1

Burger King And The Franchisor Franchisee Relationship

By: Edward Landrum

Table of Contents
Background Burger King and Franchising Analysis of Burger Kings Relationship with Franchisees Burger King Corporation vs. Family Dining, Inc: Franchisor Distraction and Franchisee Termination Steven Scheck vs. Burger King: Encroachment, the Franchise Agreement, and Good Faith and Fair Dealing National Franchisee Association vs. Burger King: Imposing a $1.00 Maximum Price on the Double Cheeseburger Conclusion Works Cited 19 23 25 14 10 3 3 10

Background
Burger King and Franchising Burger King was originally founded in Florida as Insta Burger King by David Edgerton and James McLamore, Matthew Burns, and Kieth Cramer on March 1st 1954.1 The decision to start Burger King was made because the owners wanted to start a restaurant business that was a simple food-service that produced an adequate margin and could be easily expanded into a multi-unit chain. The Burger King concept fit the bill because the idea revolved around a simple menu, perceived customer value, low prices, and fast service that could be easily replicated with little training.2 Edgerton and McLamores intentions had always been for each restaurant to be a company unit, but prior to 1957 it was determined the company owed $8,304 in back taxes. The amount had to be payable within a year of the determination and neither Edgerton or McLamore had the funds to pay it. A short time later Burger King franchised the first of the five locations they owned for $20,000 in order to pay off the back taxes.3 Both Edgerton and McLamore took a hands on approach to running the company. This included all aspects of the day to day operations from updating the milkshake machine and redesigning the broiler, to changing the format of how customers were handled by employees. As a result the original restaurants owned by Edgerton and McLamore performed far better than the units owned by Burns and Kramer.4

1 2

McLamore, 22. Ibid, 25 3 Ibid, 49 4 Ibid, 47 and 51-54

4 The hands on approach lead to an easy transition for Edgerton and McLamore from owning to franchising to resolve their financial dilemmas and meet their main objective of increasing the number of units throughout Florida. Franchisees that operated under Edgerton and McLamore were the benefactors of their hands on approach and performed better than franchisees under Burns and Kramer who were outside of Edgerton and McLamores sphere of influence.5 By 1961 Burger King was expanding nationally. To attract franchisees Edgerton and McLamore provided exclusive territorial rights to franchisees so franchisees could expand without worrying about competition.6 This practice is not used today and is a source of contention between Burger King and franchisees. In the 1960s though, both McLamore and Edgerton realized however that only motivated franchisees could help spur growth and therefore incentives needed to motivate them. Each valued the contribution franchisees had made in the business as both knew that Burger King depended on the success of the franchisees. Further, both felt that franchisees had placed their trust in them and both wanted to justify that trust.7 Throughout this initial period of national growth both McLamore and Edgerton continued their hands on approach when it came to working with franchisees to scout out locations, help start the franchise, and resolve and problems.8 By 1965, with shrinking equity in the fast growing company, McLamore had become concerned with his and Edgertons ability to maintain a strong voice in the companys affairs.9 To counter the concern McLamore in 1967, during the merger with Pillsbury, had Bob Keith, the CEO
5 6

Ibid, 53 Ibid, 76 7 Ibid, 232 8 Ibid, 77-84 9 Ibid, 105

5 of Pillsbury, issue a memorandum stating that Burger King would operate autonomously from Pillsbury and be free from takeover. His concerns however were founded when Pillsbury asked McLamore to step away from managing the day to day operations of Burger King.10 Edgerton and McLamore had considered it necessary to stay involved in day to day business activity. Neither felt that it was the right idea to destabilize Burger King leadership and the overall message when the company was opening stores at a rate comparable to McDonalds which was the industry leader. The highly centralized business structure had allowed Burger King to quickly handle franchisee concerns, and decentralization as a result of Pillsbury assuming control of Burger King lead to inefficiencies and a loss of connection between Burger King management and the franchisees.11 By 1971 Pillsbury had become disenfranchised with the franchising system and real estate development, which lead to the order from Pillsbury to change the corporate direction of Burger King, though franchisees and their motivation to succeed were the reason Burger King had grown so quickly in the first place. Burger King managements original intention when merging with Pillsbury was to acquire the capital necessary to continue generating growth comparable to McDonalds and with a 75 percent return on equity their idea had merit. Retraction of capital and the unwillingness to franchise caused Burger King to lose the franchise war with McDonalds.12 On January 22nd, 1972 Pillsbury sent out a memo listing the following points that disclosed that in the companys eyes a Burger King franchisee was a person who:
10 11

