Quebec franchisees win $16.4-million judgment against Dunkin’ Donuts parent

“Many franchisees were not working as hard as they could to deliver a first-rate Dunkin’ Donuts experience,” the company maintained.

Tingley disagreed.

“Were the franchisees poor operators? Not by a long shot. They were among the best and most successful in the Quebec réseau. Their owners were among the most active committee members. … They were for the most part the leaders among the Quebec franchisees. (The company) failed miserably during the first 60 days of trial to paint the franchisees as poor operators. This was a defence utterly devoid of substance.”

The Montreal Gazette
June 25, 2012

Quebec franchisees win $16.4-million judgment against Dunkin’ Donuts parent
Paul Delean

Dunkin%20donuts%20gazette.jpg

In a 43-page decision that followed a 71-day Superior Court trial, Judge Daniel Tingley said Dunkin’ Donuts basically let the Tim Hortons chain eat its lunch, shrinking from a market-leading 210 stores in Quebec in 1998 to 13 today. Photograph by: Chris Hondros , Getty Images file photo

Franchisees of 32 former Dunkin’ Donuts outlets in Quebec have won a $16.4-million judgment against the international chain’s Canadian parent for “failure to protect its brand” in the province from 1995 to 2005.

In a 43-page decision that followed a 71-day Superior Court trial, Judge Daniel Tingley said Dunkin’ Donuts basically let the Tim Hortons chain eat its lunch, shrinking from a market-leading 210 stores in Quebec in 1998 to 13 today.

“Allowing Tim Hortons to capture the lions’ share of the Quebec fast-food donuts and coffee market between 1995 and 2003 was a huge and costly mistake,” he wrote.

“In the period 1995 to 2005, virtually all the franchisees experienced stagnant sales, despite inflation over this decade aggregating some 21 per cent and a growing fast-food market. By contrast, during this same period, Tim Horton’s stores experienced on average annual sales increases of 7.5 per cent, or over 70 per cent for the decade.”

Tingley said Dunkin’ Brands Canada Ltd. (formerly Allied Domecq Retailing International Canada Ltd.) “had assigned to itself the principal obligation of protecting and enhancing its brand. It failed to do so, thereby breaching the most important obligation it had assumed in its contracts.”

The court action was filed by the owners of Dunkin’ Donuts franchises on Décarie Blvd. and Lacordaire Blvd. in Montreal, Laval, St. Eustache, St. Georges-de-Beauce, Val-Bélair, Lachute, Ste. Anne des Plaines, Chicoutimi, Lévis, Charny, St. Jean Chrysostome, St. Nicolas, Rimouski, St. Antoine, St. Jerome, Rivière-du-Loup, La Pocatière and Cabano.

In addition to the $16.4-million claim for lost profits and the diminished value of their franchises, they were seeking the termination of their leases and franchise agreements, also granted by Tingley.

The company insisted it did not breach any contractual obligations and in any case did not “guarantee” franchisors’ success.

It attributed its provincial shrinkage to “the Tim Hortons phenomenon” and underperforming franchisees.

“Many franchisees were not working as hard as they could to deliver a first-rate Dunkin’ Donuts experience,” the company maintained.

Tingley disagreed.

“Were the franchisees poor operators? Not by a long shot. They were among the best and most successful in the Quebec réseau. Their owners were among the most active committee members. … They were for the most part the leaders among the Quebec franchisees. (The company) failed miserably during the first 60 days of trial to paint the franchisees as poor operators. This was a defence utterly devoid of substance.”

Tingley said “the greatest failing” was the company’s failure to protect its brand in Quebec.

“A successful brand is crucial to the maintenance of healthy franchises. However, when the brand falls out of bed, collapses, so, too, do those who rely upon it. And this is precisely what has happened in this case.”

The franchisees said they could see the danger posed by Tim Horton’s in the mid-1990s and at a special meeting in 1996 identified 50 points that needed to be addressed by head office to stop the brand’s erosion in Quebec.

The company’s answer was a remodelling program that required a “huge investment on the part of those franchisees who committed to it” and “never got off the ground,” Tingley said.

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