Tim Hortons Franchisees Spar With Parent Company PDF 2023

# Tim Hortons Franchisees Spar With Parent Company ## Rising Cost of Goods Squeezes Profits **FEB 2023** **JAKE EDMISTON** Tim Hortons franchisees have to make a choice: they can donate their Justin Bieber-themed merchandise to charity or they can hand it out to staff, but selling it is no longe...

# Tim Hortons Franchisees Spar With Parent Company ## Rising Cost of Goods Squeezes Profits **FEB 2023** **JAKE EDMISTON** Tim Hortons franchisees have to make a choice: they can donate their Justin Bieber-themed merchandise to charity or they can hand it out to staff, but selling it is no longer an option. The coffee chain in 2021 partnered with the Canadian pop star in a bid to attract younger customers, launching a line of Timbits, called Timbiebs. Tim Hortons brought Timbiebs back last year along with a Bieber-themed coffee, Biebs Brew. As part of the promotion, the chain also sold commemorative totes and fanny packs and toques, or, more specifically, it sold the stuff to its franchisees, which then sold it to customers (who, in some cases, resold items for hundreds of dollars online). Now that the promotion is over, Tim Hortons is contractually obligated to stop selling the merchandise and franchisees are out of pocket as a result, according to an organization that represents the chain's restaurant owners. “It’s a lot of money for a lot of owners,” said Dave Lush, executive director of the Alliance of Canadian Franchisees (ACF). “Some of that stuff just plain didn’t sell.” In ordinary times, Lush said, he wouldn’t publicly complain about this sort of thing. (In his words: “Would I be talking to you over the Bieber promotion? Hell no.”) But the ACF has decided these are no longer ordinary times. The group’s main concern has to do with the cost of products that franchisees are required to buy from head office, such as sugar, coffee beans, sandwich toppings and packaging. Lush said those costs have risen at a faster pace than menu prices, which have compressed franchisee profit margins. ACF met with Tim Hortons executives three times in 2022, but decided to speak out after nothing changed, he said. “It was deemed that this didn’t get anybody anywhere,” Lush said. “The (franchisees) are, in their minds, almost at a crisis point for profitability.” But Tim Hortons said the concerns are unfounded and dismissed the ACF as an “antagonistic” group that is determined to drag the brand’s reputation down in public. The company said it’s normal to have some merchandise left over at the end of a campaign such as Timbiebs. And this particular set of merchandise happened to be the “most successful retail campaign” in the company’s history, which drove sales and profits for its franchisees, according to a statement from spokesperson Michael Oliveira. It was mostly the tote bags that were left, he said. “We do not recognize the association as a legitimate voice of franchisees,” Oliveira said in an email. Before ACF went quiet more than three years ago, it had long been locked in a messy public battle with Tim Hortons’ parent company Restaurant Brands International Inc. But a legal settlement in 2019 and sales gains at the chain appeared to have brought about peace between the two sides. The feud originally started a few years after the Brazilian investment firm 3G Capital bought the Canadian coffee chain in 2014 and merged it with Burger King to create Restaurant Brands International Inc., a giant global fast-food conglomerate that now also owns Popeyes Louisiana Kitchen and Firehouse Subs. ACF — formerly known as the Great White North Franchisee Association — accused the company of mistreating franchisees and intimidating anyone who spoke out. RBI dismissed it as a disgruntled fringe group and moved to strip its leadership of their Tim Hortons’ franchises. In 2017, the group launched two class-action lawsuits against Tim Hortons, alleging, among other things, the company was jacking up the cost of products that restaurants were required to buy through RBI and mismanaging the advertising fund that franchisees contribute to. Two years later, the company settled the suits, agreeing to contribute $10 million to the advertising fund and another $2 million to cover the legal and administrative costs of the franchisees’ lawsuits. The company also agreed to not discourage franchisees from joining a franchisee association. After that, the association rebranded as ACF and hired veteran Tim Hortons executive Nick Javor to lead it, but frequently turned down media requests. Around the same time in 2020, Tim Hortons rolled out a “back to basics” plan to address franchisee complaints about the chain’s bloated, confusing menu and its lagging sales. More than three years later, Tim Hortons sales have recovered from pandemic lows and the company has pointed to sales breakthroughs from new menu items and promotions, such as the Bieber partnership, as a sign that its turnaround plan is resonating with customers. In RBI’s latest earnings update in November, it reported an uptick in sales at Tim Hortons of about 10 per cent in the third quarter compared to the previous year. But Lush, who took over from Javor at the beginning of this year, said increases in restaurant costs have outpaced sales gains. “This isn’t a case of ‘I’m not making enough money and that makes me unhappy. This is a case of ‘I’m not making a profit at all,’” he said. **Financial Post**