Ibid, 141 Ibid, 143 and 144 12 Ibid, 146-148

6 1. Is ingenious at shifting his losses over to Burger King rather than absorbing them. 2. Automatically threatens company with antitrust suits as a bargaining tool. 3. Resists performance of contract duties and demands concessions from Burger King under threat of litigation. 4. Only in the beginning is deeply and daily involved in operations of store. 5. After obtaining five stores is divorced from function of store manager. He is then nothing more than a district manager. At ten stores he is simply a regional manager. 6. After three or four stores are obtained, licensees function as an operator phases out and his interest as an investor becomes paramount. Such licensees are only mediocre development prospects. 7. Upon receiving additional stores the licensees declining personal commitment to operations and growth is guaranteed. 8. Fits a pattern, or a franchisee life cycle going initially from intense personal involvement in stores to general manager. Gets fed up with the day to day detail. 9. At certain stage of growth resists ideas of renovating, enlarging, or upgrading his Burger King store. More interested in cash flow than improving sales by reinvestment. 10. By concentrating new licenses in hands of existing multi-unit licensees, we accelerate the pace toward the end of the licensees life cycle. Repurchase of the license is a normal consequence of the issuance.13
13

Ibid, 51 and 52

7 This memorandum effectively closed the door on the beneficial relationship between Burger King and its franchisees, which since 1954 had been a key growth tactic for the company. McLamore explains managements interpretation of the news by stating: If grown men were allowed to cry, we would be in need of bath towels.14 Beyond, Pillsburys unwillingness to franchise the bureaucracy associated with corporate management further hindered the franchisor franchisee relationship. Pillsburys control eventually extended to advertising wherein the company ceased a comparative advertising strategy that had seen same store sales increase from $750,000 to $1,000,000 in order to promote less combative forms of advertising.15 This along with other marketing issues such as increased prices and the inclusion of untested new products lead to an average 34 percent drop in customer traffic per restaurant.16 For a restaurant business designed based on value and speed of service decisions imposed by Pillsbury management were counterproductive. Around this time Burger King franchisees were receiving a lot of press regarding their grievances with parent company associated with declining revenue.17 By 1989 Burger King had become a pawn in Pillsburys fight to stay independent.18 The Grand Metropolitan Plc of Great Britain (GM) had made an offer to takeover Pillsbury. In response Pillsbury decided the best strategy to increase their share price or remain independent was to spin Burger King off as a public company while borrowing in excess of $1 billion on Burger King. Though the spinoff would have boosted Pillsburys share price, the move would have left Burger King insolvent and
14 15

Ibid, 153 Trout, 86-90 16 McLamore, 193 17 Ibid, 200 18 Ibid, 194

8 incapable of running. McLamore believed this to be the worst moment in franchisor franchisee relations for the company.19 It was apparent based on Pillsburys proposed actions that franchisees valued little to Pillsbury. After the takeover GM helped very little to quell franchisor franchisee relations, as business was still off and franchisees felt little was being done to stem the problem.20 Furthermore, management had cut back on franchisee services, and closed regional and district offices in order to cut costs.21 Franchisee tension increased as a result and in an effort to find solutions GM appointed McLamore to work with franchisees to evaluate specific problems and serviceable solutions. McLamore conveyed his ideas, value and service, that helped start the company to both GM and the franchisees and by the end of 1993 the franchisees started to feel that corporate strategies centered around value and service would alleviate some of the pressures they were feeling.22 In 1997 GM merged with Guinness to form the company Diageo. The company however wanted little to do with the restaurant business leading to a disintegration of the franchisor franchisee relationship akin to during Pillsburys ownership. As a result franchisees adopted a program called Project Champion aimed to force the sale of Burger King. As a result Texas Pacific Group with Bain Capital and Goldman Sachs Capital Partners (TPG) purchased Burger King.23 Though considered a smart move by franchisees at the time of purchase, any goodwill gained by TPG when Burger King was acquired was quickly lost when management announced that Burger King would cut ties with the National Franchisee
19 20

