Burger King and Franchisees brawl over $1 Double Cheeseburger Promo

Burger King franchisees sued the burger restaurant chain this week over its $1 double cheeseburger promotion, saying they lose money on the sandwich deal and the company can't set maximum menu prices. The National Franchise Association, which is a group that represents over 80 percent of Burger King's U.S. franchise owners, said the $1 Double Cheeseburger promotion forces restaurant owners to sell the quarter-pound burger at a 10-cent loss at the minimum.

Too expensive to promote

Costs vary according to location, but the $1 double cheeseburger costs franchisees at least $1.10 typically, said Dan Fitzpatrick, a Burger King franchisee from South Bend, Ind. who is a spokesman for the association. The actual food costs about 55 cents for the meat, bun, cheese and toppings. The balance of the cost is for expenses such as rent, royalties and worker wages.

After the company tested the $1 deal in markets across the country, the discounted burger went national last month, in spite of the fact that franchise owners, which run 90 percent of the company's 12,000 locations, rejected the product twice before when offered, because of the expense.

A spokeswoman for Burger King, the nation's No. 2 hamburger chain, said the Miami-based company believes the litigation is "without merit," particularly after an earlier appeals court ruling this year showing the company had a right to require franchise owners to participate in its value menu promotions.

Restaurants looking to boost business

Restaurants in general, and particularly fast-food chains, have been slashing menu prices because of the poor economy. McDonald’s the nations #1 Burger chain has been aggressively promoting it’s $1 “Value Menu” for some time.

Restaurant executives at both fast-food and casual dining chains are hoping the deep discounts and combo deals will bring in diners who are spending less when they eat out, and lots have just been staying home altogether.

When the $1 double cheeseburger was announced this fall, analysts felt it could increase visits to Burger King by as much as 20 percent. The lawsuit was filed Tuesday in U.S. District Court in Southern Florida.

New Burger King Restaurant Design Continues Competitive Differentiation

Article Headline / Source Burger King's New Restaurant Design (http://adage.com/globalnews/article/?article_id=139526)
Question With Burger King's (BKC) current sales trend weak and high stakes earnings call coming up at month's end, is the newly announced Burger King restaurant design viable? Is it likely to attain investment payback? Can the franchisees fund it with the tight credit conditions now underway?

This was originally done for Gerson Lehrman Group's News

1) Burger King isn't a big "Value Menu" player

2) Tries to differentiate itself through flavor and selection

3) Unit allows for more upscale uses that QSR's are taking on in recession

The new Burger King restaurant design makes sense and addresses the fact that the fast food “niche” is growing and handling more tasks for differing groups of consumers.

BK hasn’t really played hard in value price arena, so a “weak” sales trend may actually bode well for the bottom line. If they are selling more “standard price” menu items as a percentage than their competitors, is that really weakness?

The new 2020 design is a more upscale look, also showing a commitment to full price items and a different marketing sensibility. The “Whopper Bar” concept and the hi-tech Coca-Cola fountain introduction, if only for tests, shows burger King is looking at other places than a .99 price point to grow sales volumes moving forward. They have always competed on flavor as a prime driver to their marketing campaigns, this is a variant on quality differentiation.

Whether the franchisees can fund the new design build out in times of tight credit is probably the same answer it would be in good times: the strong franchisees can, the marginal ones can’t. You have to think that investment payback may be marginally longer to due to the increased cost of the unit’s build-out, but will the design alone increase sales? Probably not.

In terms of how QSR’s/fast food are being used differently by the consumer during the economic turndown, this could be a winner. Having a nicer, more pleasing looking unit to host fast business lunches or take the family out, instead of an Applebee’s or a TGI Fridays, since budgets are bit tight, cannot be bad.

“The Value Proposition – What it means in Convenience Retailing”

In the field of marketing, a customer value proposition consists of the total of benefits which a chain or store owner promises that a customer will receive in return for the customer's business (or other value-transfer- time, loyalty, brand allegiance).

Put simply, the value proposition is what the customer gets (or your store provides) for their money and time. This statement should convince a potential consumer that one particular product or service will add more value or better solve a problem than other similar offerings. “in ten words or less, why should people be YOUR customer”
Accordingly, a customer can evaluate a company's value-proposition on two broad dimensions, with multiple subsets:

1. relative performance: what the customer gets from the vendor relative to a competitor's offering; How much better is your location than your competitors?

2. Price: which consists of the payment the customer makes to acquire the product or service, since most C-Store items aren’t unique to the location, this is a driver.

