Tim Hortons prez starts charm offensive as civil war spills across border
Illustration by Jonathan Hankin
The civil war simmering among Tim Hortons franchisees in Canada boiled over into the public eye in late April. Now a group of U.S. franchisees, who just last fall were sounding a conciliatory note even as they formed their first independent association, are joining the warfare against their parent company, RBI or Restaurant Brands International and its private equity firm backer, 3G Capital of Brazil.
The U.S. group, called Great White North Franchisee Association-U.S., filed its first salvo May 3, seeking to challenge the venue clause in the franchise agreements that force all disputes with Tim Hortons to be resolved in federal court in Miami, which RBI perceives as a “friendly court,” said Robert Einhorn of Zarco Law, the group’s attorney.
“It’s a very important issue, because what a federal judge in Miami may view a case to be, and a state judge in New York would look at a case, it’s night and day,” he said.
But that’s only his opening shot. Next the group plans to pursue claims about RBI’s “misappropriation” of the ad fund and RBI’s “improper use of such funds as a means to defray its own overhead expense,” which are claims its Canadian counterpart made last year in a $500-million lawsuit seeking class action status.
“We’re not getting transparency of what the ad funds are and we think we’re overpaying drastically,” Einhorn said. “It’s just massive greed by the franchisor to try to strip every possible dollar out of this brand at the expense of the franchisees.”
Let’s back up and review the latest battles. In early April, the Great White North Franchisee Association in Canada sent another blistering letter blasting RBI, this time to Canadian Innovation Minister Navdeep Bains and asking for a federal investigation—which the minister said he will conduct—into RBI’s alleged failure to live up to promises made under the Investment Canada Act in 2014. That’s when Tim Hortons was merged with Burger King to create RBI.
Among other complaints were “the unreasonable increasing of the costs” of required purchases, “including coffee by a margin of 15 percent; sugar by a margin of 7 percent; bagels by a margin of 20 percent; and bacon by a margin of 100 percent,” the letter said.
That letter was the “final straw” in the view of Tim Hortons’ authorized advisory board, which sent a letter a week later saying the Great White North group’s “negative commentary” is “corrosive and damaging to our brand, our livelihoods and our team,” and said Tim Hortons had plunged from No. 4 to No. 50 in a recent annual ranking of Canada’s most adored companies.
Enter Tim Hortons president
“Interesting times,” said Alex Macedo, president of Tim Hortons since December 2017 and former Burger King exec, in the first interview given by management and arranged by Citizen Relations, the Toronto PR firm retained by the company.
“A lot has been said. The effect isn’t good, obviously, on the brand. We’re not feeling the impact that much on the sales front,” said Macedo, “but we know our guests are not happy with what they’re reading.”
He said “a couple of things give us confidence that we’re getting out of this situation.” He was calling on a late Friday in early May from the airport, after he had finished a three-city Canadian tour, ending in Halifax, Nova Scotia, in which he presented to “70 percent of the franchisees” his new plan, called “winning together.”
“It was received with overwhelming support. There’s a small minority of franchisees that are making noise. The vast majority” are in favor of his program, he said. The three-city tour followed two days of meetings with the advisory board, which had sent the letter asking the Great White North group to stop the negative comments.
To those (like Einhorn) who say the advisory board is a hand-picked, rubber-stamp group, Macedo shot back: “They’re wrong. Much to the contrary, it’s an open session with a lot of feedback. We’re bringing even more best practices in, that I used in my seven years with franchisees of Burger King. It’s about openness, transparency and working for increasing profitability and driving guest satisfaction.” (See more on page 10.)
Asked what he wanted operators and the public to know, he didn’t hesitate. “What they have to know is we’re disappointed with what’s been said in the press. Our brand is loved by millions of people, and we’re going to work really hard to serve our guests even better. We have a team that’s committed and willing who work very closely with our franchise owners.”
A yawning divide
At the GWNFA, at least, there’s no sign of standing down. Peter Proszanski, the attorney at Himelfarb Proszanski in Toronto who wrote the letter to the innovation minister on behalf of the Canadian group, said he welcomes an inquiry.
“There were commitments by RBI and the Brazilian group that were made to the government, and we look at the commitments and we question whether they’ve all been complied with,” he said.
“Success would be the minister either telling us that they have violated these commitments or they haven’t, and if he finds there has been a violation they would right the wrong,” he said.
Many of the problems between franchisees and the franchisor are cultural, he said. “The Tim Hortons brand is more than just the product. It’s the whole aura around it, and in a way it’s Canadiana,” he said. “A lot of this boils down to how the Brazilians and their senior executives manage the business. Tim Hortons has had a franchise environment for 50 years, there’s never been a problem. And why is that? If there’s a problem you pick up the phone and you resolve it. Nowadays there’s no discussion.”
Then he added a note that shows little common ground among the warring points of view. “The way I look at it is, there’s a shift of gross margins from the franchisees to the franchisors.”
Beth Ewen is editor-in-chief of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to firstname.lastname@example.org.