Ibid, 207-214 Ibid, 233 21 Ibid, 240 22 Ibid, 242-250 23 Funding Universe

9 Association (NFA), the association which approximately 83% of all Burger King franchisees were members, by limiting the NFAs working relationship with Burger King to the minimum contractual requirements of the franchisee agreement.24 During this time franchisees were against many corporate policies which lead to an increasingly frosty relationship. The hostile relationship recently has lead to multiple lawsuits by franchisees regarding the franchise agreement and management decisions based on the agreement. These lawsuits include the retention of money from the selling of soft drinks, the introduction of the double cheeseburger at the maximum price of $1, and the mandate to keep all stores open beyond 11pm. In response Burger King has filed lawsuits against franchisees the company says is defaulting on the agreement.25 On September 26th, 2010 Burger King was acquired by 3G Capital.26 It has yet to be seen what result the acquisition will have on the franchisor franchisee relationship.

24 25

Gibson, Have It Whose Way? Ibid 26 Market Watch

10

Analysis of Burger Kings Relationship with Franchisees

Burger King Corporation vs. Family Dining, Inc: Franchisor Distraction and Franchisee Termination James McLamore valued the contribution franchisees had made in the business as he felt the success of Burger King depended on the success of the franchisees. Further, McLamore felt that franchisees had placed their trust in them and both wanted to justify that trust.27 His appreciation for franchisees and willingness to help each achieve their franchising and expansion obligations to Burger King were most evident with regards to McLamores handling of Family Dining, Inc, hereinafter Family Dining. McLamore further felt the relationship with franchisees would deteriorate when corporate bureaucracy prevented Burger King management from working with franchisees as partners. The operator of Family Dining, Carl Ferris, had been given a 90 year territorial agreement to develop exclusive territory in Pennsylvania by Burger King in 1963, four years before the merger with Pillsbury. The agreement contained a clause that stated Ferris must build one Burger King a year for the next ten years in order to not default on the agreement.28 By 1968 Ferris had not completed the fourth required restaurant and he determined the fifth restaurant would not be completed on time. McLamore however, understanding that Ferris was trying to complete the restaurants as scheduled modified the development agreement so Ferris would not default. Ferris experienced another delay with the sixth restaurant and McLamore helped modify the agreement a second time
27 28

McLamore, 232 Burger King Corporation v. Family Dining Inc, 1-3.

11 stating: It never crossed my mind to call a default of this agreement based on a technicality.29 McLamores actions indicated he felt it was more important to help franchisees achieve their goals in order to maintain profitability and continue expansion than to promote negative reinforcement towards franchisees by defaulting ones agreement whenever a problem encountered could not be overcome in time. By 1972 McLamore had been forced out of CEO of Burger King by Pillsbury and out of the day to day operations of the company, and as a result Burger Kings inclination to aid franchisee development ended. When problems arose in constructing the ninth and tenth restaurants required by the agreement Ferriss requests for an extension were largely ignored and lost within the Pillsbury bureaucracy.30 In late 1973, Burger King indicated to Ferris their agreement was in default due to the ninth and tenth stores not being completed. When Ferris tried to open the ninth and tenth stores Burger King and Pillsbury filed suit. The merger between Burger King and Pillsbury caused the company to lose focus of the franchise system and forced management away from properly handling franchisee affairs.31 As evidenced by Pillsburys actions, the franchisor no longer considered the franchisee an integral part of the development and future profitability of Burger King and how Pillsburys actions would be viewed by their franchisees was not taken into consideration. McLamore had used the tender of exclusivity to Family Dining as a means to promote the growth of the franchise. Pillsburys actions appeared to be contrary to McLamores intended goal.

