Who is best to consult to a few Tim Hortons franchisees in their relationship with 3G Capital?

January 18, 2016

I did the franchising industry forensic accounting (diminishing gross margins) for the National Bread Network.

20160118 NBN card front

A membership program was developed and executed. The initial ROI leverage was impressive to 100% of the Canada Bread franchisees. See one of three direct mail pieces.

20160118 NBN card back

In the end, the few elite investors made much, much more.


How efficient and effective are the best franchisors in using their franchisees’ store investments?

February 25, 2015

Of the investment resources they attract, do they use them effectively or are they squandered?

Efficiency drucker

I chose some of the more “blue chip” of the U.S.-based systems and chased down their 2013 FDD (thank you the state of Wisconsin).

Preserving Franchisee Investments

Opportunism is when someone in a position of advantage, uses that position against another. In franchising, the situation that the franchisor controls the store’s sunk cost investment, can be exploited. A very good test of opportunism is: If the ownership of the assets were reversed, would the alleged “opportunist” likely change their decision?

Total Added Lost

While the 5 systems grew by 4,342 new stores (adding +$6-billion to franchisors’ coffers), there was also a loss of 1,738 stores or $2.5-billion of franchisee store investment that left the industry.

How goodHow “sticky” are franchisee investments in these systems? On average for every $1.00 of new franchisee that enters the market 42.2% was lost from 2010 to 2013.

Distance

 

Measured from the best practice level of Dunkin’ Donuts, there is some very large variation in these systems as they purport to take care of “other people’s money”.

leaky_bucket

Losing over 40% of the invested capital in 4 years? It seems the franchise industry is a bit of a leaky bucket.

  • Fairly apparent when the information is publicly available.

Kudos to the states of California, Wisconsin, Minnesota, Washington, and soon-to-be New York for their online repository of franchise disclosure documents.


How frequently does Tim Hortons terminate their franchised stores in the United States?

February 24, 2015

Termination of a franchise agreement is the most financially devastating action a franchisor can take.

Terminations 2013

It is the “weapon of mass destruction” for mom-and-pop franchisee life savings and employment

Terminations 2012

 

Responsible franchisors avoid this too because it is such a red flag to the investment community.

Terminations 2011

It is only fair to compare it to their peer group and to best practices.

Terminations 2010ie. Tim Hortons terminated their U.S. franchisees 22.9, 1.1, 2.1, and 9.4 times more frequently than McDonald’s had done in the same year (2010 to 2013).

The frequency that the franchisor chooses to terminate a franchisee is a material fact to any buying or renewing franchisee.

Source: Information from Franchise Disclosure Documents (see for example Wisconsin Department of Financial Institutions). Free download for U.S. filed documents. One of 4 online sources.

Canadian information is unavailable because no provincial law requires these CDN documents to be (1) publicly filed or (2) put online.

Alberta, Ontario, New Brunswick, Prince Edward Island, Manitoba and soon-to-be British Columbia

Posted also on ConcernedTimHortonsFranchisees.ca.


Will “brand strength” or hard fought-for legal provisions likely preserve Tim Hortons franchisee, staff, supplier and communities relationships?

February 23, 2015

In 2000, Tony Martin asked Tim Hortons VP Nick Javor which of their franchise agreement terms protected franchisees when a merger happens.

lao

In his public hearing testimony which lead up to Ontario’s 1st franchise law, Mr. Javor seems to suggest the “brand” is strong enough. He was silent on the contract provisions needed.

Mr Martin: I don’t think there’s anybody who’s suggesting that there aren’t good franchise systems around, and certainly Tim Hortons presents at this time as one of those good systems, for all the reasons you’ve laid on the table here today. What you have we want for all the systems, because when a system goes sour, as you suggest in the Pizza Pizza case, you’re all painted with the same brush. That’s unfortunate. It affects a good business relationship and ultimately probably affects the franchisee the most because they’re the most exposed and vulnerable.

My concern is when good systems get sold, and that’s happening. There’s a trend today where the bigger guy eats up the smaller guy and the relationship changes. We had that experience here in Sault Ste Marie where Provigo bought out Loeb and wiped out two of our best corporate citizens overnight. They slept in their stores for two weeks to protect their interests. That’s how difficult that was.

We’ve heard that 241 Pizza has just bought out Robins Donuts. What happens if tomorrow Pizza Pizza buys out Tim Hortons? Do you have anything in your agreement with your franchisees that protects them in that instance?

