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Dough runs out, franchisees forced to close up shop (1/02)

By Ian Ross Don and Norma Moore feel as if they were set up to fail.

By Ian Ross

Don and Norma Moore feel as if they were set up to fail.

The couple who run a Country Style Donuts outlet on the Kingsway in Sudbury were one of dozens of franchisees across Canada who received default letters from the parent company in late November asking them to leave.

"There are no words to explain the feelings," says Norma. "My husband and I put our whole life savings into this; you take a chance... We thought this was a new beginning for us. We thought we did good. Unfortunately it didn’t work out that way."

They are among a growing body of disenchanted franchisees among Ontario retailers who are starting to network, organize and speak out about their one-sided relationships with parent companies.

The Timmins couple, who relocated to Sudbury for their big break in entrepreneurship, thought they did their homework prior to signing their franchisee agreement more than a year ago, going as far as contacting some former operators.

Being forced to deal with exclusive company suppliers with price markups as high as 30 per cent, and not being compensated for any leasehold improvements they made, had them running on the margins.

"To tell you the truth, there is absolutely no money in this store; my husband has not collected a wage since we started this business," says Norma.

When a company official showed up Dec. 6 attempting to evict them without a court order, they kicked him out.

With Country Style having cut off their supplies, they were existing day-to-day, running around town dealing directly with local distributors.

In a news release, Country Style Foods says after reviewing operations, several stores were found to be in default of their franchise agreements, were notified on Nov.20 and given 15 days to bring their accounts current.

"In approximately 20 stores across Canada, where that has not happened we have the option to close the location. In most of these types of cases we have found that these locations were no longer viable," the company states in a press release.

Company president Pat Gibbons says of the stores receiving those notices five stores are in northern and central Ontario, including two in Sudbury and two in Sault Ste. Marie. Outlets in Val Caron and Chelmsford, within the City of Greater Sudbury, were closed in November. However, in a phone interview with Northern Ontario Business, Gibbons said rumours of more franchisees being evicted were "absolutely not true."

Gibbons, however, did not want to comment any further on the matter.

In mid-December the coffee and doughnut chain filed for court protection from creditors and is closing about 50 of its 200 stores across Canada.

Some local operators have retained a lawyer, which bought them some time to stay open and negotiate a deal for them to take over the lease, take down the sign and operate independently.

Sault MPP Tony Martin says it is time to give teeth to Ontario's year-old franchise law, the Arthur Wishart Act.

Because the franchise industry accounts for about 40 per cent of Ontario's retail economy, Martin says it is a wonder anybody gets into franchising because existing provincial legislation offers little protection from arbitrary corporate decisions.

"You've got literally thousands of people in today's economy losing their jobs all over the place, getting severance packages, looking to invest it and thinking here's a chance to go into business with a turnkey operation," says Martin, the NDP's consumer and commercial critic, who has become a staunch advocate of the rights of operators.

But Martin says many franchisees are finding out they are just heading down the road toward a new form of financial insolvency, losing thousands of dollars on their investments with no compensation once the axe falls.

For the last few years Martin has spearheaded the fight to protect franchise owners through his earlier private member's bill that was somewhat instrumental in shaping the current Arthur Wishart Act. His bill was designed to crack down on the worst offenders in franchising in a province that had nothing in place to protect franchise owners.

What was passed into law, he says, was a watered-down version that did nothing to address such issues as allowing franchisees to buy products and supplies wherever they may find them.

Martin says the government was fully aware that many franchise agreements continue to be one-sided, non-negotiable deals drafted by the franchisor's lawyers and the "duty of fair dealing" as prescribed by law appears to end once the franchisee signs the contract.

The law does not provide any mechanism to resolve disputes, outside of the courts, and there is nothing in place to cover termination or renewal of contract - all matters he covers in his new private member’s bill he introduced in late November, he says.

Last month Martin fired off a letter to Consumer Minister Norm Sterling asking him to intervene and put pressure on these companies to save some of these outfits.

"We're in difficult economic times here. These are all small business people here working hard, and in many instances it's not as if they're losing money or destroying the system. Leave them alone for a while, cut them some slack, work with them on some of the issues that you think are a problem."

Facing a time crunch, Martin wants his private member's bill fast-tracked through the legislature into law before the Christmas break. Under procedural rules, any existing bill still on the table get wiped away once the session ends.