Second Cup franchisees file lawsuit against coffee chain
Company accused of misusing ad reserve
MONTREAL— A group of Second Cup Ltd. franchisees is suing the struggling Canadian coffee chain, alleging the company’s actions have been detrimental to them.
The current and past franchisees outline a long list of complaints against their franchisor in a lawsuit filed earlier this month in the Superior Court of Quebec.
None of the allegations has been proven in court, and the company as well as its lawyer declined to comment.
“It is not Second Cup’s practice to comment on matters that are actively before the court, particularly when, as in this instance, they are at a very early stage of the proceedings,” wrote spokesperson Ali Azzopardi in an email.
While the company has seen positive change over the past three years as it’s attempted to win back customers, fran- chisees continue to suffer, according to the lawsuit.
The company allegedly misused a franchisee-funded advertising reserve, it said.
Franchisees must pay the equivalent of 2 to 3 per cent of their sales to the ad fund.
The coffee chain also forced franchisees to acquire debt to pay for equipment that failed to boost sales, according to the suit, such as equipment needed to sell Pinkberry brand frozen yogurt treats.
Second Cup signed an exclusive licensing agreement with Pinkberry in September 2017 to roll out the brand at its cafes after testing the concept at four locations that summer.
It is now served at 84 Canadian stores, as of Nov. 5, and the company has said the yogurt is an important contributor to overall sales and transactions.
Franchises “swimming in debt suddenly went further in debt,” according to the claim.
“Not only was the increase in franchise sales disappointing, it turned out that Second Cup customers were either having coffee or a Pinkberry smoothie, but not both.”
The plaintiffs also alleged product problems, including being required to purchase products at a “far higher” price than what it is worth on the market, stock shortages thanks to supplier changes and “problematic” food quality.
The suit stems from an original claim by one Second Cup franchisee against the company that eight other franchisees later asked to join.
Second Cup filed a document last week arguing the additional plaintiffs should be treated separately from the first claim.
“Each claim is extremely factspecific in connection with a given franchisee location and a given plaintiff-franchisee relationship and would not be able to be tried at the same time and determined on the same evidence,” according to documents.
Second Cup has been struggling amid increased competition from both high-end coffee purveyors and fast-food chains offering caffeine jolts.
It recently launched a strate- gic review of the company and announced plans to sell recreational cannabis.
It is in the process of converting two Alberta stores to recreational cannabis dispensaries.