Industry News | October 21, 2005

Burger King breaks with franchise group

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Burger King has severed relations with leadership of its U.S. franchisee group, accusing it of disrupting company brand-building initiatives, the Associated Press reported today.

In breaking off all but minimal contact with those running the National Franchisee Association (NFA), the fast-food chain's management said it will divert a $1 million subsidy from the group to the brand's advertising fund, the news service reported.

The association is believed to represent about 90% of Burger King's domestic franchisees, or about 900 individuals. They operate most of the chain's 7,000 or so U.S. restaurants.

A letter to the association dated Sept. 30 and signed by Burger King North America President John Chidsey, cited "many instances of the NFA's non-cooperation and affirmative disruption of efforts to improve the Burger King system."

He said the group's leaders had failed to publicly back efforts by the company to expand restaurant hours or to promote a value-menu strategy, competitive pricing initiatives and gift cards.

A 12-page letter dated Oct. 12 from NFA Chairman Daniel Fitzpatrick to the Miami company's management said its decision "to sever relations with the ... NFA is extremely regrettable" and based on "an erroneous set of facts, innuendo and rumor."

The letter characterized the diversion of financial support as a breach of a written agreement and said at least $1.7 million is "due and owing on this obligation."

Fitzpatrick, a Burger King franchisee in South Bend, Ind., was said to be traveling and couldn't be reached for comment.

Neither the company nor the association has made the rift public, but Dow Jones Newswires reviewed recent correspondence laying out their differences.

Relations between Burger King and its franchisees' leadership have been strained in recent years but have grown more so since a new senior management team took over at the company last year.

Burger King is owned by investors that include Texas Pacific Group, Bain Capital and Goldman Sachs Capital Partners.