Bitter Taste

By John Dorschner

Tropic, The Herald, May 15, 1994

 Some of the country's brightest black business people thought Burger King was their ticket to the good life.  They soon discovered that you can't always have it your way.

"I wanted to be an entrepreneur, to live the American Dream," Thad Deas mumbled.  He was driving around Atlanta, showing a journalist sites where ambitious African Americans like himself had tried to find success owing Burger King restaurants--and failed.  "I thought I had done all the right thins as an American--not as a black American, but as an American."   He pulled out a handkerchief and dabbed at his eyes, embarrassed by his tears.  "The biggest hurt in my life was losing that store."

He was raised on the tough streets of Overtown, a Vietnam vet, not the kind of guy given to crying.  We stopped at a traffic light in front of a former Burger King, where several black franchisees had gone broke.  A couple of blocks away was a grim housing project.  Nearby was a huge pawnshop.  Across the street was a doctor advertising treatment for drug addicts.  Not the sort of place you'd expect people to stop to eat.

"Destined to fail," Deas mumbled.  "No one could make a success here."  For most of his life, Deas knew all about success.  H had made it out of Miami's grim inner city through unrelenting determination.  He had started as a $90-a-week mail clerk in Burger King's Miami headquarters and worked his way to pt a $60,000-a-year job as construction supervisor for new Burger Kings in the Southeast.  In 1986, at age 40, seeing few blacks above him in the Burger King hierarchy, wanting to take another step up, he resigned and bought his own restaurant.

The resulting disaster, he said, hurt not only him, but all his relatives in Miami and Atlanta who looked up to him as an example of how hard work could pull a black man out of poverty.  "I'm it," he said. "I'm the example for my nieces and nephews and sons and daughters."

Only after it was over did Deas become convinced that some Burger King officials had intentionally put him in a restaurant where he was bound to fail---and then helped ensure his failure by secretly removing new equipment just before he took over, replacing it with old equipment that was bound to break down and cost huge amounts in repairs.

This suspicion may sound bizarre, but three former Burger King district managers in Atlanta have said under oath that switching good equipment for rundown machines was common in the 1980s.  "We swapped out broilers," says Greg Butler, a black former manager.  "We swapped out microwave ovens.  On occasion, we could have swapped out fryers.  We swapped out toasters.  We swapped out CRTs," meaning computerized cash registers. "There is no way that the franchisee can find out."  He says the victims were always black.  None of the three ex-district mangers could recall this ever happening to a white.

The swapping of equipment may be an extreme example, but many former black franchisees in several cities say that Burger King put them in situations---usually bad inner-city locations---in which they were destine to fail.  "The new discrimination is rather subtle in some ways," says Carole Hall, a former owner of Burger Kings in Detroit,  "but it certainly powerful."

Burger King executives say the company has done nothing wrong.  They say they have no knowledge of equipment being switched and say the corporation wouldn't condone the practice under any circumstances.  They say Burger King has a long record of helping minorities.  Just last year, the predominantly black Miami-Dade Chamber of Commerce selected Burger King Corp. as its Business of the Year.

Mark A. Giresi, senior vice president and corporate counsel of the Miami-based company, says that Burger King has spent millions trying to prop up struggling black restaurant owners.  He says black franchisees were never limited to black areas.  He says that Deas and other blacks voluntarily signed contracts agreeing to the deals they negotiated.   "It's not a risk-free business." He says. "You risk your money.  You risk your time."

Giresi says he knows nothing about the specifics of what happened in Atlanta and suggests Tropic call Robert Gumm, who used to be BKC's regional vice president there.  Gumm, now a Wendy's executive, refused to comment.

Ray Hood-Phillips, a black woman who is a BKC consultant on minority issues, says the situation has improved markedly since Grand Metropolitan, a British conglomerate, took over Burger King in 1989.  Both Hood-Phillips and Giresi point proudly to an opinion that U.S. District Judge James Kehoe issued in a case in which he stated that BKC's "policy was one of commitment to minority development."

In fact, though Burger King has regularly received positive publicity for its plans to increase minority franchises, it has never come close to fulfilling them.  In 1983, it signed an agreement with Jesse Jackson and Operation PUSH, promising that by 1987, 15 percent of its franchised restaurants would be run by blacks.  Today, seven years after the original target date, a mere 3.5 percent are black owned.

When Jesse Jackson was asked how well Burger King has come through on its promises, he responded: "Well, let's just say it was not a Whopper."

