MIAMI In the latest round of an ongoing legal dispute over Burger King’s value menu, a New York City-based franchisee filed another legal claim this week against franchisor Burger King Corp., alleging again that the bargain-priced array forced the closing of three stores.
The affidavit was filed by E-Z Eating Corp. after the franchisor sued the company for non-payment of franchise royalties. Burger King took the action after E-Z filed a lawsuit against the Miami-based chain in August 2006. E-Z asserted in the suit that Burger King’s value menu crunched the margins of the five stores it operated in midtown Manhattan, leading to the demise of three units.
In a counterclaim affidavit filed this week in the U.S. District Court in Miami, E-Z principal Luan Sadik said he and partner Elizabeth Sadik saw a marked decline in sales at their stores during 1999 and 2000. By 2001, he alleged, the stores were operating at a loss.
The situation was exacerbated by the terrorist attacks of Sept. 11, 2001, which dramatically slowed New York’s economy, said E-Z’s attorney, Oliver Griffith.
Sadik asserted in the affidavit that Burger King’s requirement that franchisees feature a 99-cent value menu between 2002 and 2004 proved a “financial disaster,” with customers trading down to the smaller-margin items as costs continued to rise.
According to Griffith, Sadik and other franchisees in the New York area complained to Burger King about the menu’s effects on profits, citing the high cost of doing business in the city.
“The value menu might work in a rural area, but not in a place like Manhattan,” Griffith explained. “Think about it: They are giving food away for a $1, but rent, utilities and such are skyrocketing. And Burger King wouldn’t give them an exception.”
Burger King spokesman Keva Silversmith said the company does not comment on active litigation.
After Burger King discontinued the 99-cent menu, Sadik alleged in the affidavit, the franchisor acknowledged that the bargain array was “not a success.” The chain introduced a new value menu in early 2006.
Sadik said he worked with a Burger King financial restructuring representative for almost year to “hopefully help bring the restaurants back to profitability.” The representative said their plan would not work if Burger King adopted another value promotion, Sadik asserted in the affidavit.
When Burger King disclosed plans in September 2005 to introduce a new roster of everyday bargains, Sadik asserted that he was told by at least one corporate representative that franchisees in the New York area might be exempted. When the new value menu was unveiled on Feb. 16, 2006, Sadik assumed his stores would not be required to feature it, he said in the affidavit. But Burger King took action to force compliance with the chainwide mandate.
Griffith said Feb. 16 was the same day the franchisors’ owners announced plans to sell a controlling interest in the company to the public in an initial stock offering.