Richtree says Mövenpick left it holding the bag

Mövenpick's dereliction of duty has led to disastrous financial results at Richtree, hampered its expansion plans and caused a share slide that brought the company's market cap to a level low enough to risk delisting from the Toronto Stock Exchange…

National Post
December 15, 2000

Richtree says Mövenpick left it holding the bag
Franchisees sue Swiss chain to recoup fee payments
Hollie Shaw

Canadian franchisees of Mövenpick are accusing the Swiss restaurant and hotel giant of neglect and have launched a lawsuit against the company, seeking to recoup $1.8-million in franchise fee payments.

Toronto-based Richtree Inc. pays Mövenpick about $3-million a year in franchise and licence fees for its Marché and Marchelino restaurants in Toronto, Montreal, Ottawa and Boston, its three Mövenpick restaurants in Toronto and 18 Marché kiosks inside Loblaws supermarkets in Montreal and Toronto.

Mövenpick's dereliction of duty has led to disastrous financial results at Richtree, hampered its expansion plans and caused a share slide that brought the company's market cap to a level low enough to risk delisting from the Toronto Stock Exchange, said Colin West, Richtree's vice-president. "We believe that this company is where it is because of the difficulty that has existed in this relationship," Mr. West said. "We have drawn a line in the sand and said that we are not going to go forward any longer until this is settled."

The thinly traded stock crested above $2 in May, 1999, but has traded as low as 10¢ this year. It closed down 2¢ yesterday to 33¢, but should trade at 42¢ or above based on the company's float of shares.

Richtree alleges that its master franchisor, Mövenpick unit Movel Restaurant Holding AG, has been ignoring its franchisees since Movel's franchise department closed in 1997. Richtree pays a franchise fee of 4% at its market restaurants and a licence fee of 2% at its full-service Mövenpick restaurants, but argues there has been no discernible level of difference in treatment between the two categories from Mövenpick headquarters.

Mövenpick has failed to live up to contractual obligations such as sending out franchise manuals and marketing materials, and training up to 2% of Richtree employees per year, Richtree alleges.

The company is seeking a ruling from the Superior Court of Justice that will put the Marché and Marchelino restaurants under a licence agreement, a move which would cut Richtree's annual payments to Mövenpick in half, Mr. West said.

His company also wants to recoup four years' worth of partial fees from Mövenpick and has asked Mövenpick to delay for a year the scheduled Dec. 31 redemption of $1-million of preferred shares.

Reached in Zurich yesterday, Mövenpick spokesman Marcel Bolli denied the allegations and said several employees at Mövenpick have continued to work with franchisees after the department closed in 1997. "We are sure that we did everything that was in the contract, so we are looking forward to this process," he said.

In its last fiscal year, Richtree saw its losses deepen to $14.9-million ($1.32 a share) compared with a loss of $4.6-million (42¢) a year earlier. The company also took a writedown of $9.9-million after it abandoned plans to open Marché restaurants in New York and San Diego — restaurants that Mr. West said Mövenpick initially intended to help finance. In its first quarter ended Oct. 29, the company was able to shrink its losses to $139,000 from $891,000 in the prior year period, but same-store revenues slipped to $21.5 million from $22.1 million.

Mr. West said Richtree does not want to part ways with Mövenpick for good because the brand is a valuable trademark. Despite the turmoil, the Canadian company hopes to open seven sub-licensed operations in the U.S. next year and two in Canada.


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