Unequal Opportunity

Accusations of unfair treatment for black entrepreneurs are not unique to the fast-food giant.  Similar complaints have emerged against Ford and other big companies.  Four decades after fighting for the right to sit where they wanted on Montgomery busses, blacks feel they are being subtly denied an equal chance to climb the corporate ladder or own their own businesses.  A recent University of Chicago survey of 1,200 African Americans found a profound pessimism: 70 percent felt that the American legal and economic system is fundamentally unfair to them and will not improve in their lifetimes.

In a recent book, The Rage of a Privileged Class, Ellis Cose begins with this bald pronouncement:  "Despite its very evident prosperity, much of America's black middle class is in excruciating pain."  The reason is the failure of society to live up to the promise that "if you work had, get a good education and play by the rules, you will be allowed to advance and achieve to the limits of your ability."

Carole Hall, a Harvard graduate who led a class-action lawsuit by minority franchisees against BKC, says she and most of her co-plaintiffs had "multiple college degrees.  They all have been very successful in other ventures before.  They were high achievers, used to long hours with no complaints.  They didn't ask for handouts.  We felt that if you worked hard, and you were fair, and you paid bills on time, you'd be successful---It took a long time to see you were duped."

Is duped too strong a word?  Burger King executives think so.  Hood-Phillips says one huge problem had nothing to do with the corporation: Many blacks came into the system undercapitalized, sometimes with 100 percent financing, and when there was "a hiccup in the economy," many hadn't put away enough money to make their debt payments.

If that's true, Carole Hall says, then Burger King was guilty of rushing blacks into the system to fulfill PUSH quotas---heedless of the painful disasters that might lie ahead.  "They set us up to fail," she says.  "That's all there was to it."

The Sound Of Silence

In Dade County, three of the 17 Burger King franchisees are African Americans.  They own six stores---all in predominantly black areas of Northwest Dade.  Wilma Williams, who owns a Burger King in Carol City, says, "I have no problems with them."  He won't say anything more.  Willie Taylor, who owns four of the six, didn't return Tropic's repeated phone calls.  One of his sites is at Northwest 54th Street and Seventh Avenue, an intersection that a Herald article described last October as "a shooting gallery."

The third black franchisee here is Kelly Jacobs, a Harvard grad who has had a long history with Burger King.  About 20 years ago, the company sold him a restaurant in the Bronx.  Leon Tucker, a black former BKC manager who knew Jacobs, in the Bronx, remembered him as a decent young man in an awful area.  "There were drug addicts and methadone clinics all around him.  He had a shotgun and a baseball bat behind the counter."  Belford Harty, a longtime franchisee in Harlem, says Jacobs didn't have enough protection: "What Kelly needed was three gorillas with guns to stand there and shoot people day and night.

When Jacobs' restaurant failed, Burger King gave him another chance, allowing him to buy his current location.  It's on Northwest 27th Avenue in Opa-locka--a high-crime area.

Jacobs, too, did not want to be interviewed for this story.

In fact, many black franchisees are hesitant to talk.  Burger King is a corporate monolith---the Avis to McDonald's Hertz---and with $6.7 billion a year in sales, it commands considerable clout.  Eighty-seven percent of its 6,100 restaurants are run by franchisees, and they are tied to corporate headquarters by a complex contractual unbiblical cord that might make many hesitant to speak out.

However, because of a lawsuit now working through the courts, a window has been opened into how Burger King has done business in Atlanta.  In sworn statements, former middle-level Burger King managers have lent credence to the complaints by minority franchisees, painting a portrait of a system that ---intentionally or not---was stacked against black businessmen.

Black Tax

After 16 years with Burger King, Thad Deas figured he'd risen as far as a black manager was likely to rise, but he was not the type to be overwhelmed by bitterness: "My thinking was face it and move on."

Like many Burger King managers, he saw buying his own restaurant as a logical next step up.  He was offered a restaurant in an impoverished black area in western Atlanta.  The restaurant was squeezed into the middle of the block.  Fast-food places do best on corners, where they're easier to see and easier to get to.

As a veteran Burger King manager, Deas knew that not all restaurants that BKC offered were good ones, and he approached it carefully.  He didn't like the location.  "Not that I'm against the inner city," he explained.  "But I knew the hardships that an inner-city store brings, even to a knowledgeable franchisee, and I had never run a Burger King before."

Due to the legacy of racism in American, black areas tend to be poor areas, and poor areas tend to e high-crime areas.  This means businesses in poor black areas have additional expenses.  "It's called the 'black tax,'" says Carole Hall, the Harvard MBA.  That includes more money for security, higher insurance rates, more employee theft, less efficient employees.  What' more, inner city generally means older restaurants that need more maintenance. The contract with BKC require owners to periodically remodel the store to bring it up to "current image," which often is an expensive burden on inner-city stores that newer suburban stores don't have.

