Burger King Holdings Inc. has decided to forego diverting franchisees' soda rebate funds to boost its national advertising presence for now, according to ADVFN.com. Franchisees will continue to receive the full amount of the rebate, due to pending litigation.
Burger King's National Franchisee Association filed a class action suit on behalf of all franchise owners against BKC last May, following the company's decision to divert up to 40 percent of funds owed to the franchisees under the agreement. The company had planned to begin diverting 20 percent of the rebates starting this month. Franchisees have used the funds to invest in store repairs, equipment upgrades and other expenses.
The case is pending in U.S. District Court, Southern California, according to the story. Burger King will continue to increase its national advertising budget, taking advantage of lower media costs.
The lawsuit is one example of the continued expressed dissatisfaction franchisees have with their franchisor.
The NFA also has filed suit against the company claiming it does not have the power to mandate franchisee pricing in regard to the company's decision to move the double cheeseburger to the dollar menu. In retaliation, a small number of franchisees also refused to meet their deadline to upgrade their POS systems, resulting in Burger King filing suit late last month.
Analysts are questioning Burger King's marketing strategy, especially its continued reliance on catering to its super fans (males 18-34) in ways that have alienated women, children and other customers, including Hindus and Mexicans, according to the Wall Street Journal (subscription required). At the same time, the number of times 18-34 year olds have visited quick-service chains has declined each year since 2006, according to Sandelman & Associates.
Burger King, like many QSR burger brands, has been battling negative same-store sales during the recession. Global same-store sales were down 2.9 percent for the first quarter, the company reported in October. BKC will release its second quarter earnings on Thursday.
