Burger Kings Purchase of Tim Horton’s and What it Means to Its Franchisees

Will Tim Horton’s Franchisees win or lose in this massive food and beverage deal as Burger King gobbles them up? And will they sell Tim Burgers?

It’s pretty rare to have news this big in the food and beverage industry, and especially one that impacts Canadian business so directly.  A quick search engine search on the keywords reveals articles like this one in the CBC.  This article is loaded with neat little stats about how big the two companies are, how much there shares went up and down, market cap numbers, guesses on why they did it,  what they will do next, and so on.  A very typical ‘business article’.

The article also went into details about the ‘important’ parts of the deal including where the head offices would be based, shareholder cash payments, and the like.  However, the following statement jumped off the page: “That would bring the cash value of the deal for current Tim Hortons owners to more than $94 per share.”   In particular, it is the usage of the word ‘owners’ that is most intriguing and one that leads to a new question: “Who owns a Tim Horton’s store?”

“Who owns a Tim Horton’s store?”

Perhaps a better question to start with is ‘what is ownership?’

According to corporate stuff, it’s someone who owns any number of shares in a corporation.  In real estate, it’s the person or entity whose name is on the title document.  For cars, it’s the ‘registered owner’ on the document you hand the police when they pull you over.  In small business, it’s the person upon whom takes the ultimate financial risks associated with it’s success or demise.

However, anyone involved in any of these ‘ownership’ scenarios knows something deeper: in corporations, it’s the person with 51% of the shares who has power.  In real estate, it’s the person to whom you pay your taxes who holds the power.  With cars, the police officer holds the power and tells you how you are going to use your car, and in small business, it’s the landlord, health authorities, and, in some cases, the Franchisor who holds the power.

So, does ownership really even exist? Or does the more important question when you make an investment become, ‘Who holds the power over my investment?”

Tim Horton’s was built on the back of it’s Franchisees, on their hard earned investments, and on their long, hard days serving the public cheap coffee.  Although these ‘business articles’ will talk about ‘revenue from royalties’ on the books, when was the last time you heard about Tim Horton’s from the perspective of a Franchisee?

Although this merger looks like a good deal for the power holders (shareholders and directors), one must wonder what will happen to the Franchisees.  Will things get better?  Will things get worse? Even more frightening of a question is “Does anyone even care?”

Customers just want their cheap double double.  They don’t care who hands it to them.

The Franchisor just wants a higher share value, sometimes at any cost.

Would anyone care if the Tim Burger’s global strategy one day switched from ‘Franchise Partners’ to ‘Corporately Managed’ stores like Starbucks did?

So next time you order your six pack of Tim Burgers or Whopper-Whopper think of who really built this business and be concerned.  This is your brother, uncle and neighbour, not a number on a stock exchange.

Chewy Junior – A New Addition to the Canadian Franchise Scene

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Chewy Junior, a cream puff franchise from Asia (do they come from anywhere else?) has just launched their first Canadian flagship location in Vancouver.

This light article at Wayne Out There sheds some light on the Chewy experience.

Part of the Chewy Junior story is founder Kevin Ong’s repeated failure in business.  Failure in business will typically lead the casualty in one of two directions: a) towards eventual success if they recalibrate and don’t quit or b) towards a jaded life of anger towards the world that has wronged them (or so they believe).  Based on our quick review, it looks like Chewy may be on the former, not the latter path.

There is no question that the Chewy Junior product offering is both unique in the market (there aren’t that many cream puff shops in your average block) but also further unique in that they offer a very high quality product with an amazing display.  A quick look in the new flagship store display fridge and the customer will find it very difficult to resist taking a box home.

Wagers are already on as to whether or not such a concept will succeed, but before you wager, make sure you both see and eat one because from our first reports, experiencing is believing.

“…experiencing is believing.”

Stay tuned for more on Chewy Junior and other Vancouver franchises.

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Shortcomings in the Vera’s Burgershack Franchise System

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By the summer of 2011, the Vera’s franchise chain was riding high.  In 10 short years, Gerald Tritt had created a chain numbering over a dozen locations.  The franchise locations were selling in excess of $300,000.00 with people lining up to buy them.  Underneath the surface though, a series of decisions at Vera’s head office along with the simultaneous end of the North American burger craze and Olympic stimulus spending would send Vera’s on a downward spiral from which it has yet to recover.
Firstly, Vera’s head office failed to set up an adequate training program for new Franchisees.  For the first franchised locations this did not prove too problematic considering these buyers came equipped with years of experience in the restaurant business. As some franchise locations were flipped to new franchisees, however, problems soon arose.  The new generation of Franchisees did not possess years of restaurant expertise and were trained by the Franchisees on their way out who no longer had a stake in the Vera’s franchise system or brand.  Secondly, Vera’s head office ceased inspections of franchised locations in late spring of 2012.  Thirdly, Vera’s head office failed to provide a comprehensive operations manual for the Franchisees until the summer of 2013.  The combination of these head office omissions resulted in an ill-trained and poorly supervised second generation of Franchisees who were being released onto an unsuspecting public creating a wildly inconsistent dining experience from location to location.