Not only were expenses high, but sales tended to be low.  The big profit items in fast food are soft drinks and fries; the meat sandwiches make much less.  In poor neighborhoods, customers tend to buy the burgers and nothing else.  Cal Fullard, struggling to stay alive with one inner-city store in Philadelphia, says he once calculated that if his black customer spent the same amount on trimmings that the typical suburban customer did in the Philadelphia market, he would be earning an additional $450,000 a year.

Trust Me

Deas turned down the restaurant, BKC sold it to another African American, who kept it for a couple of years before selling back to the company at a loss.  Eventually, the restaurant was closed down.

Meanwhile Deas was offered another restaurant---No. 899, at Jonesboro Road and I-285 in southeastern Atlanta.  Again he didn't like what he saw.  There were some rundown apartment houses nearby and some public housing.  Behind No. 899 was a large discount store, Richway.  Deas went inside it.  He didn't see a lot of customers.

While Deas considered No. 899, BKC financial specialist Janet Witkowski had written a confidential corporate memo recommending it be sold as part of an overall policy of building new company-operated stores in Atlanta's northern suburbs while selling off low-performing restaurants in southern Atlanta.  Though Witkowski didn't mention race, the northern area was affluent and overwhelmingly white; the southern area included poor black neighborhoods, such as the are around 899.  In particular, Witkowski said that 899 should be sold to Deas because of "its poor location---in an economically depressed area of the city."

Though Deas had no way of knowing about the memo, he was bothered by the area and by the restaurant itself.  It was old and rundown, and BKC wanted it brought up to "current image."  That meant $200,000 in renovations in addition to the purchase price.

BKC was asking about $350,000 for No. 899.  This was a standard agreement: $40,000 of this was a nonrefundable franchise fee.  BKC would continue to own the land and building.  Deas was basically buying the equipment.  He would be responsible for maintaining the property.  The deal was for 20 years.  If BKC thought he was a good operator, he could renew for another 20 years.

Being a good operator meant keeping up with his payments: Of each dollar a customer spends in his restaurant, a franchisee must pay BKC 3.5 percent for royalties and another 4 percent for advertising.  Usually, another 8.5 percent goes for rent.  For Deas, BKC offered to reduce his rent, but on the understanding he would spend the leftover money on remodeling.

"I rode and rode around, and I tried to make a positive out of it," he says.  "If Burger King says that's where you should go, that's where you should go." BKC was pressuring him to accept the place, and making him feel guilty that he had already rejected one site.  There were some affluent, white suburbs nearby, but they were on the other side of I-285.  Deas kept asking himself, "Will whites come across the expressway for service?"  He decided the answer was no.  Despite the intense pressure, Deas turned down No. 899.

BKC nest offered No. 899 to Howard Walsh, a former Coca-Cola executive.  At the time, 1987, Walsh was desperate to find a restaurant.  He already had one Burger King, and it was not providing him with the cash flow he needed to make payments on his start-up loan.

Until Burger King, Walsh had grown accustomed to trusting corporate America.  With a master's in industrial technology, he had soared through several major businesses.  At General Electric, he supervised a group of 50 employees.  By the mid-1980s, he was making $55,000 year as a Coca-Cola executive, and his wife, Pamela, had opened a day-care center.  Immensely frugal, they had built up a net worth of $600,000, with $150,000 in cash.

Realizing that franchising was the future---a lot of people were getting rich owning fast food restaurants---Walsh had contacted several major franchisors, including McDonald's.  Burger King gave him the most enthusiastic response, offering a restaurant in southeastern Atlanta: "They said, 'This is the store for you'---Not knowing much about the business, I was nave.  That is why I was easily taken advantage of.  I trusted Burger King.

A Band-Aid On The Wound

Why would a knowledgeable businessman be so trusting?  Why would he not be as suspicious as if he were buying a used car?

In fact, there is an ambiguity in the relationship.  For one thing, used car dealerships don't make money for every mile a customer drives his car.  Once the sale is final, the financial incentive to please is over.  But in the franchise business, the seller and the buyer have a kind of partnership, both profiting from long-term success.  Robert Zarco, attorney for many Burger King franchisees calls it "a joint venture"---the corporation provides training and market advice and the franchisee pays the corporation for years to come.

Giresi, the BKC counsel, sees it differently.  He says there is an "arm's length relationship" between the corporation and the franchisee.  Each tries to cut the best deal it can.  In other words: Buyer beware.

