time when value is a priority for everyone, we’re offering a top-quality product that not only boasts an affordable price point but also tastes great," said John Schaufelberger, senior vice president, global product marketing and innovation, Burger King Corp.

The $1 ¼ pound Double Cheeseburger features two flame-broiled hamburger patties, crunchy pickles, ketchup, mustard and two slices of American cheese on a sesame seed bun. With more beef and cheese, the $1 ¼ pound Double Cheeseburger beats competitors’ sandwiches, such as McDonald’s®Double Cheeseburger and Wendy’s®Double Stack.

Burger lovers can expect to see a series of mouth-watering national TV ad spots and in-restaurant merchandising in support of the promotion. Via online banner ads, Web users will also have the opportunity to experience just how much a $1 bill can afford them from the BK®Value Menu using a simple Web cam and some novel "augmented reality" technology, which overlays the products from the menu onto the currency image.

The $1 ¼ pound Double Cheeseburger joins the national BK®Value Menu, which includes the WHOPPER JR.®sandwich and Spicy CHICK’N CRISP®sandwich as well as the Ham Omelet Sandwich and sausage biscuit on the BK®Breakfast Value Menu, all priced at just $1 each.

ABOUT BURGER KING CORPORATION

The BURGER KING®system operates more than 11,900 restaurants in all 50 states and in 73 countries and U.S. territories worldwide. Approximately 90 percent of BURGER KING®restaurants are owned and operated by independent franchisees, many of them family-owned operations that have been in business for decades. In 2008, Fortune magazine ranked Burger King Corp. among America’s 1,000 largest corporations and Ad Week named it one of the top three industry-changing advertisers within the last three decades. To learn more about Burger King Corp., please visit the company’s Web site at www.bk.com.

WHAT DO YOU THINK? SHARE A COMMENT BELOW

Second,  proceed with said promotion despite the formal objections of your franchisee association and the fact that your direct competitor tried – and abandoned – the same promotion last year.

According to a story on Unhappy Franchisee, that’s exactly what Burger King did with the $1 Double Cheeseburger promotion they forced their franchisees to implement beginning last month.  Unsurprisingly, Burger King’s National Franchisee Association filed a lawsuit this week against the franchisor.

*  *  *  *  *

Burger King Franchisees Want it Their Way… Profitable

Burger King’s National Franchisee Association represents more than 80 percent of U.S. Burger King franchisees.  They reportedly filed the lawsuit only after their attempts to negotiate with the franchisor were unsuccessful.

They are asking the court to acknowledge that the right to set prices rests with BK franchisees, not Burger King corporate.

Last summer, Burger King franchisees twice voted against the $1 double cheeseburger promotion.  Despite clear objections, Burger King forced all franchisees to sell its double cheeseburger for $1, starting in October.

The suit was filed in U.S. District Court in Miami.  In it, the franchisees allege that the Burger King franchise agreement does not give BK the authority to “dictate maximum pricing.”

According to a story in the Miami Herald:

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… 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.

Are deep discounts like $1 Double Cheeseburgers are a necessary evil in the current economy?  Some would say yes.  However, McDonald’s stopped selling its double cheeseburger for $1 because of profit margin concerns at the end of last year.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

The DOJ claims that 125 Jackson Hewitt outlets in the Chicago, Atlanta, Detroit and Raleigh, N.C., areas filed bogus tax returns, and that some franchise managers and employees got kickbacks from customers in return for helping file the phony returns.

Jackson Hewitt tax preparers were accused of creating fake deductions, falsifying W-2 forms and fabricating business expenses.)

In an effort to try to minimize some of the damage being done to its franchise brand (and its tanking stock price) at this critical time of year, Jackson Hewitt issued this quick statement:

Jackson Hewitt Statement Regarding Department of Justice Announcement

PARSIPPANY, N.J., April 3 /PRNewswire-FirstCall/ — The complaints announced today by the Department of Justice are limited to one franchisee, whose entities noted in the complaints operate more than 125 locations out of more than 6,500 Jackson Hewitt locations nationwide. The Company estimates that these entities represent about two percent of its total revenue. We do not believe that this matter is likely to have a material adverse effect on our financial position.

While we cannot comment on franchisee litigation, Jackson Hewitt takes such matters seriously. The Company expects its franchisees, which independently own and operate their businesses, to comply with the terms of their franchise agreements. Accordingly, they are responsible for conducting their operations with integrity, in compliance with all applicable laws and regulations.

Jackson Hewitt remains committed to providing accurate, quality tax preparation and the highest levels of customer service. Comprised of a network of thousands of tax preparers, and franchisees nationwide, the Jackson Hewitt system values its relationship with its customers and continues to assist them with their upcoming income tax filing requirements.

Contact:
Sheila Cort
Vice President, Corporate Communications
Jackson Hewitt Tax Service Inc.
(973) 630-0680
Sheila.cort@jtax.com

SOURCE Jackson Hewitt

DO YOU HAVE EXPERIENCE IN THIS AREA OR ANY INSIGHT YOU CAN SHARE?  LEAVE A COMMENT, SHARE YOUR THOUGHTS

Steven Lewis posted the story of how Robert Scoble, publisher of the tech blog Scobeleizer, posted an account of his brother Ben’s dispute with Java Jo’z. The influential blogger’s single post dominated search engine rankings almost immediately, displacing any positive placement Java Jo’z may have worked to achieve.

I additionally sparked other stories across the net, including stories on Java Jo’z and Cuppy’s Coffee (with whom they share a trademark) on FranBest.com, Franchise Pick, Blue Mau Mau and many other franchise & tech blogs.

Search engine tip: Do internet checks of franchise prospect’s relatives before entering a dispute. If they have a sibling with a blog in the top 25, settle it quickly and quietly.

Related Posts:  Why Java Jo’z problems are Cuppy’s problems

…There is a big difference between the people who complain and those who don’t. That difference is that those who say something about the short comings of your product or service want you to do better. The others want you to fail.

People who don’t complain to you will complain to their friends, family and total strangers. They will not give you a chance to fix the problem that they see. They destroy your reputation and you don’t have a chance to respond. They are out to get you. It happens at all levels.

I think it’s a brilliant observation, and invite franchisors to read Norton’s post in terms of your franchisees, as well as your customers. The ones who complain are often those who truly want to see the problems fixed. Those who don’t may be silent because they’d rather have something or someone to blame for lack of performance, and while they complain they do to other franchisees, prospective franchisees and employees.

Do what you can to encourage constructive complaints, and involve franchisees in prioritizing and solving them. You don’t need to be internally complaint-free to sell franchises, but you do need to communicate that you as franchisor are actively engaged in partnering with franchisees to identify and address “challenges,” and to continually improve, on an ongoing basis.

As Norton concludes:

We learn more from our failures than our successes… If you do not learn from it then it becomes a real failure.

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