Burger King franchisees drop $1 cheeseburger suit

By Reuters
Posted Monday at 1:08 p.m.

Burger King Corp.’s U.S. franchisees agreed to dismiss a lawsuit over $1 cheeseburgers, and will gain more power to set prices for the fast food restaurant chain’s cheaper items.

The agreement, announced Monday, comes as the Miami-based Burger King’s new private-equity owners try to repair its historically contentious relationship with franchisees, who operate almost all of the restaurants for the world’s second-biggest hamburger chain.

The National Franchisee Association, which represents Burger King franchisees, sued the company in 2009. Its main complaint was the company’s decision to set the Value Menu price of its Double Cheeseburger at $1, a move operators said hurt profits.

Burger King’s new policy gives franchisees more input on the price of items on its Value Menu and on how long specials run, said Steve Wiborg, Burger King’s president of North America. He declined to give more specifics.

“We saw this as an opportunity to resolve our differences and move forward,” Wiborg told Reuters. “Our system is 90 percent franchised and it’s important for our franchisees to win.”

Wiborg was president and chief executive at Heartland Food Corp., one of Burger King’s largest franchise operators, before taking his position at the company in October.

Burger King’s new management has engaged franchisees in meaningful discussions and is listening to their concerns, said NFA Chairman Tony Versaci.

3G Capital bought Burger King in October for $3.26 billion and took it private.

At the end of 2010, there were 7,550 Burger King restaurants in the United States and Canada.

Fast-food chains such as Burger King and bigger rival McDonald’s Corp. use low-priced food like $1 burgers to lure diners into restaurants. If those items are priced below costs, franchisees can suffer.

That is because franchisees pay royalties to the parent company based on overall sales. While $1 menu items can boost traffic and sales, restaurant operators can lose money if too many of those sales come from money-losing items.

Costs for ingredients such as beef, cheese, wheat and corn have spiked in recent months.

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