Still, Cori Zywotow, BKC's vice president of communications, says that in no way would the company want to sell a bad restaurant to a franchisee: " We care about our franchisees.  And we want them to succeed."

Why then sell a restaurant in a "poor location"?  Giresi says that the memo writer "was a junior level financial analyst.  She was not in a business-decision-making capacity.  I really don't know what she means.  I do know it was not our strategy to put franchisees into failing situations." He adds that the other former district mangers who have made comments about Atlanta don't know what they're talking about.  He says they were "fairly lower level employees without any knowledge of strategy.  They had no decision making power."

Two former BKC managers, however, say that BKC was trying to get as mush it could out of stores that were headed down the tubes.  One was Walsh's first store, on Lawrenceville Highway.  Another was No. 899.  One of the former mangers, Greg Butler, called its location "real, real tough."

Juan Abootorabi, former district manger for No. 899, says, he put his best restaurant mangers in the store, truing to improve sales, but nothing they did worked, and Abootorabi transferred them to locations where they could make a difference.  What's more Abootorabi says, he and other BKC officials knew the next door Richway, which had several hundred employees and brought much of the traffic into the area, was doing so badly it would soon close.

Giresi says he has no specific information, but can't imagine that would be true: "I don't know how it would have come to our attention before anyone else's."

To Walsh, BKC officials downplayed the store's rundown condition and emphasized a nearby industrial park, which they said would be developing soon, greatly increasing No. 899's sales.  They showed him sales and expense reports for the past 13 months.  He says no mention was made of Richway closing.

Walsh says BKC officials told him this store was his only chance: "They told me if I did not buy that store, and it was the only store available, I would not be getting any more."

Giresi, the corporate counsel, says that Walsh voluntarily agreed to buy No. 899: "He could have walked away from the deal."

When Walsh bought the restaurant for $325,000, with $35,000 down, he and a BKC manager did a pre-closing walk-through, checking equipment and furnishings.  Walsh noticed spoiled meat in the freezer.  He asked that it be removed.

The next morning, Walsh saw that the rotten meat was still there.  Other thins weren't he says: A toaster and a microwave oven were gone, replaced by older, rundown models. A broiler, freezers and coolers weren't working.  The soda machine line had burst, and syrup covered the floor.  "Burger King had pulled a trick on me," Walsh concluded.

Abootorabi says that he can recall only two pieces of old gear swapped for new at No. 899---two reach-in-freezers---but he says that much of the other equipment was old and BKC had told him not to waste money repairing it.  A week before the closing, to dress up the place for Walsh's inspection, he says, BKC fixed a few shingles and things, but that was all.  I was like a Band-Aids on a wound."

Through his lawyer, Walsh complained loudly, and some of the broken-down equipment was replaced by machines that ran for little while before they, too, broke down.  "It took eight months to get all the equipment back.  I never did get the microwave."

At first, Walsh's sales went up.  Then they slumped 5 percent.  He couldn't figure out why.  One day, he drove around to see if there was new competition.  He found a brand new restaurant 2 1/2 miles away.  Ht was a branch of a major chain owned by the parent company.  The chain? Burger King.

Giresi says it's corporate policy for nearby restaurant owners to be notified of new stores, and he has no reason to believe that the policy wasn't followed in this case.  But Walsh says he was shocked: "They didn't even tell me the store was going to open."

The Competition

The new Burger King affected more than Walsh's store.  It was only a mile and a half from another restaurant. No. 247 on North Druid Hills Road, which had been purchased by Thad Deas after he turned down No. 899.  Deas had doubts about the location---it was in the middle of the block---but he says he was told by BKC that this was his "last option" and the are didn't seem too bad---a racially mixed area, with some white-collar office buildings nearby.  Deas bought the store for $410,000.

He put down $21,000, and had another $21,000 in cash to pay for insurance and supplies as soon as he took over the store.  "I dumped all my money into it.  I didn't have any reserves."

A few days before closing, BKC informed Deas that it planned to build a new company-owned store only a mile and a half from his.  Deas says he was told the new store wouldn't affect his sales, and if he wanted to buy No. 247, he needed to sing a form stating he didn't think the new place would harm him.

Deas didn't like this, but "I had no job, nothing else at this point." Besides, "I couldn't believe that they would deliberately set out to do me wrong." Deas signed.

Contractually, BKC could put a new store anywhere it wanted.  Like McDonald's and most other fast-food chains, Burger King offers no territorial exclusivity to a franchisee.  If BKC wants to build a restaurant across the street from a franchisee, the contract permits it.  This freedom has caused tremendous howls over the years by franchisees and Florida and other states have considered legislation to require franchisors to separate restaurants by at least three miles, but at present franchisor hold all the cards.

