Restaurant Brands International Inc. QSR-T has terminated the franchise contract of the president of a group of disgruntled Tim Hortons franchisees, after they recently voiced concerns about declining profitability amid rising costs for food and supplies.
Ron Fox, a second-generation Tim Hortons franchisee who has owned restaurants for more than two decades, received notice from the chain’s parent company on Thursday that it had terminated the agreement with him, according to two sources familiar with the matter. The Globe and Mail is not naming them because they are describing confidential matters.
Mr. Fox owned two restaurants in Brantford, Ont. Last March, he was named president of the Alliance of Canadian Franchisees, a group that says it represents the owners of nearly one-third of Tim Hortons’ 3,896 locations in Canada.
He received notice of termination less than a week after the ACF went public with its concerns, with executive chair Dave Lush – who is not a franchisee but represents the group – telling The Globe that the situation had “reached a crisis state” for many.
The move by RBI marks an escalation in the conflict with the franchisee group, at a time when restaurants are grappling with inflation while aiming to protect profits.
A focus of the conflict is the rising price of food and other supplies that franchisees are required to buy from Tim Hortons. According to the ACF, sales increases across the chain have not made up for those cost pressures. The ACF is not arguing for passing on those costs to customers in the form of higher menu prices, Mr. Lush said last week. But the group questioned whether the company had raised its prices on supplies more than necessary.
This week, Restaurant Brands executive chair Patrick Doyle said the company had absorbed some costs in order to help franchisees with profitability, leading to lower supply-chain margins. But Restaurant Brands also acknowledged that profitability has been squeezed: It reported the average Tim Hortons location made $220,000 in earnings before interest, taxes, depreciation and amortization (EBITDA) last year, down from $320,000 in 2018, the last time the company reported such numbers.
Mr. Doyle also signalled that the company would not be able to resolve its differences with all franchisees – telling analysts on its quarterly earnings conference call on Tuesday that “it’s likely that a few people will leave the system and transition their restaurants to franchisees who share our long-term mindset for success and growth.”
Both Mr. Fox and the ACF’s Mr. Lush declined to comment on the situation on Friday. Mr. Fox said only that he was discussing options with his legal counsel. The Alliance’s lawyer did not respond to a request for comment on the matter.
Tim Hortons spokesperson Michael Oliveira did not provide details about what led to the decision to terminate the agreement with Mr. Fox.
“As a practice, we don’t discuss our business dealings with current or former franchisees, but we can confirm that we have a very clear agreement with Tim Hortons franchisees about how we protect and grow our brand together,” Mr. Oliveira wrote in a statement.
It is not the first time Restaurant Brands has terminated an agreement after the group spoke out. The ACF was formed in 2017 under the name The Great White North Franchisee Association, to represent the concerns of restaurant owners.
The following year, during a high-profile dispute, Restaurant Brands revoked the franchise licences of former GWNFA president David Hughes. The company also issued “brand protection” and “breach of media policy” notices to the six franchisees who sat on the board of the dissident group.
This week, Restaurant Brands sent default notices to the current members of the ACF board – including Jeri Horton-Joyce, the daughter of chain founder Tim Horton – but only Mr. Fox’s agreement had been terminated, according to the sources.
In 2019, Tim Hortons settled two lawsuits with franchisees. In that settlement agreement, the company rescinded the notices it had issued to the board members, while the franchisees agreed not to communicate with the media after responding to inquiries related to the settlement itself. The franchisees’ agreements also include requirements to adhere to policies on not speaking with reporters or engaging in behaviour that could be seen to damage the Tim Hortons brand.
Now, tensions are heating up once again.
RBI executives say that improving franchisee profitability is an important issue for the company. On Tuesday, executives committed to reporting on average franchisee profits on an annual basis, going forward.
“A few things are clear priorities. One of them, certainly, is franchisee profitability,” chief operating officer Joshua Kobza said in an interview Tuesday, after RBI announced he will step into the role of chief executive officer on March 1. “We’re taking a further step to enhance focus on it and to drive accountability.”