BK sued by franchisees over soft drink contractsBK sued by franchisees over soft drink contracts

Ron Ruggless

ATLANTA Burger King franchisees are suing the franchisor, as well as The Coca-Cola Co. and Dr Pepper Snapple Group Inc., claiming Burger King Corp. is unlawfully diverting funds that once were earmarked for franchisees to the corporate advertising account.

The dispute stemmed from Burger King’s announcement on April 6 that it intended to substantially reduce the restaurant operating funds, or ROFs, paid to franchisees by Coke and Dr Pepper under the terms of their agreements with Burger King, and to divert those funds to the franchisor's advertising budget.

The National Franchisee Association, which has 850 Burger King franchisee members who own about 6,300 of Burger King Corp.’s 11,700 units, filed the suits on May 4 “after several unsuccessful attempts to engage BKC in meaningful discussions concerning franchisee rights to receive continued payment, in full, of Restaurant Operating Funds (ROFs),” the group said in a statement.

Aspokeswoman for Burger King said the company “has been notified that a lawsuit regarding the reallocation of funds provided by soft drink suppliers in connection with soda purchases has been filed by the franchise association, which represents a portion of Burger King franchisees in the U.S.

“BKC and the soft drink suppliers have the right under their agreements to reallocate these funds, which will be used for marketing and other promotional purposes,” the statement continued. “Therefore, BKC believes the lawsuit is without merit.”

The NFA asked the U.S. District Court for the Southern District of California to declare that the franchisees are intended third-party beneficiaries under the soft drink agreements. The NFA, based in Atlanta, said the franchisees are entitled to receive the full ROFs as they have since 1990, and it contended that BKC, Coke and Dr Pepper cannot amend the soft drink agreements. The franchisees also said they already contribute to BKC’s advertising budget under their individual franchise agreements.

The NFA said franchisees rely on the ROFs from the soft drink agreements to help offset the costs in the purchase, lease and maintenance of equipment and water filter systems; participation in quality maintenance programs; meeting certain performance criteria; promotion of exclusive products; and complying with quality standard inspections.

“We simply want to maintain the status quo," said William A. Harloe Jr., a Burger King franchisee in Maryland and chairman of the NFA. "We attempted to resolve this issue quietly and amicably but were rebuffed time and time again. BKC left us with no other alternative. However, it is still our desire to resolve this issue amicably in the best interest of the entire system.”

Burger King said last month it would take advantage of lower U.S. media rates and advertise 20 to 25 percent more next year to highlight new products and value offerings.

Contact Ron Ruggless at [email protected].