Unhappy Franchisees Seek to Buy Chain

In a radical expression of dissatisfaction with company management, franchisees of Burger King are seeking to separate the hamburger chain from its British parent, Diageo PLC.

The Wall Street Journal
September 1, 2000

Unhappy Franchisees Seek to Buy Chain
Jennifer Ordonez and Richard Gibson

In a radical expression of dissatisfaction with company management, franchisees of Burger King are seeking to separate the hamburger chain from its British parent, Diageo PLC.

Burger King's official franchisee association has hired law firm Weil Gotshal & Manges, public-relations firm Hill & Knowlton and mergers and acquisitions consultant Arthur Andersen LLP to explore ways of
freeing the hamburger chain from its parent, according to franchisee documents.

The dissatisfaction arises from sluggish sales growth, meager profits, an intention to raise royalty rates beginning July 1 and marketing campaigns that franchisees consider ineffective.

London-based Diageo said the chain isn't for sale. Diageo predecessor company Grand Metropolitan PLC acquired Burger King as part of its acquisition of Pillsbury Co. in 1988. About a year ago, it unveiled a makeover of the Burger King logo and restaurants, to be financed by the company and franchisees.

Diageo spokeswoman Catherine James suggested that any franchisee talk of a Burger sale reflected more confidence than dissatisfaction. The effort "seems to me an endorsement," she said. "The people who know it best know [Burger King] is about to make a lot of money."

The absence of a publicly traded Burger King stock complicates the determination of its value, but almost certainly the franchisee association itself couldn't afford the price. Burger King, Miami, is the world's second-largest hamburger chain behind McDonald's Corp., with 812 company-owned and 10,084 franchisee-owned stores world-wide. Sales for the year ended June 30 were $10.9 billion.

Although franchisees are in no position to force the sale of Burger King, their disenchantment could be a problem for it. Franchisee cooperation is crucial to the success of any big restaurant chain.

Disclosure of the franchisee effort to separate the hamburger chain from its parent came during the chain's annual franchisee convention in Orlando, Fla. But franchisee and company leaders have been exchanging acrimonious letters for weeks. Burger King said it received a letter two weeks ago from franchisee association President Steve Lewis indicating the group's desire to prompt a sale.

"Our letter back was very simple. The brand is not for sale, period. There's not any more to discuss," said Burger King spokesman Robert A. Doughty.


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