Second Cup Franchisees File Lawsuit over Debt, Ad Fund


MONTREAL — A group of Second Cup Ltd. franchisees is each suing the Canadian coffee chain for $300,000, according to Canadian Business. It’s not currently clear how many plaintiffs are involved in the suit, which calls for $75,000 per year for three years’ of lost revenues and another $75,000 in advertising costs.

Alleging that the company’s business decisions have put them in debt, current and past franchisees have taken their cases to the Superior Court of Quebec in order to recoup their alleged losses.

According to court documents, the franchisees are arguing the company misused a franchisee-funded advertising reserve. Franchisees must pay the equivalent of two to three per cent of their sales to the ad fund. The lawsuit also alleges the company forced franchisees to acquire debt to pay for equipment that didn’t boost sales, such as equipment needed to sell Pinkberry-brand frozen-yogurt treats.

In September 2017, Second Cup signed an exclusive licensing agreement with Pinkberry to roll out the brand at its cafes after testing the product at four locations over the course of that summer. As of November 5, 2018, the Pinkberry product is now served at 84 Canadian stores.

The company says the yogurt is an important contributor to overall sales, however franchisees allege that they went further into debt because of the move. The plaintiffs also alleged they were required to purchase products at higher prices than they were worth on the market, cited stock shortages thanks to supplier changes and highlighted issues with food quality.

Second Cup has been struggling amid increased competition from both independent coffee shops and fast-food chains across the country. The company recently launched a strategic partnership with National Access Cannabis Corp. (NAC) to roll out a private retail-cannabis model starting April 1, 2019.

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