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Tim Horton may switch from fresh to premade donuts, judge says

http://www.cbc.ca/news/business/story/2012/02/28/tim-hortons-class-action.html

Justice George Strathy of the Ontario Superior Court recently issued a summary judgment in favour of Tim Hortons, dismissing an attempt by some franchisees to argue that the chain was wrongly profiting from a switch in how the company makes its baked goods.

Under what’s known as the “Always Fresh Conversion” several years ago, the company stopped making baked goods from scratch in each location every day, and instead started shipping partially baked items that had been flash frozen before final baking in ovens at all Tims locations every morning.

The new system has proven very profitable for the parent company, but some franchisees complained it simply downloaded new costs to them while the parent company pocketed the savings.

The case also alleged that Tims was requiring franchisees to sell new lunch menu items at break-even prices — or sometimes even at a loss.

The plaintiffs allege that’s a breach of their franchise agreements, which states ingredients would be sold to franchisees at commercially reasonable prices.

The judge dismissed all aspects of the suit, saying Tims is well within its rights as a franchisor to implement new procedures and technologies to its business model

“In order to keep the system healthy and competitive, the franchisor must be permitted to introduce new products, new methods of production or sale, and new techniques,” the ruling reads. “It would not be commercially reasonable to require that the franchisor can only implement system-wide changes … if the proposed change is [demonstrated] to be an improvement that benefits that particular franchisee.”

Nearly ever franchise agreement I’ve read allows the franchisor flexibility in specifying what products must be sold, even if this involves a fundamental change in the way the product is produced. I doubt the primary motivation of Tim Horton’s is financial, I’m sure there are consistency and labor cost savings involved, but stepping into the shoes of the franchisee I understand their frustration of this added “fee”. On a side note, Dunkin Donuts uses frozen dough.

About Ryan Knoll

Attorney and advisor with an interest in franchising. Feel free to email me comments and questions on the "Contact Us" page.
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