Country Style franchisees angered over closings

"[Country Style] sent out notice that they wanted to 'revitalize' the business by closing stores," said one franchisee who wished to remain anonymous. "But we have a lot of questions, and they aren't taking our calls."…Mr. Beaulieu and Mr. Stewart fear landlords and creditors will be left on the hook.

The Financial Post
December 14, 2001

Country Style franchisees angered over closings
Struggling chain to close 28 stores across Canada
Hollie Shaw

A spate of Country Style Donut store closures has franchisees worried they will be the next victims of a radical restructuring program at the struggling coffee and baked goods chain.

A letter sent to franchisees last week announced master franchisor Country Style Food Services Inc. would close 28 underperforming franchises in Ontario, Saskatchewan, Alberta and British Columbia.
Earlier this year, the chain had 350 Canadian locations.

On the heels of another 20 store closings in the past five weeks, "the intent seems to be to put everybody on notice before they go ahead with the next wave of closures," said Les Stewart, head of the Canadian Alliance of Franchise Operators and a representative of Country Style franchisees.

Canadian%20Alliance%20of%20Franchise%20Operators%20Les%20Stewart.jpg

Franchisees fear the 38-year-old chain, led by newly minted president Patrick Gibbons, is being pared down to 250 outlets in order to sell off its remaining franchise contracts to competitors such as Tim Hortons or Coffee Time Donuts Inc., Mr. Stewart said.

The news comes as Country Style faces competition from a new and powerful player in the robust coffee-and-doughnuts market, Krispy Kreme Inc., which opened Canada's first outlet this week in a Toronto suburb.

Mr. Gibbons, a former chief marketing officer at Burger King Restaurants of Canada Inc., joined Country Style five weeks ago and has said he plans to make dramatic changes to the chain, which has five corporate divisions. He did not respond to interview requests.

A franchisor has the right to take back ailing franchises if its owners fall behind on annual royalty payments or if the stores fail to live up to company's standards.

"[Country Style] sent out notice that they wanted to 'revitalize' the business by closing stores," said one franchisee who wished to remain anonymous. "But we have a lot of questions, and they aren't taking our calls."

More troubling are the concerns expressed by a group of northern Ontario landlords, who claim they have not been paid this month's rent at defunct outlets.

They accuse Country Style's realty division of defaulting on long-term lease agreements.

Guy Beaulieu, a landlord with PIJO Investments Ltd. and an organizer for landlords in his region, alleges Country Style closed five corporate outlets in Northern Ontario and has not yet paid rent.

An outlet owned by Mr. Beaulieu in Chelmsford, Ont., still has five years remaining on its 10-year lease. He sent a default notice to Country Style realty, which has until Dec. 17 to pay rent before he initiates legal action.

"You're not having the rent come in and the mortgage doesn't stop," said Mr. Beaulieu, noting the building will cost him $50,000 a year to maintain and there are no prospective tenants to fill the space. "Landlords have built these locations to the specifications of the lease agreement. You can't just convert it into something else too easily."

Creditor Dan Kottick, owner of a Northern Ontario garbage pickup service which had a contract with Country Style, drove more than 400 kilometres to the chain's headquarters in Richmond Hill, Ont. yesterday to confront company executives.

"They have not paid me in six months," said Mr. Kottick. "And I was just told in person that I won't get paid. This is an awful way to treat a small entrepreneur."

Mr. Beaulieu and Mr. Stewart fear landlords and creditors will be left on the hook. The outcome for franchisees is unclear.

In 1999, food processor Maple Leaf Foods Inc. sold Country Style to investment firm CAI Capital Partners and Company II, L.P. and Country Style management in a transaction valued at $45-million.

According to Foodservice and Hospitality Magazine, Country Style had sales of $120-million in 2000, unchanged from 1999.

Tim Hortons, which has 1,900 Canadian locations, had 2000 systemwide sales of US$1.3-billion, up 20% from the prior year.

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