Tim Hortons Frozen Doughnut Lawsuit
Two unhappy franchisees have launched a class action lawsuit for $1.95 billion against Oakville-based Tim Hortons Inc.
They claim they lost money after the company changed the system of making doughnuts in 2002, from cooking them from scratch in stores to microwaving frozen par-baked doughnuts supplied by a plant in Brantford, owned 50-50 by Tim Hortons Inc. and an Irish company, IAWS Group plc.
The two Burlington franchise owners also claim that a more extensive lunch menu instituted by the fast food chain in recent years has not increased profit enough to make it worthwhile for them to serve the lunch.
They are claiming breach of contract, breach of duty of fair dealing, negligent misrepresentation and unjust enrichment.
The franchisees, represented by Jerome Morse of Adair Morse in Toronto, listed their complaints last week in a statement of claim in Ontario Superior Court of Justice where they are trying to have their suit certified as a class action.
Tim Hortons quickly issued a release saying it would defend itself and called the statement of claim “frivolous and completely without merit.”
The company pointed out that the Tim Hortons Franchise Advisory Board, consisting of elected store owners who represent all franchisees, had looked at the two franchisees’ claims.
“They have advised the Company they also view the matter as without merit, stating that the statement of claim doesn’t reflect the opinion of the vast majority of franchisees,” said the release.
It continued, “Strong relations with our store owners has been a hallmark of the company’s success during our 44-year history, reflected in the good relations we enjoy with the vast majority of our more than 1,200 franchisees.”
The lawsuit claimants say the system of supplying frozen partly-cooked dough from a factory has driven up the cost of doughnuts to franchisees more than they had been told it would, without increasing sales enough to make up for the additional cost.
“The prices charged to the franchisees for many products and supplies have increased and the prices charged are often significantly above market price for comparable products and supplies,” say the claimants.
The complaining franchisees also say franchisees had to invest $35,000 to $50,000 to switch equipment in order to handle the heat-and-serve system adopted by the company for baked goods.
They say Tim Hortons has profited from the new system because it earns a profit on all frozen products sold to franchisees, and the doughnuts are sold at an “inflated price.”
The two dissatisfied franchisees say the soup and sandwich lunch menu has earned them either a minimal profit or no profit at all because the company required them to sell lunch items at “unreasonably low margins.”
At the same time, they claim their costs have gone up because the lunches have become popular and they have had to hire more staff to serve them.