Mr Javor: That’s a very good question, Mr Martin, because this is the day of mergers and acquisitions. This is the business strategy of a lot of folks. I would answer your question with perhaps a description of our franchisee relationship. I think successful franchisors and chains and brands get successful not by accident but because of the hard work and everybody’s focused on a mutual goal. The mutual goal in our organization, and other franchisors who have been privileged to be as successful as us, is clear: to deliver customer service and realize that the way we get excellent customer service is by having franchisees who are committed to that. We have a strong culture of excellence and commitment. I think it would be very difficult for a new ownership group to come in and absolutely take away what’s taken us 30 years to earn and to grow together with our franchisee ownership.

The fact that we involve our owners a lot in our business at the advisory board level and committee level that I mentioned earlier I guess is a testament to the strength of that commitment we have to ourselves in the marketplace, and that is bigger than the contract. It takes many years to change cultures at corporations. Those of us here who have been in private business over the years understand that. Truly, yes, the top of the house or the CEO and president help set the tone – that’s well-documented research – but also when you have a strong commitment at the grassroots level in your community, where your franchisees are absolutely actively involved in supporting your community, because they know where their bread is buttered. It’s not downtown Toronto, it’s all the communities where we have stores in our particular chain across the country.

I honestly think that when a merger and acquisition comes along the strength of the brand will come through based on these types of commitments and relationships.

Mr. Javor and Tim Hortons were active in the spirited behind-closed-doors debate of the proposed amendment to the Arthur Wishart Act, Bill 102 in 2010: here, here and MPPs seek anti-swindling law for franchises.

Mr. Nick Javor, LinkedIn


Where will the real “fat” be trimmed at Tim Hortons: the head office or on franchisees’ bottom lines?

February 23, 2015

Tim Hortons1

The Globe and Mail reports on the new Tim Hortons president, Mr. Diaz Sese:

…Mr. Diaz Sese, who has law and business degrees and previously worked for French sporting goods retailer Decathlon, is moving from Singapore to Oakville, Ont., to take the Tim Hortons job, the company said last month.

Mr. Diaz Sese’s experience heading up Burger King’s expansion overseas fits in with Burger King’s goal of global expansion for Tim Hortons. The company says he tripled Burger King’s annual rate of restaurant growth in Asia.

Mr. Fisher said the new CEO, Mr. Schwartz, is part of a new breed of young leaders in the food service industry. “He’s got a reputation for cutting the fat and running lean operations.”

Yes, 3G Capital cut head office costs at Burger King in that takeover in 2010. But they had also had many corporate stores to sell for a quick cash hit.

This time, there are almost no Tim Hortons corporate stores to sell.

Just 3,800 franchised stores.


Are there 10 worthwhile spouse/clients in the +1,000 CDN Tim Hortons franchisee group?

February 18, 2015

Not likely because of their husband’s pride and material success.

Talent Vonnegut

If anyone can “save” Tim Hortons from the pirates, I can.

Conditions

  • 10 franchisees/business partners (both partners, self-organized),
  • introductory meeting at one of their homes (with 3 couples plus Les),
  • confidentiality and exclusive agreement,
  • $50,000 each deposited in trust for litigation fund,
  • $5,000 per month per family (pre-authorized withdrawal), and
  • a percentage on the end (vig).

Why I would want to work with any franchisee (ever again in my entire life) is a very, very good question.

“There is no reason why good cannot triumph as often as evil. The triumph of anything is a matter of organization. If there are such things as angels, I hope that they are organized along the lines of the Mafia.”


The second-order, knock-on economic effects of franchisor insolvencies are very profound.

February 11, 2015

Target and Tim Hortons franchisees, staff, and equity are invisible to CDN insolvency law.

Click here for a no charge SSRN download of the Ansett case mentioned in the video: The Domino Effect: How Ansett Airlines’ failure impacted on Traveland franchisees. Dr. Jenny Buchan, University of New South Wales broke this discussion open in 2006. This is the CPA study she mentions in the video: download at no charge at WikiFranchise.org.

When the franchisor fails

Chapter 6 of her book that franchisees (v. franchisors) are handicapped in defending themselves by the following asymmetrical sources of vulnerability: information, adviser, education and regulator, risk and reward, resource, contract, and regulatory.

Chapter 6

Click here for a full Table of Contents of Dr. Buchan’s book, Franchisees as Consumers.

Franchisees as Consumers

Will the ON and CDN governments choose (or be forced) to make “informed informed policy to respond to some very real issues” (start at 8:25)?


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