As with Walsh, Deas walked into his new store to find broken-down equipment.  "There were innuendoes from the kids saying, 'They changed this.'" Soon after taking over, Deas says, the broiler stopped working in the middle of lunch, which was a real killer, since virtually all BK sandwich meat moves through the broiler.

Even with the equipment problems, Deas managed to increase sales for the first three months.  Then the new company opened.  Deas' sales sagged.  He asked for help from headquarters.  "Tell me what I'm doing wrong," he pleaded.  A marketing man came out "He looked at all my banners and posters. He said everything I was doing was right."

Sales fell to $825,000---far below the projections he had been shown before buying.  He stopped taking any money for salary and got a second mortgage on his house.  He was working 16 hours a day, seven days a week, without vacations.

Several miles away, Walsh too, was struggling.  The area around No 899 was dying.  The Richway closed.  A Zayre's closed.  Then a nursery, a bank, a supermarket, a gas station.  On the other side of the beltway---the "white" side---a McDonald's opened.  So did a Shoney's and a Sam's Warehouse.  Fewer stores meant reduced traffic, which meant fewer customers at No. 899.  What's more, Walsh kept learning the store was in worse shape than he had realized.  He purchased the restaurant in the summer.  Later, he was shocked to learn that not even the furnace worked.  He says an employee told him, "We haven't had hear in two years." Says Walsh: "You ever heard of a Burger King with no furnace?  I call that a trick."

Giresi says he can't imagine that a restaurant without a furnace could last for two years in Atlanta where winters get below freezing.

For five years, Walsh says, he worked from 5 a.m. to 11 p.m. six days a week.  Like Deas, he cut his salary back to nothing.  H tried direct mail coupons and anything else he could think of.  Nothing worked.

"Set Up To Fail"

When Deas and Walsh complained, BKC tried to placate them.  The corporation paid for a "light and bright" re-modeling of Deas' exterior.  For Walsh, BKC made repairs to the roof, parking lot and other items that totaled $93,000---plus gave him training and staff assistance.  Walsh says much of the money was for things that should have been fixed before he bought the restaurant.  Both he and Deas say that the assistance didn't help them.  They asked that they be allowed to exchange their restaurants for stores in better locations.  Both were told no.

Burger King sued Deas for falling behind in his payments.  In 1991, dead broke, he gave his restaurant back to the corporation.  Today, No. 247 continues to operate as a company restaurant.

Giresi, the corporate counsel: "This was a viable location, proven by the fact that we're still operating it successfully.  The fact that it was not successful didn't have anything to with the corporation failing him."

Craig Farley, a former BKC manger, says BKC dumped loads of money into the restaurant after Deas left, installing a playground, which can cost up to $50,000 and an extra-tall sign, which can cost $75,000.  The parking lot was re-done with new, anti-crime lights.  "If Thad Deas had more capital," Farley says, "if he had been able to remodel, I think he could have made it."

But Walsh had several hundred thousand in reserves, and he, too, went broke.  Both his stores are no long Burger Kings: No 899 is now a burned out hulk, and other is a Dairy Queen.   For a while, Walsh became one of 24 minority franchisees in a class action lawsuit against BKC filed in 1989.  Most of the participants were black, but there were also the Triana brothers in Chicago alleging discrimination against Hispanics and two Pakistanis operating in Atlanta, I.D. Agad and his brother-in-law, I.Q. Balagamwala.

In court, Burger King pointed out one of its largest franchisees, Manny Garcia who owns almost 60 stores in Florida and Georgia, was Hispanic, and the corporation maintained that the franchisees could point to nothing on paper that indicated a pattern of systemic discrimination.  Judge Kehoe agreed, and decreed that the individual franchisee could sue BKC, but not as a class representing all minorities.

Along the way, all the black plaintiffs except Carole Hall dropped out.  Most of them owed considerable sums to BKC, and many worked out settlements that have not been made public.  As part of the agreements, many singed documents stating that Burger King had not discriminated against them.

Walsh saw that the suit would drag on for years and cost huge sums of legal fees.  He signed a confidential agreement with BKC.  Giresi, BKC's counsel, says only that "we solved it, to our satisfaction and to Mr. Walsh's satisfaction>"

Perhaps, but Walsh ended up losing his house and all his reserves.  For the past three years, his wife has make a little money running the day-care center and he has tried to put his life back together, picking through the ruins of the trust he used to have in corporate America.

