U.S. franchisee Tim Hortons filed a lawsuit in federal court Thursday against parent company Restaurant Brands International (RBI) accusing them of undermining and camouflaging the franchise system as a supply chain business.
The franchisees that go by the name of Great White North Franchisees-USA-Inc. use, seek declaratory and injunction.
The lawsuit alleges that RBI, also the parent company of Burger King and Popeyes, has limited the source of goods to “sole suppliers” affiliated or unaffiliated with RBI but paying discounts to RBI, forcing franchisees to To buy goods well above market value. The document further argues that RBI abused the marketing fees paid by franchisees and stripped the franchisees’ equity through a convoluted contractual language.
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The franchisees state in the lawsuit that Tim Hortons performed well in the US prior to RBI’s acquisition of the brand in 2014. The chain added 259 stores from 2011 to 2013, however 127 domestic stores closed in 2015, the first full year under the RBI. From 2016 to 2018, the lawsuit states that Tim Hortons lost 31 stores. In 2019, several stores in Ohio, Minnesota, and Michigan closed. Sales in the same store continued to decline over the same period. The lawsuit argues that RBI “began its fraudulent strategy” to offset stagnant sales in the US and Canada.
Despite the decline in sales, Tim Hortons in the lawsuit was able to make profits at the expense of franchisees through a vertically integrated supply chain that “produces, stores and distributes most of the food and restaurant supplies.”
The document shows several examples of when Tim Horton’s segment was driven by a surge in sales in the supply chain of products sold to franchisees. In many cases, supply chain sales eclipsed franchisee revenues. For example, in the fourth quarter of 2019, supply chain revenue was $ 586 million compared to $ 286 million in franchise and real estate revenue.
“RBI has through its Tim Hortons brand and its affiliates, including TDL and THD,
Effectively become more of a supply chain company that generates most of its revenue from selling labeled products to franchisees, and even less of a franchisor that traditionally provides support and “system” franchisees towards profitability Conditions.
The lawsuit also accuses RBI and Tim Hortons of hiding the nature of their relationships with vendors in order to bind the franchisees to unfavorable agreements and forcing them through binding
Franchisees of seller agreements that require the purchase of essential items that are sold to them well above market price. “
According to the document, suppliers charge Tim Horton’s franchisees $ 104.08 more per case of Applewood bacon than Wendy’s franchisees. Tim Hortons franchisees also pay $ 23.85 more for boxes of Diet Coke and $ 11.92 more for a carton of 9-inch plastic straws.
“RBI, Tim Hortons and its subsidiaries have been more focused at all major times
on their own profits and the stock value of shareholders as productive and supportive
Franchise system to its franchisees “, it says in the lawsuit. “Based on information and beliefs, this system was introduced to increase the profitability of RBI and make it more attractive to potential investors.”
The news is the latest in a string of legal disputes between Tim Horton’s franchisees and the RBI, including a lawsuit accusing RBI of mismanaging advertising funds and another alleging that RBI tried that Intimidating franchisees and forcing them out of their stores.