Rather than addressing these obvious shortcomings, Vera’s head office began to look for ways to simplify the burger making process for these ill-trained and unsupervised Franchisees.  The first attempt at simplification came when some locations introduced a conveyor belt style oven to cook the burger patties.  Vera’s, a place rooted in the tastiness of a flame broiled burger cooked under a gas grill, had thrown that aside and introduced an assembly-line-style oven using electrically powered coils to cook the burgers.  Aficionados were not fooled and began to complain to Franchisees about how the burgers tasted different depending upon the location.

A quick scan of Yelp reveals reviews that range from 1 to 5 stars depending on the location with many of the reviewers commenting on how there was no consistency between locations or even between multiple visits to the same location.   Vera’s head office’s failure to create a comprehensive training program, maintain inspections, and enforce even one uniform way of cooking the burgers, resulted in a complete failure in establishing standards for day to day behavior for its Franchisees thereby creating a product and dining experience that was markedly different from location to location.  Franchisees were learning the restaurant business through “trial by fire” and became resentful at the royalties being charged by a head office that never seemed to provide an idea as to how to make operations easier or more profitable.  Commencing in 2011, sales began to stall and decline at a significant number of the locations across the Franchise.

When concerns were raised regarding the absence of training and inspections within the Vera’s franchise system, Gerald Tritt brushed these concerns aside and insisted that the key to success for a Franchisee in the Vera’s system was for him or her to

  1. Get to know their customers’ names;
  2. Get to know the employees of surrounding businesses;
  3. Get to know their customers’ favourite burgers; and
  4. Tell the customers entertaining stories and become a person that your customers would want to patronize to differentiate from the nearby Quiznos.

It was becoming crystal clear to the more savvy of the Franchisees that Gerald Tritt was peddling a franchise system consisting little more than a cartoon face and a “magical” burger spice.

Next: Aberdeen Mall Vera’s – the Gerald Tritt system in action

Alton McEwen of Second Cup: Summary of Coffee Talk Magazine Article

Coffee Talk Magazine featured an article about Alton McEwen, owner of what we know of as Second Cup in its ‘modern form’.

It’s important to read business biographies like these to gain a deeper insight and respect for brands or independent businesses we see on a daily basis.  One does not have to like or participate in the brand to appreciate the history and work that has gone into a well known enterprise.

In this article, there is a story of how Alton McEwen took 129 franchisees to the source of the coffee beans to help them understand the passion he shares for a cup of coffee.  This is truly a great story and perhaps part of why Second Cup has stood the test of time.  The old cliche “They won’t care what you know until you know that you care [or however that one goes]” is played out perfectly with this example.

Another highlight was how McEwen left the company and came back on more than one occasion.  This story seems almost like a rite of passage in the coffee industry when we think of the famous story of Howard Shultz coming back to Starbucks.

A final highlight from the article is how McEwen welcomes the rise of coffee prices.  Although it’s tough to bear to see any commodity jump in price, coffee is a complicated plant and process and must remain sustainable.  Cheap coffee on the back of slaves is doomed to failure.  It’s far better to suck up the increases now than risk losing coffee forever.

Vera’s Burger Shack: The Dawn of a Burger Empire?

Part 1 in a 4 Part Series

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According to local folklore and Vera’s Burger Shack’s own PR machine, Vera’s got its start back in 1977 when a lady named Vera Hockfelder opened a seasonal burger stand in West Vancouver and gained a cult following by preparing hand pressed burgers with secret seasoning spice.In 2000, Vera sold out the West Vancouver burger stand to Gerald Tritt who brought in local sports star Noah Cantor a year later to help him open the first year round location in Kitsilano. In the following years, Gerald & Noah opened locations on Denman and another on Davie St in downtown Vancouver. By the second half of the 2000s, Gerald and Noah were selling new franchised locations on Commercial Drive and Main St to a longtime employee and the Denman and Davie locations to other franchisees eager to jump into the burger craze.

By the time of the 2010 winter olympics, Vera’s had 16 locations and all seemed well with Vera’s empire. Its founders had been voted in as members of the top 40 under 40 in Business in Vancouver (BIV) and had been offered a buy out in excess of 3 million dollars. Its founders refused the offer on the basis that the “sky was the limit” in terms of growth and that a 1000 store franchise was in their sights.

However, the franchise’s growth had been fueled by the stimulus spending associated with the Olympic infrastructure and the burger craze sweeping North Amercia As the Olympic construction ended at the same time as the discretionary spending habits of a lot of Vera’s burger fans. The Vancouver economy was about to get a whole lot tighter and the business model that Vera’s operated with in the late 2000s began to stumble with the founders’ former golden touch beginning to rust at the edges.

