43 Burger King franchisees operating 1,112 restaurants filed for bankruptcy in the past 5 years, almost 15% of all Burger King units. While costs rose for franchisees (utilities, labor and food), total customer flow and average sales per customer did not. The price wars between McDonald’s, Hardee’s/Carl’s, and Wendy’s did not help. Many franchisees are highly leveraged, so a reduction in in cash flows put a serious strain on finding the money to service the debt.
Burger King charges a $50,000 franchise fee for a 20-year agreement. Renewal after 20 years is possible for another $50,000 fee, but only if the store meets the new Burger King operational and design standards, which usually require about $400,000 in upgrades. Additionally, the Burger King franchise agreement prevented multi-unit owners from closing underperforming stores.
One bright side is that Burger King reported the highest same-store sales in 10 years this past year. With so many franchisees in bad shape, speculative business owners can pick up a franchisee on the cheap. Any takers?
Update November 24, 2005:
Though I’m not a fan of NPR, you can listen to the audio of a reporter slam Burger King’s new “King” character marketing. He wrote this critical article.
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