"They had set us up to fail," he said in a deposition.  "A white franchisee would not have been lied to by Burger King. "A white franchisee would not have had his equipment stolen---I believe that due to the PUSH covenant, that there was a tremendous amount of resentment among the middle management in that they could not get Burger Kings because the were being awarded to blacks."

BKC executive say that's nonsense, but three former middle-level managers have said in depositions that it was de-facto corporate policy to put black franchisees into poor black inner-city neighborhoods.  Abootorabi says he never say those policy written down---"I don't know if anybody would be that stupid, but you could see it."

David G. Hyland, another ex-manager: "I think the reason would be by putting the minority franchisees in those neighborhoods, they felt like they might be able to do a better job associating with and relating to the black neighborhoods---Maybe the only people willing to take them are minorities."

Tropic traced down two black former district managers who had a less than benign theory.

Craig Farley: "Burger King has a tendency to sells dogs to minorities."  A dog is corporate parlance for a poor-performing restaurant.

Jo Nix: "The ultimate idea was that a minority would be successful in a minority area.  They'd say, 'You can go there because you are black.'  I never saw it in writing.  But the bottom line was that whites should be in the white suburbs, and blacks should in be in black areas.  That was definitely the attitude.

BKC offices say none of this is true.  Giresi says none of these managers was in a policy-making position and it always BKC's policy to treat black franchisees the same as whites.

But Butler, another former BKC manager, says white former corporate executive had an advantage over other franchisees when it cam to selecting locations.  They had inside information---studies of future traffic patterns and neighborhood studies that were not shared with most franchisees.

Giresi: "The very nature of their jobs may have given them information about particular areas, but it doesn't mean they were favored."

However, while Deas and Walsh were being offered dubious restaurants in the mid-1980s, several white franchisees were starting up in prosperous predominantly white suburbs.  Greg Bolton, a former BKC executive vice president, was sold a company store in Conyers, which is in an ideal location, on a broad road filled with malls, multiplex movie theaters and a Wal-Mart.  He has since expanded to several other restaurants in the same area.  Skip Hoffmann, another former vice president, has developed six suburban restaurants, five of them in Gwinnett County, a white suburban area that has become one of the fastest growing counties in America.

Hoffman says BKC gave him tow choices: a site in Gwinnett county or in another suburb, and he chose Gwinnett because that' where his home was.  He was never offered the locations that were presented to Deas and Walsh.  He says he purchased his first restaurant with a special corporate loan available to former BKC executives, but his other restaurants were bought without corporate help.  Hoffman adds that BKC never tried to switch old equipment for new in his stores---"I've never her of that happening, anywhere."

Making it Big

Burger King says it keeps no statistics on what percentage of franchisees fail, but it likes to imply that very few do.  The brochure it sends to prospective franchisees quotes a survey that states 94 percent of investors in all types of franchises are successful.

David Talty, a restaurant consultant who teaches at Florida International University, says fast-food places in general area astonishingly successful.  White eight out of 10 new unaffiliated restaurants go broke; the failure rate of big chains is only 2 or 3 percent.

African Americans entered the Burger King system thing they were buying into a sure thing, but it didn't turn out that way.  How many failed? Tropic called 60 black franchisees who were in the system in December 1990.  The findings: In the past 3 1/2 years, 15 (25 percent) have gone out of business.  Another two are in bankruptcy court. Yet another two said they too would have been out of business if they hadn't threatened BKC with legal action and been given prosperous suburban stores to shore up their failing inner-city restaurants.  At least nine others are struggling to survive with a single store.

Many of the successful black franchisees, who have large numbers of restaurants, have expanded rapidly only since 1989, when the class-action lawsuit was launched.

The list of casualties is long. Sam Price, a Dolphin running back in the 60s, sand hie pro-football earnings into two Burger Kings in Michigan.  Leroy Kelly, the famed Cleveland Brown, went into partnerships with his sister in an inner-city Philadelphia restaurant.

Bob Williams, who in 1972 became one of the first blacks to own a Burger King, was featured in Ebony and Jet as a successful black entrepreneur.  For a long time, he survived, but his stores grew old in deteriorating Detroit neighborhoods and he had no money to remodel them: "I ended up broke, with absolutely nothing.  Mentally, I was just destroyed."  Though he's a college graduate, he now ekes out a living as a security guard.

