Burger King, Coke May be Headed to Court

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Burger King, Coke May be Headed to Court

MIAMI -- Burger King franchisees, angered by allegations that Coca-Cola may have used deceptive marketing to sell them on a new Frozen Coke, are organizing to seek up to $65 million in compensation for their expenses to sell the failed drink.

Frozen Coke was made a mandatory menu item for Burger King restaurants in 1999, with the rollout to be completed in 2000, USA Today reported. A lawsuit filed May 19 against Coke by a former employee Matthew Whitley claims he was fired for speaking up about rigged market testing for Frozen Coke, as well as problems with other marketing programs and related accounting. He lost his job along with 1,000 other Coke employees in a reorganization in March.

Whitley contends that in 2000, Coke executive John Fisher inflated results of a Frozen Coke market test in Richmond, Va., by having someone buy $10,000 in worth of Burger King meals. Coke no longer employs Fisher. Test results were used to bolster claims about the sales potential of Frozen Coke and to persuade Burger King franchisees to join the first national Frozen Coke promotion, a four-week push in June 2000.

Documents obtained by USA Today show that Coke claimed "the average Burger King restaurant should realize an estimated $788 in gross profits as a result of this promotion (based on company restaurant volumes and test market results)." The memo cites the Richmond test as raising traffic 7.3 percent sales, 3.2 percent; and profit, 3.4 percent.

Some franchisees do say the product was profitable. "If you sold 150 gallons of syrup per year, you've really gotten your money back," says Dominick Vespoli, whose 10 restaurants broke even within nine to 12 months. But others contend it never hit promised sales. Unit sales of 25 per day represented the break-even point, but some franchisees say they never sold more than 10.

Coke and Burger King say the Richmond test had no real impact because 6,000 of Burger King's 8,000 restaurants were already selling Frozen Coke by then. But franchisees say they had yet, at that point, to vote on whether to spend money to participate in the national promotion.

Though some franchisees are calling for a lawsuit, the National Franchise Association is waiting for reports from Burger King and Coke. Next week, Coke is to release results of an independent investigation of Whitley's claims.

"We support the investigations that Coca-Cola Co. has initiated, as well as those done by Burger King," says Dan Fitzpatrick, vice chairman of the franchise group. "We are in active dialogue with the appropriate executives at each of the companies, and thus far, they have been very forthcoming."

The four-week promotion issued a coupon for a free medium Frozen Coke with the purchase of any value meal and was used to jump-start the summer sales season. The drink, which has a separate dispenser, is still on sale at Burger Kings, and the company asked Coke in January for ideas to boost sales. Coke's recommendation: Change the name on the machines to Icee, a well-known frozen carbonated beverage (FCB) that is a Coke partner and is sold in convenience stores. The now "Icee" machines will still dispense Coke's Frozen Coke and Cherry Fanta flavors.

The lawsuit could also allege that the Frozen Coke system (installed at a cost of $8,500 to $10,000 per restaurant) was forced on franchisees to help improve Coke's revenue, the report said.