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Next in 4 Part Series: Shortcomings in the Vera’s Burgershack Franchise System

Korean Franchise Chain Cafe Bene Gets Large Fine for Treatment of Franchisees

This article published on the Daily Coffee News website speaks of another classic case of abuse of power by a franchisor.

The name of the chain, is Cafe Bene which has a whopping 760 locations in South Korea and is now expanding into North America.

The are being fined for forcing franchisees to buy interior materials and equipment which created another nice profit pool for the franchisor.

One piece of silver lining to be gleaned from the story is that the fine is coming from a government agency, not a private law suit.  Hopefully this will send a strong message to franchisors that financially abused franchisees may have other resources to fight abuse franchisors with other than money from their own pocket.

British Columbia does not currently have any legislation to protect franchisees as multiple other provinces do.

 

What Will Replace Blenz Coffee at Pacific Centre?

On May 24, 2014 the VCSFA published an article called ‘Yet Another Prestigious Blenz Closes: Pacific Centre on Granville’  about the sudden disappearance of the landmark Blenz Coffee at Pacific Centre at 609 Granville Street. At that point it was rumoured that another clothing retailer had won the prized retail location ousting Blenz in a similar leasing situation as what occurred at Robson and Burrard. Both of these locations were high volume, and high visibility locations for the Vancouver brand.

For the owners (Franchisees) of these locations, they witnessed the entire value of whatever amount of goodwill they paid for their respective locations, evaporate before their eyes, leaving them with nothing more than whatever street value their aged and depreciated equipment was worth at the moment of loss – Not a pretty picture for their ‘franchise partners’ as Blenz likes to call them.
Some assumed that the loss of these prime locations and subsequent appearance of a new retailer was a deal agreed upon between Blenz corporate, the Blenz Franchisee, and the new retailer. The assumption, namely because there weren’t any indications otherwise, was that perhaps all stakeholders in the deal agreed that these locations were not well suited for coffee. Our new reports reveal that they may have assumed incorrectly and the now-stranded Franchisees may not have been involved in the lease negotiations at all.  Now wouldn’t that be a tad unfair to their ‘partner’?

Blenz Coffee, as do other Vancouver franchises, sets itself up as direct tenant in their commercial leases.  In this common franchise-model arrangement, the Franchisee is then responsible, by means of a sub-lease agreement, for cutting rent cheques directly to the landlord.  The Franchisee assumes this agreement is in place so that the Franchisor (in this case Blenz) can wield their powerful branded sword forcing the landlord into obedient submission resulting in the acquisition of prime retail locations (in this case Robson/Burrard and Pacific Centre) at rates that allow for a profitable business.  A green Franchisee typically does not understand these complex commercial arrangements and therefore trusts their Franchisor to be looking out for their mutual best interest.  In law this is called ‘to act in good faith‘ or ‘responsibility of good faith’.  In the case of Blenz, failing to renew a lease, or failing to secure a lease rate that is competitive and/or reasonable in the marketplace would equate to the fast destruction of the investment.

All eyes are now on Pacific Centre. Will it become another Lulu Lemon situation like at Burrard and Robson where a retailer from a totally separate industry takes over?

If it becomes a clothing retailer, or something completely removed from the food and beverage sector, then Blenz Coffee might be able to explain to this former (and probably rather upset) Franchisee that this location is not well suited for a retail coffee business, or their coffee brand or that the person who won the space had higher profit margins than them and are therefore able to justify doing business in Pacific Centre. It would be difficult for the former franchisee to have enough know-how to fight that battle.

If something like a Tim Horton’s were to open at 609 Granville, the Franchisee would then be able to present a good argument that Blenz Coffee just ‘let’ another similar business come in and ‘take’ their space, leaving them with nothing. However, Blenz might then be able to say something like ‘Well, Tim Horton’s is different. It’s more of a food-based model with cheaper price points – much different from the ideal Blenz customer.’

But if something were to open in the same space like a Waves Coffee, Starbucks, Take Five, Caffe Artigiano, or any other similarly-branded Italian-style coffee shop (especially those our Francouver list) with the standard espresso-based offerings and a few pastries spattered on the side, then the question will quickly become: How hard did Blenz the Canadian Coffee Company negotiate with the Pacific Centre landlord to maintain their prized location and assure the longevity of the Franchisee’s investment?

How hard did Blenz the Canadian Coffee Company negotiate with the Pacific Centre landlord to maintain their prized location and assure the longevity of the Franchisees investment?

If the answer turns out to be ‘not very hard’, then the next logical question would be “why not?”.

But only time will tell as the lease-hold improvements take place behind the boarded up windows at 609 Granville Street.