Tim Hortons faces more challenges in its U.S. business after a group of franchisees sued the company over what they view as unreasonable charges for food and other supplies.
The lawsuit, filed in a state court in Miami, also claims that restrictions Tim Hortons places on the sale of franchisees’ restaurants hurt the equity they build in their businesses.
The lawsuit was filed by the Great White North Franchisee Association in the U.S., a group formed last year amid growing discontent among Tim Hortons operators. The lawsuit names Tim Hortons and its Oakville, Ontario-based parent company, Restaurant Brands International (RBI).
In a statement, the company said the lawsuit “does not reflect all the facts.”
“This lawsuit has been filed by a small group of U.S.-based franchisees and does not reflect all the facts, or our commitment to the growth and success of the Tim Hortons business in Canada and around the world,” the company said in its statement. “We will respond in due course with the facts to this U.S.-based claim. We work closely with our franchisee advisory board in the U.S.—as we do in Canada—and these franchisees are committed to our plan to grow the business and franchisee profitability.”
Tim Hortons operates more than 700 locations in the U.S., a fraction of the more than 4,000 units in the brand overall, the vast majority of which are in Canada.
Jerry Marks, an attorney for the U.S. franchisees that filed the lawsuit, said the Great White North Franchisee Association includes franchisees that operate more than 300 of those locations.
In the lawsuit, the franchisees are asking a judge to determine whether the claims are reasonable. After that, Marks said the operators will file a class-action lawsuit against Tim Hortons and RBI.
The lawsuit charges Tim Hortons with overcharging for food and paper. Tim Hortons controls its supply chain, and the franchisees say their charges for food and paper are considerably higher than other companies.
Marks in an interview said that a case of Coke or Diet Coke costs Tim Hortons franchisees $75.31 a box. For Dunkin’ Donuts, he said, that charge is $27.81.
A case of Applewood bacon, meanwhile, costs Tim Hortons franchisees $174.53, Marks said, while Dunkin’ operators pay $64.19.
“The amount of excess profit they’re making is staggering,” Marks said.
The lawsuit also claims that Tim Hortons is putting unusual restrictions on operators’ ability to resell their restaurants.
The lawsuit says that, beginning in 2017, Tim Hortons began requiring operators who renew their franchise agreement to agree to a provision that says operators who sell their restaurants must first offer those restaurants to Tim Hortons—at a price that depreciates the value of furniture, fixtures and equipment.
While right of first refusal provisions are common in franchise agreements, they typically require operators to offer a restaurant to the franchisor at a price negotiated with another buyer. Marks said Tim Hortons’ provision is “draconian.”
“A franchisor is certainly entitled to a right of first refusal,” Marks said. “But here Tim Hortons … they have this declining equity standard. That completely guts goodwill and the value of the business.”
The lawsuit is the latest legal action between Tim Hortons and its franchisees both in the U.S. and Canada. A number of lawsuits have been filed in both countries by operators, the franchisor and the association.
In April, RBI CEO Daniel Schwartz said the disputes were with a group of “dissident franchisees” and blamed those operators for spreading misinformation that has damaged Tim Hortons’ reputation and its sales in its home market of Canada.