29 30

Ibid, 3 Ibid, 5 31 Khan, 251

12 Furthermore, the merger caused the company to forget that the franchising relationship is based on a mutual understanding.32 Family Dining had grown into one of Burger Kings most successful franchisees by 1977 and had done so by solely obtaining the necessary financing and shouldering much of the risk. 33 McLamore understood the risks involved having helped construct the first five Burger Kings largely with capital he and Edgerton acquired. Based on his experience he understood it was not in Burger Kings best interest to terminate successful franchisees like Family Dining who had assumed so much of the initial risk and prospered despite it. Post merger, this idea of mutual understanding was lost. Judge Hannums decision sheds light on the lack of understanding Pillsbury and Burger King now had for franchisees. Hannum states: In arguing that by termination Family Dining will lose nothing that it earned Burger King overlooks the risks assumed and the efforts expended by Family Dining, largely without assistance from Burger King, in making the venture successful in the exclusive territory. While it is true that Family Dining realized a return on investment, certainly part of this return was the prospect of continued exclusivity.Assuming all ten [restaurants] were built on time Burger King would have been able to expect some definable level of revenue, a percentage of which it lost due to the delay.Such a loss would be without any commensurate breach on its part since the injury caused Burger King by the delay is relatively modest and within definable limits. Thus, a termination of the Territorial Agreement would result in an extreme forfeiture to Family Dining.34

32 33

Ibid, 252 Burger King Corporation v. Family Dining Inc, 3 34 Ibid, 8

13 In Hannums opinion the punishment bestowed on Family Dining by Pillsbury and Burger King did not befit the crime. Pillsbury and Burger King could no longer identify with the risks associated with being a franchisee and building restaurants and as a result, and evidenced by the companys actions involving Family Dining, the franchisor franchisee relationship suffered. If Burger King had taken a more proactive approach in dealing with expansion problems Family Dining was encountering much like McLamore had done previously, the franchisor franchisee relationship would not have suffered and litigation would not have been necessary.

14 Steven Scheck vs. Burger King: Encroachment, the Franchise Agreement, and Good Faith and Fair Dealing As the franchising market has matured exclusive territorial rights handed out by franchisors to franchisees has become less and less common. Since franchisors make their money off of royalty payments from a percentage of gross sales, the more restaurants the better. However there is a consequence to every action and without worrying about all interested parties affected certain actions by franchisors could hurt the franchisor franchisee relationship. One of these actions is encroachment. The main reason franchisor encroachment is a source of contention between franchisors and franchisees is that when it comes to making money the values of franchisors and franchisees are not aligned. Franchisees seek to make their units as profitable as possible, while franchisors make money from franchisees gross sales. When encroachment occurs, a franchisee could see his or her profits decrease but the franchisor will still make money regardless of how profitable the franchise is.35 A typical successful fast food franchise has approximately an eight percent profit margin.36 Therefore even a one percent decrease in profit can potentially result in a 12.5 percent decrease in profit for a franchise. With this knowledge it is understandable why franchisor encroachment is a hot topic among franchisees as sales cannibalization has the potential to lead to financial ruin. As discussed above with regard to Family Dining, Burger King did have a history of doling out exclusive territorial rights to franchisees to promote growth. However by 1989, Pillsbury and Burger King had stopped this practice and had changed the Franchise

35 36

Emerson, 4 and 5 Wites, 11

15 Agreement to reflect the companys new outlook on territorial rights. More specifically the Franchise Agreement specifically denied franchises any market, area, or territorial rights.37 This language opened the door for Burger King and Pillsbury to develop restaurants with little or no regard for the welfare of current franchisees. However, in 1989 Steven Scheck filed a lawsuit against Burger King for opening another Burger King two miles away from the franchisees location. Scheck argued that opening of the restaurant caused him compensable damages at his location because of cannibalization sales.38 Scheck argued the Franchise Agreement not only included written provisions but also a covenant of good faith and fair dealing implied by law and that Burger King had broken the covenant of good faith and fair dealing by opening the store.39 To understand this reasoning a review of the franchisor franchisee relationship is necessary. In most franchise negotiations and franchise agreements, the franchisor promises to do what is necessary to aid the franchisee.40 Though Burger King and Pillsbury had shown different colors in the past it would have been reasonable to expect franchisees, which had to invest a significant amount of money to obtain and run a franchise, would think that Burger King and Pillsbury had their needs in mind. Though, the Franchise Agreement did not provide any territorial rights a franchisee would not envision that a franchisor, Burger King, would purposely act to diminish the franchisees success.41

