Half of the Tim Hortons coffee and doughnut shops in Minnesota have closed due to poor financial performance as the Minnesota franchisee has accused the chain’s parent company of providing misleading projections.
Less than three years after entering the market, seven of 14 Tim Hortons outlets here have been closed, and two more were expected to close, said Jerry Marks, a New Jersey-based attorney who represents Bloomington franchisee Tim-Minn, Inc.
“They were all bleeding money,” he said in an interview with the Star Tribune.
Closures include the Tim Hortons locations in Brooklyn Park; Brooklyn Center; Eagan; Savage; south Minneapolis, on East Lake Street; downtown St. Paul; and on Rice Street near the border of Maplewood and St. Paul, according to Marks.
The outlets in Dinkytown near the University of Minnesota and Forest Lake were also scheduled to close.
A handful of other locations, including the Mall of America, Brainerd, International Falls, Bemidji and St. Cloud remained open, though Marks said that the shops “are struggling.” Tim-Minn had opened the Tim Hortons outlets in a wave from 2016, when it debuted at the Mall of America, to late last year.
Marks claims the closures are due to “bogus income representations” by Tim Hortons USA, Inc. and its Canadian parent company, Restaurant Brands International, which also owns the Burger King and Popeyes fast-food brands.
“We are disappointed the franchisee made the decision to close these restaurants without our approval,” Restaurant Brands said in a statement to the Star Tribune. “Since we have a pending dispute with this particular franchisee, we decline to comment further at this time.”
The dispute has spilled over into federal court, where Tim-Minn alleges in a lawsuit filed in February that Tim Hortons USA had provided misleading financial representations that differed from the financials that it ultimately provided to the state of Minnesota.
The alleged false information convinced Tim-Minn to agree to develop Tim Hortons shops in Minnesota, which was a new market where Tim-Minn was tasked “with responsibility for building out the territory from zero to more than 280 stores,” according to an amended complaint.
“We wouldn’t have opened up store one if we knew what the real numbers were,” Marks said.
Tim-Minn is owned by Restaurant Development Partners Corp., a Canadian property developer and builder that had no prior experience in franchising, according to the recent lawsuit.
In 2017, Tim Hortons USA filed a lawsuit in federal court in Florida against Tim-Minn and seven of the franchises for failing to pay royalties, advertising, opening fees and other charges.
The case was ultimately dismissed.
Tim Hortons has about 4,900 shops worldwide with the majority being in Canada. This week, Restaurant Brands reported same-store sales declined 0.6% at Tim Hortons outlets in the first quarter, compared with a drop of 0.3% during the same time in 2018.
The decline was steeper at stores outside of Canada. Those outlets saw same-store sales drop 2.4% in the most recent period, compared with a 3% decline in 2018.
Same-store sales includes results at stores open longer than a year.