Canadian Franchisor-Franchisee Case Goes Public
A group of franchisees is suing a coffee chain in Canada over that chain's actions, which its franchisees allege have been harmful to them. In the recent filing, franchisees alleged that the company misused its franchisee-funded advertising fund, forced franchisees to cover the cost of equipment that did not increase sales, provided food that had quality issues, introduced shortages in stock because of supplier changes, and required franchisees to buy products at a price higher than their market worth.
The brand in question had been struggling with the increase in competition in its market, which led it to bring another popular brand's products into its stores. This required franchisees to invest in new equipment for the new products, putting many struggling franchisees deeper into debt. The franchisees alleged the new products failed to bring in additional revenue, as many customers were either ordering the new product or the usual products from the franchisees - but not both.
In addition to the new products, the struggling franchisor also launched an internal review and announced plans to sell a product in a completely different industry. Currently, the company is in the process of converting two locations to the new industry product and has identified other locations that are possibilities for the same type of conversion. This has left existing franchisees feeling uneasy about the future of the franchise as it stands now.
When disagreements between franchisors and franchisees go public, it's never good for the brand, but it can provide a lesson for prospective franchisees. Research your potential franchisors as much as you possibly can before signing on the dotted line, including how they use any advertising funds that include franchisee contributions, what their plans are for the future, and how they plan to handle the competition. There is never a guarantee your franchise won't run into problems down the line, but doing the investigative work before you join can help you avoid the wrong brand.