Then there's Anna Hollis: She and her husband, Tom, ran a restaurant in a black area of Washing, D.C. A few months after opening, Tom was shot dead and one of he sons was wounded in a restaurant holdup---by a disgruntled security guard that they had to fire because they couldn't afford him.  Mother of five, Anna Hollis vowed to carry on.  For years, she kept the restaurant going.  She was featured in Jet and The Washington Post, which used the headline: Making it Big in the Burger Biz. A Reagan staffer sent her a congratulatory note on White House stationary, and Hollis became a much-in-demand speaker, going to places like predominately black Howard University, where she advised business students that their best chance at success was through franchising.

Still, it was tough going.  The neighborhood kept deteriorating.  Twelve times she herself was robbed in the store.  Many customers avoided the place.  Decent help was no longer available.  The employees she could get weren't interested in keeping the place clean, and she began counting the inventory twice a day, to see which shift was stealing from her.  Then a recession hit her store's run down neighborhood, and he slid deeply into debt.

Hollis begged Burger King for a better location, but her debts were so large she was told she didn't quality.  She joined the lawsuit, eventually setting for an undisclosed amount.  Her store is now closed down.  Hollis' area was particularly hard hit: Of nine black franchisees operating in 1990 in BKC's Washington-Philadelphia region, seven have gone out of business and an eighth is struggling to survive with one inner-city restaurant.

A Healthy Skepticism

In recent years, it seems that some blacks have become more cautious about taking what BKC offers.  If nothing else, federal regulations require franchisors to list pertinent lawsuits against them in the thick Uniform Franchise Offering circular sent to all prospective franchisees, and the mention of lawsuits by minorities have causes some would be buyers to check around.

Louis Kyles, who has three stores in Chicago, says he was offered stores in the impoverished South Side, but they were "really bad, across form the projects.  We went round and round on those sites.  They've closed down those stores now.  I was fortunate I had an attorney familiar with Burger King---He told me, these were situations where you never get the cash flow."

In recent years, some major black investors have come into the system.  They have more money behind them, so they can buy multiple restaurants.  Stephen Singleteary, a Chicago lawyer, has 15 stores.  Val Daniels, a former banker from Milwaukee has 32, Mike Eanes in Cleveland has 12.  This kind of size allows them to weather financial and neighborhood vagaries that killed off one-store owners like Deas.  This new breed of black entrepreneur also has a healthy toughness and skepticism when dealing with BCK.

"We have to stop making deals just to get into the game."  Says Singleteary, vice president of the Minority Franchisee Association.

Eanes: "I tell them what I want.  I don't accept what they want---Me and Burger King have had some blows, but they know where I'm coming from."

Bruce Taylor, a former San Francisco 49er, who now has three stores in the state of Washington and is head to the Minority Franchisee Association, says that he knows minorities have a tough time with Burger King in the '80s, but says it has changed since Grand Met took over in 1989: "I think a lot of work need to be done, but the framework is set for it to work well---Their system has changed, their mood has changed.  It's been like day and night."

Since Grand Met and the lawsuit---both entered the picture in the same year---blacks find they are being offered better locations.   Clyde Younger bought his first store in 1989, the year the lawsuit started, and ended up with tow excellent locations in Massachusetts---both are in food courts in large malls, where there is a lot of traffic.  And he's bout to get a third, at the Boston airport, which should be a gold mine with its captive audience.  "If you get the proper location," he says, "this will work out very well for you.

Promises, Promises.

Even though BKC denies that it did anything wrong in Atlanta, it has been changing its policies there. After the failures of Deas, Walsh and others, only one black franchisee remained in Atlanta: Ernie Jackson, who have one store near a mall frequented primarily by blacks.

In 1989, BKC offered Joe Nix a store on Chamblee Tucker Road, and Nix was ready to take it.  But someone at BKC Miami decided the store was not a good risk.  Nix was warned, and a few months later, the store was shut down.  A replay of the Walsh scenario was avoided.  (Nix has ended up with two profitable Burger Kings in small towns in South Carolina.)  "I don’t' know all the details, I just know what the result is.  I thing Burger King recognized something needed to be done to change it."

So BKC recruited Eanes, the successful Cleveland operator.  Eanes was recently sold three company stores in the predominantly white Atlanta suburb of Marietta---an area where Walsh, Deas and other black franchisees were never invited to buy.  Eanes says he plans to build seven More Burger Kings there.

Meanwhile, some black franchisees are going back into the inner city---with success.  Singleteary and Daniels have carefully selected sites in Chicago, Milwaukee and Detroit, and they have huge sums to invest.

"If the structure of the deal is right," says Daniels, a former banker, "you can do OK."  And sufficient capital is important, she adds: "When you're highly leveraged, it's hard to make money." Both Singleteary and Daniels also have a mix of restaurants---including suburban and even small-town---that can carry them through if one or two stores has a rough time.

