As franchise fight escalates, Tim Hortons brand getting “dragged through the mud”

TORONTO — While the ugly fight between Tim Hortons and its franchisees appears to be far from over, a clear loser has emerged from the battle — Canada’s iconic coffee brand.

What’s puzzling, say marketing and communications experts, is why the country’s biggest quick-service restaurant chain is not in full-blown damage-control mode after more than a week of a public outcry from its own Tim Hortons restaurant owners, their aggrieved employees and consumers.

Tim Hortons’ corporate Twitter and Facebook profiles, normally home to the coffee and doughnut chain’s daily photo and message postings, have not been updated since the New Year, where the most recent postings have piled up a stack of condemnatory comments from the public.

“Tim Hortons has not addressed this properly,” John Miziolek, brand strategist and co-founder of Reset Branding. “We have an iconic Canadian brand that is being dragged through the mud.”

A week ago, when reports circulated that some Ontario Tim Hortons franchisees had cut employee benefits and paid breaks in response to the province’s minimum wage hikes, Premier Kathleen Wynne accused the franchisees in question of bullying employees. Head office responded by blaming the actions on a “rogue group” of franchisees.

Since then, the brand has stayed mum as the outcry has only intensified this week with a social media movement, “No Timmies Tuesday,” encouraging consumers to boycott the chain, and organized labour protests outside several Ontario Tim Hortons restaurants on Wednesday. When asked for further comment afterwards, Tim Hortons referred to its statements from last week.

The latest blowup highlights ongoing franchisee discontent three years after Tim Hortons was bought by Brazilian investment firm 3G Capital and merged with Burger King to form Restaurant Brands International Inc.

The deal brought 3G’s cost-cutting playbook to Canada, along with more stringent rules and benchmarks for franchisees, who saw a big shift in the corporate culture, a change in suppliers and a less direct relationship with the new head office management.

Great White North

Last year, a group of unhappy franchisees banded together to form the Great White North Franchisee Association (GWNFA), saying a number of concerns, including declining product quality, were not being addressed by management. GWNFA’s membership now accounts for more than half of the company’s 1,100 franchisees in Canada.

Ken Wong, marketing professor at Queen’s University’s School of Business, said the escalating public battle goes against Tim Horton’s classic, wholesome image.

“Tim Hortons presents itself as everyman’s coffee shop — it’s all about kids and community and charity and good things,” Wong said.

“In a better-run business, head office would try to resolve the problem with franchisees without airing the dirty laundry in public. The fact that they couldn’t do that says volumes to me about the state of management at Tim Hortons. But this is something that happens quite often, unfortunately, when an operating company gets bought out by a financial holding company.”

Profits are up under the new regime, however, and the company’s share price has climbed more than 16 per cent in the past year, closing at $76.65 on Wednesday.

While some social media postings this week suggest customers regard Tim Hortons’ franchisees as the extension of a greedy corporate structure while others see them as a victim of it, the bulk of consumers make no distinction at all between the restaurant owners and the corporation’s head office.

“Tim’s is Tim’s is Tim’s,” said crisis-management expert Jim MacLean, president of Toronto-based Tactical Advice/Strategic Communications Inc. “The head office types wish this weren’t true at the moment, as evidenced by the statement distancing themselves from the actions of some of the franchise owners.”

Lawsuits

The franchisee association has filed several class action lawsuits against its corporate parent in the past year for allegedly hiking costs to franchisees and squeezing profits.

The association has said many franchisees would be in financial straits after paying a higher minimum wage because head office will not allow them to increase retail prices. Head office has control over menu prices and the costs of supplies that franchisees must buy from it. The most recent small price increases were put through in August, and were not related to the minimum wage hike. Those corresponding costs have forced some franchisees to cut paid employee breaks and paid benefits, according to the GWNFA.

“It’s hard to understand why they thought this was a good idea,” MacLean said. “Perhaps they did understand there would be negative fallout and they hoped that would force the hand of head office. If that was the strategy, it was a very high-risk, scorched earth policy and it’s burned the brand.”

It comes as Tim Hortons has faced ongoing industry pressure from McDonald’s Canada, whose market share in coffee has climbed in the past five years thanks to a reformulated house blend and new espresso drinks, as well as multiple free coffee giveaways.

McDonald’s franchisees appear to have another advantage in light of the minimum wage hike — they are allowed to set their own menu prices.

“Franchisees are independent business owners and have control over many aspects of their business, including pricing,” said spokesman Adam Grachnik. “Prices for menu items may vary by restaurant.”

Miziolek believes Restaurant Brands International needs to make a concerted effort to repair its damaged relationship with franchisees in Canada, or the Tim Hortons brand will deteriorate.

“I know they want to expand Tim Hortons in the U.S. and elsewhere, but I really think they have taken their eye off the brand in Canada where it started,” he said.

“Brands communicate on the emotional front and the rational front. This is screwing around with the emotional side of what this brand means to Canadians.”

Financial Post

hshaw@nationalpost.com

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