It’s about total revenue, not just a loss-leader. That’s the lesson that propective franchise owners of any franchise concept need to learn. It’s just math. Forget the lawyers.
How much money do you think your local grocery store makes on 2-24 packs of Coke or Pepsi, when they sell them to you for $9.00?
Answer; they lose money. (Or break even.) They’re banking on the fact that you’re probably there for more than just beverages. You’ll buy some higher-profit items, and the store will do just fine.
If you are a franchisee of a Burger King, and you’re being forced to sell double cheeseburgers for $1 each, do you think that your customers will be buying a beverage, and/or french fries to go with their dollar cheesburger? Do you think that there’s some profit in beverages? Or in french fries?
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That’s why the spring-summer lawsuit by the Burger King National Franchisee Association lost. In his ruling, Judge K. Michael Moore said, “to sell one item for a loss in order to lure customers is a common business practice, not a sign that Burger King acted in bad faith. Even if the strategy was “ultimately unsuccessful,” that is not enough. Read more.
The folks at Fox Business News asked me about the Burger King lawsuit, earlier this year.
What do you think? Would you sell a product that loses money in order to get folks into your place of business to buy other high profit items?