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.

Do Customers Like Coffee Shop Franchises?

A small article in the Huffington Post BC slipped by many readers. It is most significant to us at the VCSFA not because of what is on the list, because instead what is not on the list.

Before reading the article, it is important to preface that the author Jesse Ferraras used the term ‘franchise’ towards Artigianos where was not a Franchisee/Franchisor business model but instead a corporate structure.  Be it known that Caffe Artigiano does not sell individual franchises as is therefore not on the VCSFA list.

Why this article struck us as notable was that we could not find one – no, not a single solitary name – coffee shop franchise. Don’t believe us, do your own comparison.

The VCSFA Comprehensive List of Vancouver Coffee Shop Franchises

The Huffington Post article of ‘The Best Coffee in Vancouver’ list

Not a single coffee shop franchise wowed the people enough to make it into this list which begs the two obvious questions:

What makes a coffee shop desirable?

Why aren’t coffee shop franchises desirable?

In defense of all those who were not included in this list, we at the VCSFA do not consider Yelp to be a reliable form of research data.  We have had many discussions with cafe and restaurant owners who have had very positive reviews end up ‘filtered’ at the bottom of their page, not contributing towards positively to their star count.  Further, we know of some horrific cafes that have been reviewed accordingly and those awful 1-star ratings still sit there filtered today, not lowering their star count to where it should be.  Finally, we believe that every food and beverage business needs a ‘jubilee’ every 1 or 2 years where all their entire ratings and history are magically erased and reset to zero and the business gets a chance to right the wrongs of the past, starting again with a clean slate.  Can you name one food/beverage business where the same bad (or good) staff are still working there two years later?  Or, is it not possible that a new owner has taken over and has improved upon or killed the previous owner’s work? For this reason, we acknowledge that the data source is not a reliable enough to be considered conclusive.

With that preface, Yelp is good for one thing: collecting the ‘extremes’.  So, if a review does make it through the Yelp filters, it is likely that the person who wrote it is pretty fired up in the positive or the negative.  It is even more unlikely that someone will blog a positive review so all the kudos to the shops that got some.

With all that preamble behind us, here is the important stuff that we have pulled out of this work:

What seems to make people like these shops:

  • quality food
  • unique atmosphere
  • niche java (ie. serving South American style, Clover machines, freshly roasted, organic/fair trade, etc)
  • niche skill (ie. latte art)

One reason why a Franchise coffee shop may not have made it on the list is because people, by the nature of the way they view a multi-location chain, don’t consider it special.  They may get a good drink but because it’s part of a big chain they might not consider that experience unique enough to blog.

The VCSFA is well aware that the food programs at most if not all coffee shop franchises is abysmal.  In many cases the owner of the store is forced to order over-priced product from a vendor that has no idea what the customers in his neighbourhood are demanding and/or has no authority or ability to provide a solution.  In one case, a group of franchisees from a major Vancouver chain reported to us that their sandwiches were made in Vancouver and then shipped for sale to their store in the Okanagan!  We could understand this model for a low-priced, high-volume chain, but we were shocked that this was occurring in a chain claiming to be trying to carve out a piece of the high-quality market.  Needless to say that as soon as the customers found out, sales slumped.

Coffee shop franchises should be on alert and take much heed to this casual list.  Franchisees of the chains that were not included on this list (which is every last one of them) should start immediately asking their Franchisors what went wrong.

 

 

New Service – Free Contract Review

Thinking about buying a coffee shop franchise but you don’t want to spend money on a fully qualified lawyer?

Already bought one and don’t understand what you signed?

Why not schedule a time to meet with a VCSFA Coffee Shop Franchise Volunteer Consultant, get some free advice from an experienced Franchisee who understands the contract well?  After reviewing your contract they will be able to point out areas of concern so that you can make the best choice for you and your family.

Although our volunteers are not lawyers, they have themselves worked with a variety of lawyers on a variety of topics related to these contracts and are well aware of how these oftentimes confusing contract clauses can significantly affect your future.

Not in Vancouver but still need our help?  Don’t let distance prevent you from reaching out to us.  We’ll find a creative way to help you because we are passionate about what we do.

Although this is a free service run by volunteers, we do hope that you will find a huge value and, after receiving your advice consider making a contribution to the VCSFA so that we can continue our work bettering the lives of coffee shop franchisees.

 

 

 

Business in Vancouver’s Biggest BC Franchise List – A Coffee Perspective

This list was published by Business in Vancouver not that long ago and deserves some attention.  First of all, we commend Business in Vancouver for putting together lists like these and for gathering data as it’s very useful for the public, especially the potential buyer of a coffee shop franchise.

Here are some pieces of information that we pulled out of this related to coffee, but first, please familiarize yourself with the VCSFA’s exhaustive Francouver. (Franchises in Vancouver) page.

1. Out of 80 franchises, only 6 are coffee.  That’s only 7.5% of all franchises in the list – pretty low numbers, I thought, actually.  And is Tim Horton’s really a ‘coffee franchise’ or is it a ‘food franchise’?  That discussion is up for debate.  We will give them the benefit of the doubt as well as add McDonalds to our Francouver list since it’s not there at the time of writing this article.