Meanwhile, Burger King continues to win publicity for its efforts to promote minority ownership.  Last December, BKC announced a five-year program of $100 million in loans to minorities and women, to help them buy restaurants and other assistance.  A Herald editorial applauded the move: "The commitment is extraordinary."

But five months after the program was announced, minority franchisees know nothing about it, and even those who say they have been treated well by Burger King are wondering what's happened to the money.

Hood-Phillips, the diversity advisor for BKC, says that the delay has been because of government red tape: The program can't be implemented until it's included in the formal documents sent to all prospective franchisees.

Buy Clyde Younger, a successful black franchisee in Massachusetts, remains skeptical: "You'd think the program would be outlined before it's announced."

The Buddy System

Burger King isn't the only company criticized for failing to come through on a promise of minority opportunities.  Black entrepreneurs went to Operation PUSH in the early '80s, complaining that they had virtually no chance of getting one of the most lucrative business opportunities in America: a car dealership.  PUSH got Ford Motor Co. to promise to greatly increase the number of its black dealers.

Ford selected blacks with entrepreneurial skills and money to invest.  They put them through a two-year training program then offered them dealerships.  Now, a decade later, the program has led to a spate of lawsuits.  The basic allegation is that franchisees were offered dealerships only in bad locations---usually small towns where there weren't enough customers to support a dealership.  Ford says it has done nothing wrong---in fact, it boasts that it has more black dealers than General Motors and Chrysler combined---but earlier this year, Alabama jury found that Ford had fraudulently lured a black dealer into buying a dealership in Selma, Ala., that caused him to go bankrupt within two years.  An economist testified that 40 percent of black Ford dealerships were, after investing hundreds of thousands of, people expect to be set for life.  The jury ordered Ford to pay the dealer $10 million.

What's happening here?  Have American corporations really been putting blacks in places where they knew they were destined to fail?  Perhaps, in some instances.  In other cases, a more subtle kind of problem may be at work.  It could well be that, even if there were no malice, even if blacks were not intentionally put in bad areas, they would still have a problem.

Wayne Patterson, spokesman for disgruntled minority Ford dealers, says that top Ford executives wanted to honor the PUSH covenant, but "there was a middle management level that didn't get aboard on this---The really prosperous dealerships never become available, because they're passed on in the family."  And so, to fulfill the covenant, middle-level-management sold what was unwanted---generally, dealerships that were struggling or unprofitable.

What if Ford decided to start a new dealership in a prosperous, expanding area, such as Orlando?  Patterson says it would undoubtedly go to an old buddy of a Ford executive, in a deal done quietly at a country club.

Dave Smith, Ford's manger of minority dealership operations, agrees that only a limited number of dealerships become available, but the company examines them closely for profitability before selling them to minorities.  He says the buddy system has nothing to do with it, but if a new dealership opens up in a place like Orlando, it generally will go to an already established dealer in the area.  "It takes so much money---$4 million or $5 million---to do a deal like that, and it can take a long time to become profitable."

When Smith is told about Burger King franchisees complaining about being put in black neighborhoods, he says: "We tried that in the '70s.  The idea was blacks would buy from blacks.  We got away from the really quick."

At Burger King, Joe Nix, a district manager before becoming a franchisee, says he was asked to help find locations for blacks, to fulfill the PUSH covenant.  "It was hell to get those goals accomplished.  No one gave a damn." He complains.  Nix says he found a good site in South Carolina, but someone in the hierarchy decided the site was so good it should go to a white franchisee he knew.

"That was purely racial issue," Nix says.  But perhaps not in a conscious way.  It could have been.  Nix acknowledges that the official wanted to give the site to a buddy, and since the official was white, his buddy was likely to be white.  This is how the good ol' boy network operates.  People at the top help out the people they rub elbows with.

"There aren't many blacks at the upper management level," says Nix. "If there had been a black vice president, I'm sure he wouldn't have picked an inner city dog."

Is there life after Burger King?  The ambitious hard-working blacks who failed are still trying.  Howard Walsh is thinking of become a college professor. Thad Deas is managing construction for Boston Chick after going on unemployment for a while.

This is a group who won't stop.  Consider Ann White.  She and her husband, Arthur, had four Burger Kings in New England, the last two bought with no money down.  The debt was too high.  As the stores collapsed, so did the White's marriage.  After the divorce, Ann moved to Atlanta and went into sales.  She loves her job, but she doesn't like working for someone else.  "I'm still looking to have my own business again, run by me, myself and I. I’m thinking of a car dealership."