August 27, 2008 in Links
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August 27, 2008 · Links

Burger King expands value menu; franchises quake

In the states, Burger King is about to roll out new wraps priced at the impossible-to-resist price of $1.39. You’d [...]

In the states, Burger King is about to roll out new wraps priced at the impossible-to-resist price of $1.39. You’d think stores would be drooling about yet another way to lure in customers.

This isn’t the case. Franchises hate these menus. Like many things in life, it comes down to money.

Instead of thinking of Burger King as that place down the street with burgers, think of it as a large company that gives food and branding to thousands of stores in exchange for a cut of the sales (ie. a franchise).

Rising prices of rent, labour, and especially food have made it much more expensive to run these franchises. However, Burger King and other fast food chains protect themselves from these costs by taking a cut based on total sales instead of profit.

So this is what happens when BK forces franchises to sell food at these value prices:

Low-cost and giveaway promotions generally increase traffic and total sales, but franchisees are expected to pick up the difference with the understanding that while customers are buying a burger for a dollar, they’ll also grab a soft drink, which has a much higher profit margin.

Except this often doesn’t happen. In places like Manhattan, stores even lose on each sale. No surprise, it’s resulted in a lawsuit:

“The 99-cent menu was a financial disaster as customers constantly purchased the low-cost food items, which further deteriorates the [Sadiks'] bottom line,” the suit contends.

So if this post has evoked sympathy for the poor franchise owners and you feel like helping them out a bit, buy fries and a drink with that cheap burger.

 

This entry was written by Andrew Louis on August 27, 2008 and posted in Links. It's tagged with , .