The company or Store’s marketing and sales efforts offer a customer value proposition; the Store’s delivery and customer-service processes then need to fulfill that value-proposition, in order to make the customer happy.

How to use developing a Value Proposition as a marketing tool

A value-proposition approach can assist in a firm's marketing strategy, and may guide a retailer to target a particular market segment. Typically, there are three elements that should always be in a value proposition: Convince (who’s our customer?), that (what you want them to believe), because (why they SHOULD believe it). This framework will structure your value proposition in a cohesive manner that makes sense internally and externally
A company should always have the value-proposition of increasing its market share and growing revenue by:
1. providing superior customer service – self explanatory
2. product differentiation – Colder coolers, cleaner store, fresher products
3. operational efficiency – making it look effortless
Strategic analysis and planning for value proposition marketing should contain at least five elements:
1. Your current situation (including problems, causes and effects – need to be honest)
2. target situation – what you would like to achieve
3. How long to reach the target situation – when do you need the new results
4. cost of reaching the target situation and opportunity cost analysis – need to be honest again – a plan you can’t afford doesn’t do you any good
5. the benefits of both the targeting and the achievement phases – what do you (and importantly your team) get for the all the planning and work?

Developing Your Value Proposition

It's important when developing your value proposition that it be clear and concise. It's best to start by brainstorming and focusing on what needs your target customer group have in common. This can be done by some simple market research in your stores. What does your current traffic want that your business can provide? What is important to them?

Once you've found the common denominating need, you can determine what it is that they are in search of in addition to your current lineup and develop your value proposition around that need. If you find a great unmet need, think about adding that product or service to your line-up, and letting people know about it.
Keep in mind that the purpose of your value proposition is to identify and satisfy an unmet or under-met need that your target market possesses.
Why is the development of your value proposition important?

The answer to that question is easy. Your value proposition can equip you with the following benefits to your business:

• Create a strong differential between you and your competitors
• Increase not only the quantity but the quality of your in-store traffic
• Gain market share in your targeted segments
• Assist you in merchandising and store layout that will increase business.
• Improve your operation efficiency

You can get started developing your store’s value proposition today. Just remember that an effective value proposition describes what you do in terms of tangible business results. It draws interest and shares a customer benefit within a few words.

Brand Equity During the Economic Slowdown

In general retail, Circuit City liquidating, in the convenience field, Flying J in reorganization, replacing their CEO (a 30 year employee) with a founding family member, RBS announcing a $40+ billion loss on inauguration day; the hits just keep on coming.

Which brings us to the main topic for our blog entry: Brand Equity, and what it consists of. How do you support it in dire economic times? You will see in another posting we discuss Macy’s taking a $3+ Billion dollar write down on the “Goodwill” it acquired when the purchased May Dept stores in 2005.

Goodwill’s definition, as described by businessdictionary.com, is:
Assumed value of the attractive force that generates sales revenue in a business, and adds value to its assets. Goodwill is an intangible but saleable asset, almost indestructible except by indiscretion. It is built painstakingly over the years generally with (1) heavy and continuous expenditure in promotion, (2) creation and maintenance of durable customer and supplier relationships, (3) high quality of goods and services, and (4) high quality and conduct of management and employees. Goodwill includes the worth of corporate identity, and is enhanced by corporate image and a proper location. In other words, Brand Equity.

In times of reduced consumer spending and economic uncertainty, of the 4 items that define what goodwill consists of, one is always controllable by current management, can be changed for the better in a hurry, and is something you owe your customers, in any case: and that is number (4) High quality and conduct of management and employees. Maybe you can’t advertise like you did a couple of years ago, maybe your suppliers aren’t as generous with the discounts and promo allowances as they once were, maybe you need to be a little “tighter” with promotions and discounts to your customers… BUT, it’s your store, and you CAN control how you treat your employees, and how your firm as a collective whole treats your customers…

We must strive to make every customer interaction a positive experience for the consumer, and make sure the connection between treating customers right and keeping the revenue flow where you need it to be is clearly understood by everyone on the team. The customers are living with the same news you are, make sure they understand that your firm truly appreciates their patronage.

Branding is so much more than a flashy logo or beautiful store designs, those are an adjunct to a solid system that keeps out-of stocks to a minimum, fulfills customer needs, and motivates your associates to take a sense of ownership in how your customers feel about purchasing in your stores.

Condevco has created and rejuvenated brands for many different clients in many different retailing fields, let us help you make it through. Contact Ron with your consulting inquiry.