More than a dozen Quebec franchisees are suing Tim Hortons over millions of dollars in lost profits in recent years. The reason for this is that the gap between the company’s equipment costs and the menu prices managed by the company has narrowed.
An application to begin the lawsuit was filed Thursday in Quebec Superior Court in Montreal on behalf of 11 owners of 44 restaurants in the province who have seen a “significant decline” in revenue since 2021, according to documents. It has been submitted.
This isn’t the first time Tim Hortons has faced a lawsuit from a store owner. In 2019, the company settled two class-action lawsuits brought on behalf of Canadian franchisees who at the time alleged that parent company Restaurant Brands International Inc. QSR-T’s actions harmed the brand’s reputation and revenue. .
Tim Hortons currently has more than 3,900 stores in Canada, including approximately 615 in Quebec.
The decline in profitability mentioned in the court filing is the same as that expressed by a dissident group of Tim Hortons owners called the Canadian Franchisee Alliance, which began speaking publicly about shrinking profitability last year. is. The company acknowledged that franchisees’ profits have declined during that time. The average Tim Hortons store had earnings before interest, taxes, depreciation, and amortization (EBITDA) of $320,000 in 2018, but that number has fallen to $220,000 by 2022.
Restaurant Brands reported last month that the average restaurant’s profitability improved to $280,000 last year, but is still not back to 2018 levels.
For years, franchisees have been earning profits that are at or close to the expected revenue range projections provided to store owners by RBI subsidiary TDL Group, according to Quebec court filings. That started to change in 2019, according to the documents.
Many fast food restaurants saw a sharp decline in sales in 2020, especially during the early months of the pandemic. But court documents show that the steepest profit declines for Tim Hortons franchisees have occurred since 2021, which coincides with rising inflation, particularly food prices.
The plaintiffs allege that across 44 restaurants, profits decreased by $18.9 million in 2021, 2022 and 2023. The reduction per franchisee ranged from $59,515 to as much as $4.5 million over the three-year period. filing.
“Tim Hortons franchisees operate one of the most profitable and beloved restaurant concepts in Canada and Quebec,” spokesperson Michael Oliveira said in a statement Friday. “While there are 1,500 franchisees nationwide, these 11 do not represent the positive experiences or opinions of the majority of Tim Hortons restaurant owners.”
Through its franchise agreement, TDL has control over its restaurant operations, including what suppliers the franchisee purchases, the equipment it uses, the supply of products and ingredients, the cost of those ingredients and the prices it charges customers, according to Thursday’s court filing. Managed. With rare exceptions, a franchisee purchases from her TDL or TDL-designated suppliers at prices determined by TDL. The company also sets menu prices, leaving restaurant owners with no consideration for profitability, court documents allege.
Plaintiffs allege that TDL’s pricing policies failed to adequately adjust to market uncertainties or take into account the consistent cost increases faced by franchisees. Franchisees have approached the company multiple times in recent years seeking steps to relieve pressure, such as agreeing on price ranges for certain menu items, according to the documents.
However, Tim Hortons’ franchise agreement puts the company in a position of “absolute advantage” over its franchisees, who have no choice but to accept the terms set by TDL. It is stated in the document.
Historically, there have been some exceptions to this. For example, according to filings, in the past Quebec franchisees were allowed to negotiate the purchase of certain dairy products from local suppliers, but TDL has canceled some of those agreements. He is said to have moved in the direction of doing so. Instead, the company imposed exclusive contracts with other suppliers and franchisees were asked to buy at higher prices, the plaintiffs allege. Their documents state that the equipment they had to purchase was costly to maintain and repair. These costs are also payable by the franchisee and are in addition to the franchise fee set by TDL and contributions to the company’s advertising fund.
These factors negatively impacted profitability, according to the filing. This narrowing of the gap between cost and sales has left franchisees with less money to make restaurant renovations and other investments required by the company, and the amount is disproportionate, the document alleges. There is.
Some of the franchisees in the lawsuit were with Tim Hortons in the early to mid-2000s. Plaintiff most recently signed on as a franchisee in 2018.
Another complaint raised in the court filing is that the Tim Hortons loyalty program (called Tims Rewards in English and Fidéli Tim in French) takes a long time to connect to the mobile application, making it difficult for restaurants, especially the drive-thru Service in the lane was slow. During trading. The filing also notes that if loyalty members redeem points for free items, the franchisee will be responsible for the cost.
Plaintiffs allege that TDL breached its obligations to its partners, failed to maintain the profitability it was entitled to expect, and the restaurants lost value.
This is happening even though sales are increasing and the parent company is reporting increased profits, court filings state. The restaurant brand reported a net income of US$1.25 billion in 2021, US$1.48 billion in 2022, and US$1.72 billion in 2023.
“In the last three years alone, 24 Tim Hortons franchisees have acquired 77 restaurants in Quebec. “It is well known that there is an opportunity to benefit from this,” he said. Oliveira said in a statement. “We will defend these baseless claims through court proceedings.”
