Healthy fast food franchisor Freshii is facing an lawsuit from its original Metro Vancouver franchisee – an ownership group that built the brand in the region, owns five locations and allegedly was promised that it could become the brand’s master franchisor.
“The [lawsuit’s] statement of claim is basically an injunction motion to stop Freshii from putting franchisees into our exclusive territory,” franchisee and Three Fresh Guys (TFG) principal Paul Pelton told Business in Vancouver.
Regardless of how Pelton’s lawsuit evolves, he and Freshii will enter arbitration to help resolve the dispute, Pelton said. Succeeding in the lawsuit will simply halt several new franchises that are under development.
“I’m not seeking damages. Believe me. I’m reluctantly doing this injunction and arbitration. It’s not my ideal because I don’t want to hurt the brand but I want to keep [Freshii founder and CEO Matt Corrin] from doing what he’s doing.”
Corrin did not respond to emails or phone calls that Business in Vancouver left last week.
Pelton, who lives in Toronto and filed the lawsuit in the Ontario Superior Court of Justice, said that he was a fan of Freshii before he visited Vancouver for the 2010 Winter Olympic Games.
He noticed that there were no Freshii locations in the city so he urged Corrin to allow him to open stores in the Lower Mainland.
Pelton linked with fellow principal Jay Megharies and, together with operating partner Craig Norton, created TFG and signed an exclusivity agreement that stipulated that they open at least 10 stores in the next 10 years.
Pelton said that this agreement gave them exclusivity over the Lower Mainland and Sea-to-Sky region. The only exception that the contract allows for, Pelton alleges, was for non-traditional outlets such as an outlet at an airport or bus station.
There was also talk, Pelton claims, about giving TFG a master franchise agreement.
The difference between an exclusivity agreement and a master franchise agreement is that master franchisors find sub-franchisees and then share those sub-franchisees’ royalty fees.
Freshii charges a $30,000 one-time fee to open a location as well as an ongoing 6% royalty on sales. There is also a 1.5% marketing fee.
Stores cost between $250,000 and $350,000 to build.
Pelton claims that his group has spent “many millions” to build the brand to where it is in B.C.
TFG opened its first store at 870 West Cordova in January 2011. Its success paved the way for two locations in 2012: on West Broadway near Cambie and on West Georgia Street near Bute Street. Then came a store in Guildford Town Centre in 2013 and one in Park Royal Shopping Centre in December 2015.
“We really opened up the market,” Pelton said. “There were no Freshiis in B.C. There was only one small Freshii in Edmonton [west of ontario] so we basically opened up the market west of Ontario.”
Regardless, discussions for the master franchise agreement fizzled.
Pelton alleges that this was largely because Freshii wanted to have a clause in the contract that allowed it to buy TFG at a price that equated to about 40 cents on the dollar for the millions of dollars already invested.
As negotiations on that contract were advancing, Pelton helped find what he expected to be eventual sub-franchisees.
Since then, those people have become franchisees.
One, Black Isle Restaurants Ltd., has opened a Freshii location in Port Moody. The other, 0979749 B.C. Ltd., has opened a Freshii at the Broadway Tech Park.
None of Pelton’s allegations has been proven in court.
Toronto-based Freshii has more than 100 locations in seven countries.
