A small group of Burgerim franchisees has formed a volunteer association in a bid to speak with a more unified voice as questions about the brand’s future persist.
The newly formed Independent Association of Burgerim Franchisees is working with the American Association of Franchisees and Dealers (AAFD), a nonprofit group that works with independent franchisee associations. But it remains small, with only about 20 members.
“We’re hoping to bring more and more people on board with us,” said Jamal Kabir, a franchisee out of Rancho Cordova, Calif., who says he is “barely keeping his nose above water” given the brand’s high food and labor costs. “This isn’t just one or two people doing it. It’s a conglomeration hoping to spearhead this on behalf of all franchisees.”
The group’s goal is to take steps to preserve franchisees’ investment following the quiet departure of the brand’s owner, Oren Loni.
That could include working with legal counsel and potentially negotiating with vendors to lower prices. And it could provide a framework for the operators to take the brand over in case the company files for bankruptcy protection.
“The fact of the matter is, there is a huge, lurking opportunity for these guys to take control of the brand,” Robert Purvin, chairman of the AAFD and a longtime franchisee advocate, said in an interview. “This is not a fly-by-night business concept. It’s a fabulous business concept. Hopefully, we’re going to be able to right the ship.”
The group's formation comes after a Restaurant Business investigation into Burgerim revealed a brand that operated much like a pyramid scheme, relying on sales of franchisee locations and vendor rebates for revenue, without collecting royalties.
The investigation revealed hundreds of franchisees unable to open, while those who did typically lost money. Burgerim took large rebates, which drove up food costs. Estimates from employees and some operators suggest that 20 to 25 of as many as 200 open locations are profitable, and perhaps another 50 are breaking even or could make do with changes.
Loni’s departure has left the company in a state of uncertainty. Burgerim said last week that it can avoid a bankruptcy filing that its attorney said was likely just two weeks earlier. Yet the brand is still not collecting royalties, relying instead on vendor rebates and an apparent investment from Michel Buchbut, initially named the company’s chief restructuring officer but who now calls himself the CEO.
Still, there are an estimated $30 million to $40 million in liabilities at the brand, including as many as 90 lawsuits from licensees, landlords and others, along with claims from unpaid employees and hundreds of franchisees owed rebates on the franchise fee.
The Burgerim franchisee association took root weeks ago in a Facebook group of operators concerned about the state of the brand, following the company’s message in December that it was considering a bankruptcy filing.
That group began working with AAFD on a potential association, which was formalized this week.
“What we’re hoping is to stand our ground against corporate and be a negotiating force with third-party vendors,” said Joey McCullough, interim chairman of the association’s steering committee. “The point of an association is to protect franchisees and their investment and not have anyone go through more losses.”
The challenge, however, is getting enough members. Burgerim franchisees are small-scale operators, typically with just a single location, and they are scattered around the country. But there are as many as 150 locations in various states of operation, perhaps 100 locations or more that closed, and hundreds of licensees that could never get one open.
And communication has proven difficult: As Burgerim’s financial problems mounted last year, the company shut off its email service. Not only were company employees unreachable via email, but operators also lost their email service, too, including important communications they had with employees and vendors. Franchisees say they still can’t access those files.
That has left members of the association with the task of calling franchisees one by one to recruit members.
“This is an unusual situation,” said Keith Miller, a franchisee advocate out of California who is also the director of public affairs for the AAFD. “Perhaps the smallest group of franchisees is the open-and-operating group.”