37 38

Leichtling, 2 Steven A. Scheck v. Burger King Corporation, 3 39 Ibid, 6 40 Wites, 2 41 Ibid, 2

16 The covenant of good faith and fair dealing, derived from common law, is a concept relevant to contract agreements that places a duty upon each party to do nothing destructive of the other partys right to enjoy the fruits of the contract and to do everything that the contract presupposes they will do to accomplish its purpose.42 In laymens terms the covenant is designed to protect the rights of both parties entering into a contract regarding portions of the contract that were not expressly written. In the case of Scheck, as decided by Judge Hoeveler, it was determined that Burger King had violated the covenant of good faith and fair dealing because the Franchise Agreement only expressly disclosed the franchisee had no territorial rights and did not further disclose the franchisor had the unlimited right to develop restaurants at any location besides the exact location of a franchise. This decision was also based on the fact that Burger King policy at the time prohibited the franchising of a location that would cannibalize the sales of a preexisting franchised location. Since the Franchise Agreement did not grant this right to Burger King, and Burger King Policy prevented the new location from being franchised, Hoeveler contended that a franchisee was entitled to expect that Burger King will not act to destroy the right of the franchisee to enjoy the fruits of the enjoy the fruits of the contract.43 Burger King appeared to have left the Franchise Agreement purposely ambiguous regarding territorial rights of franchisees. Leichtling argues that the ambiguity allowed Burger King to charge a higher price for a franchise than it could have if the Franchise Agreement stated the company could open an adjacent location at any time.44 Furthermore, good franchisees would potentially choose to operate a different franchise if
42 43

Ibid, 2 Steven A. Scheck v. Burger King Corporation, 7 44 Leichtling, 7

17 they knew they had little fiscal security when making such a large investment to build and develop a market at a franchised location. In the case of Scheck the territorial rights of the franchisor, Burger King, were ambiguous and not readily understood by all parties. A mutual understanding of contract terms was not set forth45 and this caused a breach of the covenant of good faith and fair dealing by the franchisor. Burger King therefore needed to clarify both the franchisees and franchisors territorial rights to overcome this problem. In the 2009 FDD territorial rights have been stated as: Your Franchise Agreement grants you the right to operate your BURGER KING Restaurant at a specific location only. The Franchise Agreement does not grant you or imply any type of area or territory, exclusive, protected or otherwise, or protected customer base. You do not have any right to prevent or restrict the development of other restaurants at any other locations, at any time46 The above statement resolves any issues regarding territorial rights of either party but also increased the risk for any interested franchisee. Due to more stringent language Emerson argues, as evidenced by Burger King Corp v. Weaver, being a franchisee takes so much time and money no franchisee enter into a contract where encroachment was possible.47 To mitigate franchisee risk Burger King developed a solution to encroachment with their franchisees. The solution still allows Burger King to encroach, but if a new store adversely impacts franchisee sales the franchisee will be reimbursed according to a predetermined formula.48 Other solutions to the problem are available. For example
45 46

Khan, 250 Burger King, Franchise Disclosure Document, Item 12. 47 Emerson, 24. 48 Ibid, 24

18 Blimpie, provides franchisees forums to voice complaints as well as software that can be used to track franchise development to avoid future encroachment problems.49 Blimpies approach appears to be more proactive. Providing software and an open forum lets the company listen and analyze franchisee concerns before a franchisees profits are directly affected. This gives each franchisee a voice to help with a solution instead of to overcome a problem. Burger Kings system does not take effect until after encroachment has already occurred. Generally problems cost more to fix after implementation than during planning. Furthermore, any monetary gains from the use of the formula may not fully constitute what was lost due to encroachment.

