Tim Hortons duo sues over frozen-doughnut strategy

Nation's Restaurant News, June 23, 2008

OAKVILLE, ONTARIO -- Tim Hortons Inc. has refuted a lawsuit by two franchisees who allege breach of contract and claim the chain's strategic switch several years ago to frozen, commissary-prepared doughnuts has raised costs and failed to boost sales as promised.

The Burlington, Ontario-based plaintiffs, who are seeking class-action status for their case, claim that the franchisor's 2002 decision to manufacture doughnuts centrally and ship the frozen products to stores for rethermalization has increased fixed costs from 9 cents to 20 cents per doughnut.

Previously, doughnuts were fried at individual Tim Hortons outlets in kitchen space that was converted upon the change to making newer bakery-cafe items.

The lawsuit also alleges that Tim Hortons' adoption of a lunch menu with sandwiches and soups has generated zero to slim profits because of the items' low margins and high costs.

Oakville-based Tim Hortons said the complaint, which was filed in the Superior Court of Ontario, is "frivolous and completely without merit." The company added that the Tim Hortons Franchise Advisory Board had said the lawsuit "doesn't reflect the opinion of the vast majority of franchisees."

Tim Hortons and its franchisees operate 2,839 outlets in Canada and 399 in the United States.