Here is the list with our running commentary:

#2 Tim Horton’s: Not much to say here except I’d be carefully watching the golden arches if I were them

#3 McDonalds: They are definitely into coffee now and much better in fact, than many of their competitors – they are in a new game now and I would not be surprised to see them start to seriously eat away at #2’s coffee share.

#13 Blenz: Sheer numbers.  They were cranking out new locations until about two years ago when everything seemed to come to a grinding halt.  Economy?  Other?

#39 Waves Coffee: Very similar situation to Blenz the way they were cranking out new stores. In fact, they may have out-cranked Blenz this year… I’d like to see those stats. Waves may be heading into other provinces to crank further whereas Blenz doesn’t seem to be doing much with North America.  Let’s see where these numbers sit between Blenz and Waves next year.  They are, if you didn’t know, rivals to say the least.  We will hopefully publish that story one day but feel free to dig in yourself. It’s very interesting!  We’ll leave that for a rainy day which will likely be soon. And, apparently another Vancouver coffee franchise will be joining this story in based on some new announcements from one of these chains.

#62 Esquires: They are huge elsewhere but I was actually impressed with their footprint here (respectable numbers!)

#65 Second Cup: Still hanging in there with their Ontario fanclub.  Not much expansion in BC but apparently heading quickly into the states.

Notes for Potential Buyers

From our experience in the coffee shop franchise arena, there is a small guage that is worth looking at on this list that would likely go unnoticed. You’ll note that there is a column for ‘number of locations’ and then ‘number of franchises’.  Typically speaking you would be looking for the number to be the same and that would indicate a better health.  You should not see the gap between the number growing and if you do, you would want to ask why.  Typcially what is happening is the owner of the store is going bankrupt, or, they have been forced out by the head office and they are running it.  We would very much welcome our readers to email us your comments as I think this would make a good discussion.  For now, however, we would recommend considering a fluctuating number here to be an indication that you should ask more questions about the health of the chain. Here is how those numbers look:

#2 Tim Horton’s: 289/289

#3 McDonalds: 166/207

#13 Blenz: 62/64

#39 Waves Coffee: 24/24

#62 Esquires: NP (Not Provided!)/12

#65 Second Cup: NP (Not Provided!) / 9

We would be concerned about a ‘not provided’ answer.

We would recommend monitoring the number of locations from one year the next and especially keep an eye on that gap mentioned above from one year to the next.  If you see an increase in the gap you know that head office has taken over another store and you would want to investigate why from both sides.

We hope this coffee shop franchise perspective on this famous list was useful and don’t forget that we always welcome you to email us with your feedback.

Five Signs of Excellence in Franchising – a Must Read

This article is an absolute must read for all prospective franchisees (franchise operators) and current franchise owners.

The VCSFA completely agrees with these 5 measurements of excellence and we are excited that a reputable organization has published this.  It is backed with actual research as well, which is a great bonus.

After hearing horror stories in coffee shop franchising in Vancouver, we ran a quick check amongst our members and the ones who are suffering agree that their franchisor failed at least half of these measurements.  In fact, one chain has failed all of them.  Here is the list of five points from the article with some concrete examples of how some of our members were failed by their franchisor:

Five behaviours of credible franchisor leadership

  1. The franchisor demonstrates a clear strategy and direction for the brand (including awareness of competitive threats with a plan to deal with them).

One Vancouver franchisor has not acknowledged the sudden emergence of a competing brand, nor attempted to match their radio advertising on a local news channel.  Customers are asking the franchisees why the competing chain is advertising and they are not.  The same brand has completely different standards of ‘branding’ applied to different stores.  This is interpreted as ‘favouritism’ by the franchisees creating a poor business environment.

  2. The franchisor is fair and consistent in dealings with all franchisees (this means having clear policies and sticking to them).

This same local Vancouver coffee chain has also failed this.  Some stores are making their own sandwiches while other stores were told they would be ‘in violation’ if they did and that the stores making them are ‘special cases’.  Some stores were told they must do certain things while others were not.

  3. The franchisor shows respect by listening to franchisee ideas and concerns before making important decisions. However listening does not mean agreeing.

In the case of this same failing chain, several franchisees requested urgent meetings with the directors to discuss very important issues that affect the whole brand.  One franchisee was told to wait 3-4 weeks because ‘it was summertime’. The franchisor never got back to them and when the franchisee pointed this out, they immediately tried to remedy it but needless to say putting off an urgent meeting for 1.5 months make this person feel loved. Many of the franchisees have asked the same franchisor to address issues related to their business and the franchisor has remained silent – completely ignoring the questions.  Needless to say this entire chain is quickly approaching a crisis.

  4. The franchisor embodies the values of the brand in their own behaviour. Hypocrisy kills brand passion like nothing else.

When confronted by franchisees about expensive vendors that they were forced to use, the franchisor replied “The vendors must make money, too.”  However, when the franchisees themselves were going bankrupt, there was no support or help was given.  The chain continues to force on their franchisees the same vendors.  This chain talked endlessly about ‘the importance of brand’ yet in the same city they opened a location in a hotel lobby in prominent location with a ‘similar’ but not ‘same’ name.  The sleeves are from the chain but the cups are branded to the hotel.  Some of the drinks are the same but the entire concept is muddy and unclear.  Customers around the city have asked the franchisees ‘what is this thing?” to which they have no reply.  Hypocrisy kills the brand.  A franchisor must practice what they preach or risk losing the trust of their entire front line.