49

Ibid, 23

19 National Franchisee Association vs. Burger King: Imposing a $1.00 Maximum Price on the Double Cheeseburger Most commercials for deals at nearby fast food restaurants include a small statement at the bottom. This statement says at participating locations. The statement comes from the fact most franchisors will recommend a specific pricing for a product but their franchise agreements do not provide the authority to impose it. Until 2002, Burger King was one of these companies. After 2002 Burger King issued the 99 cent BK Value Menu Policy Statement which dictated the company was allowed to dictate the maximum price for certain products sold in their restaurants.50 The idea of the value menu came from McLamore in the early 1990s in response to franchisees concerns that high prices were causing restaurants to lose foot traffic and therefore lose customers to both Wendys and McDonalds, both of which had value menus.51 The idea of the value menu was roundly accepted by franchisees at the time and it appears that the idea was so well received that when Burger King put the maximum pricing policy to a vote, two thirds of the franchisees voted for it and the policy became part of the Manual of Operating Data (MOD). Based on the value menus previous success it appears the franchisees thought Burger King had their best interests in mind. In 2005, franchisees were instructed to vote for six menu items that would be priced at $1.00. The vote subsequently passed.52 By 2008, the inflexibility caused by the institution of the maximum pricing policy was beginning to show cracks in the franchisor franchisee relationship. E-Z Eating 8th Corp (E-Z) filed suit against Burger King claiming imposing maximum prices on the
50 51

National Franchisee Association v. Burger King Corporation, 4 McLamore, 231-251 52 National Franchisee Association v. Burger King Corporation, 4

20 value menu caused extreme losses at two of their restaurants.53 At the time value menus constituted as much as 15% of sales at top chains, with much of the national marketing directed towards these low margin products it only appeared to be getting worse.54 E-Zs restaurants were in Manhattan, an area where costs are generally higher than the rest of the country, which lead to the restaurants not being able to make any money from upselling consumers on higher margin items that were generally far more expensive than those items on the value menu. E-Z further argued that since the franchisor made money of the gross sales, Burger King was making money off the increased foot traffic due to the value menu while the franchisees were paying for it.55 The courts however found that under the Franchise Agreement Burger King had the right to impose maximum pricing on the value menu as Section 5(A) of the agreement requires franchisees to adhere to the comprehensive format and operating system.56 Since the adherence was expressly required in the Franchise Agreement it was not bad faith to institute a policy requiring specific pricing. Increasing tensions, Burger King in 2008 and early 2009 tried to place the double cheeseburger (DCB) on the value menu with a selling price of $1.00. On multiple occasions franchisees objected to the idea, which lead to Burger King unilaterally imposing a $1.00 maximum price on the DCB.57 As a result of the maximum pricing money and the high cost of making the double cheeseburger, franchisees were losing money on every DCB sold.58 A typical successful fast food franchise has approximately

53 54

Ibid, 8 York 55 Ibid 56 National Franchisee Association v. Burger King Corporation, 8 57 Ibid, 4 58 Gibson, Cant Have It Their Way

21 an eight percent profit margin.59 Therefore even a one percent decrease in profit can potentially result in a 12.5 percent decrease in profit margin for a franchise. The National Franchisee Association (NFA) argued that because the DCB cost more than $1.00 to make selling this product for a maximum of $1.00 broke the covenant of good faith and fair dealing between Burger King and franchisees. The NFA further argued that Burger King had admitted the sale of the DCB for $1.00 could lead to the bankruptcy of its franchisees. Judge Moore determined based on the aforementioned facts the NFA had the right to move forward with its lawsuit against Burger Kings pricing of the DCB.60 The franchisor franchisee relationship is best when profitability is shared between the two.61 The inclusion of the DCB on the value menu appears to be a lopsided affair with Burger King unfairly profiting off of a product that directly harms the profitability of its franchisees. Burger King should have realized after the franchisees objected to the $1.00 DCB on multiple occasions that its implementation as is would be a source of contention between the company and franchisees. McDonalds ran into a similar issue with the inclusion of a DCB on their Dollar Menu. However, McDonalds does not dictate maximum prices, however McDonalds was so interested in providing the DCB on the Dollar Menu the company worked with franchisees to update the sandwich, by removing a piece of cheese, in order to lower cost of the sandwich below one dollar.62 To quell the situation Burger King instead removed the DCB from the value menu entirely and raised its maximum price.
59 60

Wites, 11 National Franchisee Association v. Burger King Corporation, 11 Khan, 245 Gibson, Cant Have It Their Way

61 62

22 Similar to the issue of encroachment above, Burger King failed to take a proactive stance on diffusing the situation building due to setting the maximum price of the double cheeseburger. On the other hand McDonalds, like Blimpie, took a more proactive approach to handling a similar situation. The profitability of franchisor relies on the sustainability of franchisees. Loss of influence for franchisees, TPG limited the NFAs working relationship with Burger King to the minimum contractual requirements of the franchisee agreement,63 lead to pricing decisions that did not promote mutual growth and had little sound rationale and reasoning.64 Discussions between Burger King and the NFA had the potential to quell the situation before a lawsuit was filed much like in the case of McDonalds.

