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Tim Hortons to review complaints in bid to quell franchisee revolt

Tim Hortons shop in Toronto.

Fred Lum/The Globe and Mail

Tim Hortons Inc.'s top executives are setting up internal reviews of key franchisee grievances in a bid to quell discontent stemming from heavy corporate cost-cutting that some restaurant owners say harms the brand.

A group of franchisees has formed the Great White North Franchisee Association to represent them in talks with Restaurant Brands International Inc., which owns the Canadian fast-food chain. Last Friday, the association sent the company a letter setting out a series of complaints about how it is being managed under the direction of 3G Capital, a Brazilian private-equity fund that controls RBI.

The association alleged in the letter, obtained by The Globe, that the Tim Hortons brand is being "destroyed" along with franchisees' economic health because of moves to slash head office staff, push new costs onto franchisees and take shortcuts to save money. The massive shakeup and head-office downsizing began more than two years ago when U.S.-based Burger King, also controlled by 3G, merged with Tim Hortons to form RBI.

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Read more: Tim Hortons outlets 'being destroyed' by cost-cutting, letter alleges

Read more: Inside the brutal transformation of Tim Hortons

Read more: The story behind our Tim Hortons cover story

During a conference call with franchisees on Wednesday, Tim Hortons president Elias Diaz Sese said "the brand was being attacked."

As a result, Mr. Diaz Sese says the company has come up with new commitments "that will strengthen the future of this brand and reinforce the role of the franchise advisory board" – a body that the association has called ineffective.

Mr. Diaz Sese told the conference call, of which The Globe and Mail later obtained a recording, that the association is circulating information that is incorrect, misleading and "not entirely trustworthy." He pointed to the group's allegation, for example, that the chain's coffee pots are made of "subpar or thinner glass" and break, raising safety and health concerns.

Mr. Diaz Sese said the coffee pots are being made by the same supplier that has produced them for the past 14 years. He said there have been "no changes of any kind" to the specifications, design, production method or materials used to make the pots.

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"Over the last years, we know there have been many changes" at Tim Hortons, Mr. Diaz Sese said. "That's not easy. We acknowledge – I acknowledge – that. However, our business is evolving and our industry is changing. We need to keep the pace."

Association president David Hughes said Thursday it is "pleased to see RBI is considering making changes in the way they deal with their franchisees in response to our concerns, and we look forward to seeing how they intend to follow through on these accommodations."

Mr. Hughes, a restaurant owner in Lethbridge, Alta., said the group continues to see the need for a strong franchisee association and has "been overwhelmed with the number of franchisees coming on board." He didn't elaborate.

"It is important to note that it is only through the formation of an association that RBI has shown any willingness to make concessions to the relationship it has with its franchisees," he added in an e-mailed statement.

In a separate letter to franchisees last Friday, the association said most of the members of the advisory board had decided to resign. However, Mr. Diaz Sese countered in an e-mailed statement Thursday "the vast majority of advisory board members remain engaged and intact." Mr. Hughes said Thursday "we understand there have been resignations" from the board.

The association had asked to meet with Tim Hortons executives in the next two weeks to resolve the contentious issues. Mr. Diaz Sese said in the e-mail Thursday: "We always welcome open and honest conversations with our individual franchisees within existing channels and will continue to work collaboratively with the elected advisory board to ensure the business not only meets franchisees' needs and expectations, but also those of our loyal Canadian guests."

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Graham Oliver, a franchisee in the Kitchener-Waterloo area and an advisory board member, defended its track record on Wednesday's conference call and outlined the commitments the board has reached with the company. The new initiatives give the board input on an internal corporate committee – and new board subcommittees – to advocate for franchisees on matters such as helping increase their profits and decision-making on new restaurant development sites.

"We have made some real progress but as with any evolution it hasn't been perfect," Mr. Oliver said. "There have been some missteps along the way. That said, over the last while we have taken significant steps to rectify these issues. We believe Tim Hortons is committed to working more effectively with the advisory board."

The franchisee association, which is holding meetings with restaurant owners across Canada, alleged the company is using franchisee contributions to its ad fund for purposes other than what the money is intended for and increasingly downloading those costs onto franchisees, without transparency about the fund.

Mr. Oliver countered that, in an effort to be transparent, audited financial statements of the ad fund over the past two years will be made available online to franchisees on Monday. A board sub-committee will be formed to establish rules and procedures for ad fund spending, he said.

While the association warned the Tim Hortons brand is being tarnished, Mr. Oliver said the board's prime concern is "preserving the brand equity we all built … We're not going to solve these problems by airing our grievances outside of our business."

The association said the company's so-called GPS system of monitoring franchisee performance has created "unattainable standards" which are used to expel store owners without fair compensation. Mr. Oliver said the board will set up a sub-committee to ensure the right standards and measurements are in place.

Mr. Diaz Sese said Tim Hortons' "restaurant evaluation systems ensure high quality standards that help us deliver quality products and experiences for our guests – critical factors in our success."

Sami Siddiqui, president of Tim Hortons' Canadian division, urged franchisees to reach out in the next week with feedback, noting that with almost 1,000 people on the conference call it was impossible to do a Q&A.

He said for its spring regional meetings, the company will hold 10 town halls across the country, starting in Vancouver on May 2, rather than just the usual three, in an attempt to meet with franchisees more informally.

"I don't think of myself as an RBI guy," Mr. Siddiqui said. "I think of myself as a Tims guy."

Video: How Tim Hortons became part of a fast-food empire which is now adding Popeyes to its menu
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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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