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Franchisees shunned at Tim Hortons parent company annual meeting

Exterior of the Tim Hortons coffee shop at the corner of Scott St. and Wellington St. East is photographed on March 3, 2017.

Fred Lum/The Globe and Mail

The parent of Tim Hortons, which has faced rising pushback from its franchisees about its tight-fisted management style, held its annual meeting on Monday but didn't give them a chance to air their grievances.

Daniel Schwartz, chief executive officer of Restaurant Brands International Inc., which acquired Tim Hortons in late 2014, cut off the meeting when other companies usually take questions from the audience.

"I'm astounded," John James (J.J.) Hoey, a franchisee in Mississauga and an organizer of the Great White North Franchisee Association, said later. The association was formed in March to speak for Tim Hortons restaurant owners and raise concerns about the effects of RBI's cost-cutting.

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In an interview later, Mr. Schwartz said the company is in "constant dialogue with our restaurant owners. We're always willing to speak with them."

Franchisees had expected to express their frustrations with the new regime at the public forum to give shareholders a better picture of the problems and how they affect operations. They have warned RBI its heavy-handed efficiency efforts have resulted in poor communications with head office, declining product quality, product shortages and even safety concerns that are damaging the brand.

And they say RBI is pushing some expenses onto store owners, pinching franchisees while shoring up the company's bottom line.

Mr. Schwartz did not touch on the association's issues during the meeting but rather reviewed the company's performance, which has been strong, although sales at restaurants open a year or more have been disappointing in the past year or so. That's a key retail measure.

Still, the nine franchisees who drove as much as three hours for the 8 a.m. meeting at RBI's head office in Oakville, Ont., said they were surprised and disappointed they didn't get to speak or ask questions.

Marc Caira, vice-chairman of RBI's board of directors and the former Tim Hortons CEO who oversaw the RBI takeover, said in an interview he found it ironic that franchisees needed to come to a shareholders meeting to ask questions. "It's an open, transparent organization where anyone can pick up the phone and ask questions."

But Peter Sklar, retail analyst at BMO Nesbitt Burns, said he was surprised RBI didn't take questions from shareholders. "It's unusual for investors not to have the opportunity to question management during the annual meeting," he said. "I've never seen that before."

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In mapping out a global growth strategy, RBI is launching more Tim Hortons restaurants outside of North America, including in Britain and the Philippines. It's following an approach similar to the one it took with its Burger King chain and now with Popeyes Louisiana Kitchen, which it acquired in March.

RBI, controlled by Brazilian private equity firm 3G Capital, is quick to adopt its cost-cutting strategies at its acquired targets, a proven 3G strategy to rapidly boost profits.

Mr. Schwartz told the meeting that 2016 was another good year for RBI, which will continue to focus on customer satisfaction and franchisee profitability.

He said management representatives would be available later for questions, although Mr. Hoey said he wasn't aware of any representatives to speak to after the meeting.

In the interview, Mr. Schwartz said Tim Hortons is embracing new products and technology to help boost business. He said restaurants have run out of some items, such as sandwich wraps, because they were extremely popular after being heavily promoted.

He said Tim Hortons will not recognize the franchisee association as the official voice of the restaurant owners. Instead, the company communicates with the franchisee-elected advisory board, which the association says is too close to the company. Mr. Schwartz said he encourages association representatives to run as advisory board members or observe advisory board dealings.

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RBI collects royalties from franchisees (3 per cent to 5 per cent of sales), lease fees (up to 10 per cent of sales) and a markup on sales of supplies, from coffee to cups, that store owners must purchase from the company.

The franchisees contend they are overcharged for the goods and want a say in the pricing. But Mr. Schwartz said Tim Hortons will not alter its pricing process, which he said hasn't changed since RBI took over.

The franchisee association said Mr. Schwartz initiated two private meetings with association representatives over the past two weeks or so, one at the head office last Thursday and one in Calgary two weeks earlier. But Mr. Schwartz said those were merely meetings with individual restaurant owners. "We always have time to listen and get feedback on ways to do better. … We're happy to listen to it in a constructive, private way."

The iconic Tim Hortons chain of coffee stores has a long history in Canada, growing from a single store in Hamilton. But now thought its growth and a series of mergers, its one pillar of a huge empire of brands that will now include Popeyes.
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