63 64

Gibson, Have It Whose Way? Khan, 254

23

Conclusion
Proactive vs. Reactive Burger King has grown from five company owned locations to one of the largest franchises in the world. Most of this expansion can be credited to franchisees as approximately 90% of all Burger King restaurants are franchised. Dr. Kahn states: Franchising is a unique symbiotic relationship that must function smoothly in order to be successfulBecause franchising is a mutual relationship, one of the clear ways to maintaining that mutuality is for both parties to be honest and fair with each other. The system fails if understanding lacks in any way. The success of the franchisee-franchisor relationship is achieved in the same way as any other successful relationshipby mutual understanding. When the relationship is out of balance, when one party feels or perceives that the other is contributing less, the relationship begins to crack and crumble.65 Burger Kings handling of Family Dining (post McLamore), Sheck, and the Double Cheeseburger all convey the company forgot that mutual understanding and influence is required in order to maintain a successful franchisor franchisee relationship. The companys reactive approach to deal with problems all evidence franchisees needs and opinions were not considered valuable to the running of the company. The actions of McLamore, Blimpie, and McDonalds all teach that a more successful franchisor franchisee relationship is possible if franchisees maintain some level of influence, and the franchisor takes care to manage situations before the execution of a plan or a problems only solution is litigation. Burger Kings new parent company 3G Capital should take head of these lessons to better the franchisor franchisee
65

Ibid, 244

24 relationship and expand on the success that allowed Burger King to grow into the 2nd largest fast food franchise in the United States.

25

Works Cited
Burger King Corporation v. Family Dining Inc. 426 F. Supp. 485; U.S Dist Ct. 1977. Burger King, Franchise Disclosure Document. Burger King Corporation, 10/7/2009. Emerson, Robert W. American Business Law Journal. Franchise Encroachment. Academy of Legal Studies in Business, 2010. Funding Universe. Burger King -- Company History. 2004. 10/13/2010 <http://www.fundinguniverse.com/company-histories/Burger-King-CorporationCompany-History.html>. Gibson, Richard. The Wall Street Journal. Burger King Franchisees Cant Have It Their Way. New York: Jan 21, 2010. Gibson, Richard. The Wall Street Journal. Have It Whose Way? At Burger King, management and franchisees are locked in battle over the companys direction. New York: May, 17, 2010. Khan, Mahmood A. Restaurant Franchising. Franchisor- Franchisee Relationships. New York: John Wiley & Sons, 1999. Leichtling, Adam B. University of Miami Law Review. Scheck v. Burger King Corp.: Why Burger King Cannot Have Its Own Way with Its Franchisees. University of Miami, 1994. Market Watch. 3G Capital Commences Tender Offer for All Shares of Burger King Holdings, Inc.. 2010. 9/16/2010 < http://www.marketwatch.com/story/3g-capitalcommences-tender-offer-for-all-shares-of-burger-king-holdings-inc-2010-09-16>. McLamore, James. The Burger King: Jim McLamore and the building of an empire. New York: McGraw-Hill, 1998. National Franchisee Association v. Burger King Corporation. 2010; U.S Dist Ct. 2010. Steven A. Scheck v. Burger King Corporation. 756 F. Supp. 543; U.S Dist Ct. 1991. Trout, Jack. Big Brands Big Trouble. Burger King. New York: John Wiley & Sons, 2001.

26 Wites, Marc A. University of Florida Journal of Law & Public Policy. The Franchisor as Predator: Encroachment and the Implied Covenant of Good Faith. University Journal of Law and Public Policy 1996. York, Emily B. Advertising Age. Value Menus Cost Operators Dearly. Chicago; 3/31/2008.