Burger King Sues Franchisees Who Didn’t Upgrade POS

Written by Evan Schuman
January 28th, 2010

Fearing it would lose control over all of its franchisees, Burger King has now sued hundreds of its franchisee stores because they missed a chain deadline for purchasing new POS systems. The litigation highlights—albeit acrimoniously—a difficult franchise IT issue: Chains mandating equipment investments that most franchisees believe do not benefit them enough to merit the cost.

One key issue that both sides are arguing is timing. Some of the franchisees have argued that Burger King is being punitive by moving so quickly. They are pointing out that the chain’s deadline was Dec. 31, 2009, and that the lawsuits started being filed within a few days of the deadline passing.

Burger King argues that it has been extremely patient, having informed its franchisees of the POS upgrade rule back in April 2008–giving the stores a rather generous 20 months to arrange for and make new POS purchases. Indeed, Burger King is saying that it was even willing to give franchisees more time if they needed help raising the money, as long as they were truly trying to follow corporate’s edict.

From the franchisee’s perspective, this Burger King move came on top of some non-IT moves that were seen as unprofitable, such as a recent $1 cheeseburger promotion that some stores said lost them money.

From a legal contract perspective, Burger King seems to have a strong case, given that the franchisees signed contracts that pledged they would abide by the chain’s equipment requirements.

The POS systems cost between $18,000 and $35,000 per store, according to a Dow Jones story. “Asking a franchisee to spend that type of money on technology is hard enough. But forcing them is asking for problems,” said Todd Michaud, vice president of IT at Focus Brands, which owns Carvel, Cinnabon, Schlotzsky’s, Moe’s Southwest Grill and Seattle’s Best Coffee. (Michaud is also StorefrontBacktalk‘s Franchisee Columnist.) “The POS provides data that is critical to most of the functional areas of the brands. But, in my experience, many franchisees do not leverage the data or the power that the system provides. If the franchisee does not get the value out of the system (real or perceived), there is bound to be a standoff, and legal issues like this are an unfortunate result. I am pretty impressed that [Burger King] gave them 20 months notice to make the change. That is a really long time. Plenty of time to depreciate/write-down the asset value.”

Michaud argues that the franchisee’s perspective is also legitimate. “Having a massive chain, getting everyone on the same system is extremely difficult. It could take years to deploy a system. You can easily get into a Golden Gate Bridge scenario where, by the time you are done painting it, it’s time to start again,” he said.

All in all, though, Michaud said that the chain simply had no choice but to stand firm. “I’m sure that the business case needs 95 percent of the stores to be on the system for it to deliver the value. When franchisees hold out–regardless of their issues with the double cheeseburgers–it makes (Burger King) upset,” he said. “They are left with very few options other than suing [the franchisees] or shutting them down.”


2 Comments | Read Burger King Sues Franchisees Who Didn’t Upgrade POS

  1. Fabien Tiburce Says:

    Having attended a number of franchising shows and seen what retail brands will do (and how much they spend) to attract would-be franchisees, I can’t help thinking this is, at the very least, a PR disaster for the brand.

  2. Evan Schuman Says:

    Fabien, yeah, this may indeed be a PR problem, but what choice did Burger King really have? Franchisees perform most of the unpleasant parts of the deal because they believe they have no legal choice. If direct defiance of corporate directives (contractually oblgated) is ignored, it will only breed more. This is probably a damned-if-you do situation, but I really can’t fault them for doing this.


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