Trouble is brewing in doughnut land

But restless franchise owners may offer insight, indirectly, into why Tim Hortons seems reluctant to allow Guelphites a look into the giant distribution centre it built two years ago in Guelph's end, serving its coffee shops in southern Ontario and further afield. I've had no success with Tim Hortons' public relations department getting into the massive, fortress-like building.

The Guelph Mercury
June 21. 2008

Trouble is brewing in doughnut land
Vik Kirsch

Wow. All is not well in doughnut land, but who could have guessed things were this bad in the nation's ubiquitous coffee shops, where many of us spend part of our day?

There's trouble brewing in Tim Hortons land, with dissatisfied franchise owners perking up and revealing a side of the coffee shop chain Canadians are unfamiliar with. That has a significant presence on the Canadian landscape, more so than its business operations suggest, since Canadians identify with the chain.

Since 1964, it's grown to more than 3,200 locations across a big swath of North America, and reported first quarter net income of almost $62 million in 2008, on revenue of more than $460 million. Tim Hortons had $1.25 billion in sales last year, a little more than half the revenue of Guelph auto parts maker Linamar Corporation.

But restless franchise owners may offer insight, indirectly, into why Tim Hortons seems reluctant to allow Guelphites a look into the giant distribution centre it built two years ago in Guelph's end, serving its coffee shops in southern Ontario and further afield.

I've had no success with Tim Hortons' public relations department getting into the massive, fortress-like building. It's been difficult even getting calls returned by the department, which insists Tim Hortons is busy resolving operational glitches in Guelph.

It's much easier to get a company response on a Roll-up-the-Rim contest winner or the firm's summer camps for kids. It suggests this public company with the "always fresh" motto is reluctant to lay open its day-to-day operations.

Some companies are reluctant to reveal industrial secrets for competitive purposes, but it's not like doughnut making is rocket science.

As a former doughnut-maker, I know something about the industry. While in college, I made doughnuts on weekends for an independent coffee shop in Kitchener, working hectic graveyard shifts. My best friend, having baked many years at Tim Hortons stores, showed me the ropes — back when doughnuts were made fresh overnight as an industry standard, including at Tim Hortons.

Today, two Burlington Tim Hortons franchisees are seeking almost $2 billion in damages from the company, in a case that may become a class-action lawsuit.

The franchise owners claim profits have plunged since Tim Hortons, the franchisor, switched to frozen baked goods and expanded its lunch menu, alleging in part negligent misrepresentation as costs for frozen food rose higher than expected.

On Tim Hortons Inc.'s website, the company calls the Superior Court of Ontario claim "without merit" and vows to defend itself vigorously.

"Strong relations with our store owners has been a hallmark of the company's success during our 44-year history, reflected in the good relations we enjoy with the vast majority of our more than 1,200 franchisees," the response reads in part.

The dissatisfied Burlington franchisees allege Tim Hortons wasn't frank about costs to franchisees rising when the chain switched from shops making doughnuts fresh onsite to reheating frozen products made in a central plant in Brantford.

They claim a potential 500 franchisees are interested in a class-action suit in Canada.

If the lawsuit goes ahead, it would shed light on the inner workings of the Tim Hortons chain and the accuracy of its "always fresh" mantra.

Of course, that might give the chain an extra incentive to settle out of court.

I trust you're as intrigued as I am by this unprecedented development in doughnut land. In the meantime, I'll keep frequenting Tim Hortons for my almost daily fix of steeped tea and the occasional biscuit or egg-and-cheese breakfast sandwich.

You see, I'm still a fan. Canadian, eh?

Vik Kirsch can be reached at 519-823-6059 or by e-mail at moc.yrucremhpleug|hcsrikv#moc.yrucremhpleug|hcsrikv. This column appears Saturdays.


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