Tim Hortons franchisees benefit from an iconic national brand, and with such high profits from coffee sales, they should accept lower margins on food, according to the decision by Justice George Strathy of Ontario Superior Court. In his ruling, Strathy wrote the mainstay of the Tim Hortons business is coffee, not doughnuts.
"The fact of the matter is that under the Tim Hortons system, the franchisees are given the licence to sell Tim Hortons-trademarked coffee: a brand that is about as iconic as there is in Canada," the judge wrote.
"What matters, at the end of the day, is whether the franchisee makes sufficient profit overall to justify his or her investment and to remain in the business. The suggestion by the plaintiffs that [Tim Hortons] has an obligation to price every menu item so that they can make a profit on that particular item is not supported by the contract, by the law or by common sense."
At the heart of the case, which began in 2008, is what the judge describes as the "Always Fresh Conversion," a shift from fresh baking in each store to a system of industrial par baking and flash freezing at a centralized plant in Brantford followed by reheating in specially designed ovens.
In siding with Tim Hortons and tossing out the lawsuit, the judge observed that if par baking had not been introduced, the cost of baking from scratch would have increased to something like 30 cents per doughnut today.
"There is one aspect of the Tim Hortons franchise that the plaintiffs don't complain about: coffee," Strathy wrote. "Coffee is what Tim Hortons has been about since the very first day. It remains so today. Tim Hortons owns the coffee brand. It owns the trademark. The franchisee acquires the right to use the trademark."
The plaintiffs may still appeal the ruling.
from Western Investor April 2012