  5. The franchisor reminds franchisees that he/she and the entire support team care about franchisee profitability as much as their own.

As mentioned in some of the examples above, this same offending chain has demonstrated to their franchisees that they don’t care about their profitability as much as their own.  No offer of reduced royalty payments to struggling stores.  No offer of reduced marketing fund payments for the obvious absence of advertising.

Thankfully for the franchisees, times have changed quite a bit recently.  If you read this article we published about the Dunkin’ Donuts situation you will learn that a franchisor cannot simply continue to fail.

In addition to this 5  point health check you can now perform on your franchise or your prospective franchise, we strongly recommend you also read this article we published about Five Things You Should Know Before You Buy a Coffee Shop Franchise as well as our Checklist to Evaluate a Prospective Coffee Shop Franchise (with bonus commentary)

Don’t forget that the VCSFA is always here to help.  You are not alone and your questions are important.

In case you have not see our most up-to-date list of coffee shop franchises in Vancouver, here is a list in alphabetical order.  Let us know if we’ve missed any:

 

Bean Around the World, Blenz, BG Urban Cafe (formerly Bread Garden), Cultured Coffee and Tea, Esquires, Moka House Coffee, My Cup, Second Cup, Serious Coffee (Vancouver Island), Take Five Cafe, Tim Horton’s, Wave’s Coffee, Wired Monk

 

 

Dunkin’ Donuts Franchisees gets paid for Franchisor’s Failings

Perhaps one of the most recent and relevant cases to any coffee shop franchisee or franchisor is where the Dunkin’ Donuts franchisees of Quebec took on their franchisor claiming that they did nothing to block the round-house kick of Tim Horton’s.  As a personal aside, I think a kudos should be given to ol’ Timmy’s for being able to create this phenomenon and all you Timmy Ho franchisees should send a “Thanks, Mum!” card to your franchisor for doing something useful with your money!

But back to our Dunkin’ Donuts franchisees who apparently got smitten by the double-double upper cut to the solar plexus.

Here is the Canada.com article which nicely summarizes the situation.  Take also a minute or two to read this Globe and Mail article called “Should Franchisors be Obligated to Protect Strength of Brand?”

The key points are these:

  • The Franchisor promised spend  40 million buckeroonies and didn’t
  • The Franchisor forced expensive renovations on the franchisees with expectations of 15% sales increase (which didn’t happen)
  • The advertising campaign that was promised to work, didn’t

In the latter article, unless I missed it, I didn’t actually catch the author’s conclusion to the question in the title so let me answer it for him more clearly:

YES.

THE FRANCHISOR SHOULD BE OBLIGATED TO

PROTECT STRENGTH OF BRAND.

And there you have it.  No grey zones here.

Bloody right they should be obligated.  Why else under the sun would anyone hand over up to 8% of their bottom line?  This isn’t a charitable organization, folks. Thankfully in the case of the Dunkin’ Dudes they obtained tangible promises with failed results – they could successfully quantify their failings.  Regrettably, most coffee shop franchises roll the safe road and simply don’t make promises at all and operate with a very closed-book style of operations.

In the case of one currently popular specialty coffee franchise in Vancouver, it was told me by a franchisee (who wishes to remain unnamed) that they have never, in over four years of paying into the advertising pool (2% of their entire bottom line paid monthly) received a detailed report of where that money went or where it is going. When I asked this person what value they got for their money, they simply replied “I could use their name and they send out these posters once in a while.”  I then started thinking about marketing in the traditional sense of the word. This particular chain was absolutely not present on radio, TV, or other standard forms of media – yet their main competitor was.  I immediately thought about the Dunkin’ Dudes and recommended to this chap that he immediately sign up as a VCSFA member, read the articles and contact an expert for advice.

Not having a Marketing Pool Report is lamentable for so many reasons, but here are just a few that come to mind:

  • No report means that the franchisor could be using the marketing pool for whatever they deem as ‘marketing’ – zero accountability to the stakeholders (franchisees) – “Let’s meet at Gotham’s Steakhouse so I can explain the great drinks we have at our coffee chain, Bill.”
  • No written plans for the future spending of the pool means that the franchisor cannot be held liable for their failed results because, well, they didn’t promise anything that can be quantified. “Hey. We didn’t say your sales would grow when we spent your money on Girl Guide cookies!”

So, if you are a coffee shop franchisee and plan to learn from the Dunkin’ School of Hard Knocks (DSHK) it’s paramount that you commence at least the following action items:

  1. Get those marketing pool books open ASAP (form an FAC first)
  2. Make sure your franchisor puts into writing their plans for that hard-earned marketing $moola$
  3. When an expensive renovation is commanded, ask for justification in writing and make sure the books are open.
  4. Join the VCSFA to make sure you and your crew have access to the help you need in your particular franchise.