Timmies under fire in U.S.
TORONTO An independent group of franchisees in the United States is accusing Tim Hortons of trying to offset stagnating North American sales by “price gouging” them on supplies.
A lawsuit filed in Florida by Great White North Franchisee Association-usa Inc. alleges the coffee chain and company RBI embarked on a “fraudulent strategy to convert the Tim Hortons franchise system into a supply chain business disguised as a franchise system.”
Among other things, the company limited the “source of goods” to sole suppliers that are either affiliated with Restaurant Brands International, or unaffiliated but paying rebates to RBI, according to the lawsuit, which was filed in U.S. District Court for the Southern District of Florida.
As a result of the arrangements, the filing alleges, RBI was “reaping outrageous profits by price gouging U.S. franchisees on all goods necessary to operate Tim Hortons restaurants.”
None of the allegations have been proven.
Mary Lowe, head of communications at Tim Hortons, said the group that filed the lawsuit had a similar case dismissed by a Florida state court a few months ago.
This week’s filing in federal court in the Southern District of Florida “appears to be a second attempt to pursue similar claims with a different court,” she said in an emailed statement.
In 2017, the Great White North Franchisee Association was formed in Canada to oppose the practices of Restaurant Brands International, which had taken over the chain in 2014. It said it represents as many as 600 restaurant owners, and filed two class action lawsuits in Canada in that were settled last year.
The latest lawsuit in Florida filed by GWNFA-USA, based in Bowmansville, N.Y., alleges that part of the problem for franchisees is that Tim Hortons embarked on an ill-fated expansion into the United States, and has suffered under RBI.
“In 2015, the first full year under RBI’S management, Tim Hortons closed 127 U.S. outlets,” the lawsuit states, adding that 31 more outlets were gone by 2018 and dozens closed last year in Ohio, Minnesota, and Michigan.
Meanwhile, “same store sales” in the remaining restaurants “have reportedly fallen quarter after quarter in recent years,” the suit alleges.
To offset these problems, the franchisee association claims in the lawsuit, RBI has used its exclusive control over the franchise system and “overwhelming economic power” to force franchisee to purchase needed goods “at a cost far greater than market value.”
Those costs “bear no relation to those that could be achieved in arm’s length transactions,” says the lawsuit, which contains a laundry list of alleged grievances, including the misappropriation of mandatory marketing fees, and the stripping of equity in the franchisees’ businesses through “unconscionable contractual language” in new and renewed franchise agreements.
“Once the franchisees realize they are pawns in this fraudulent scheme, the sunk costs, onerous contractual provisions (including the inability to sell their businesses for fair value), and threats of litigation and, in turn, more costs, make it economically prohibitive to escape from the 20-year term resulting in long-term indentured servitude,” the lawsuit claims.