TIM HORTONS SALES SLIP AS COMPANY PLANS EXPANSION.

TIM HORTONS SALES SLIP AS FRANCHISEE REVOLT CONTINUES COMPANY PLANS TO EXPAND INTO EUROPEAN NATION

• Tim Hortons’ owner Restaurant Brands International Inc. is striving to transform the brand into a global powerhouse, even as it faces weakness on its home turf and continued pushback from franchisees who say their profits are being squeezed by head office.

As the company announced plans to open restaurants in Spain, Tim Hortons reported performance that was weaker than analysts were anticipating in the second quarter ended June 30.

That marks the second consecutive quarter of sliding same- stores sales at the division’s Canadian locations.

Same- store sales at Tim’s slipped 0.8 per cent overall, driven down by a Canadian drop of 0.6 per cent, management said Wednesday.

Restaurant Brands’ shares, which were up slightly in afternoon trading, have declined about eight per cent in the last month.

In June, Tim Hortons franchisees in Canada launched a $ 500- million class action lawsuit, alleging mismanagement of an advertising fund and rising costs.

Chief executive Daniel Schwartz attributed the brand’s tepid performance, which stood in contrast to strong results from corporate sibling Burger King, to softer lunch and baked goods sales and lacklustre customer response to limited-time offers in the period compared with last year.

“When we step back and look at our Canada business, there were a l ot of good things we were doing,” said chief executive Daniel Schwartz, citing successes in the quarter such as the coffee retailer’s espresso launch in April and the recent launch of a new mobile app.

“There are some good plans in place, and new products ( planned),” he told a conference call with analysts.

Disgruntled franchisees, meanwhile, contend Restaurant Brands’ profits are coming at the expense of its store owners, citing i ncreased costs in the products they are required to buy through head office.

“While RBI continues to be profitable, the same cannot be said for Tim Hortons franchisees,” David Hughes, president of the Great White North Franchisee Association, said in an email.

The association, which filed the proposed class action after attempts to negotiate directly with management were unsuccessful, was formed in March by a group concerned that the chain’s elected board of franchisees was not representing their concerns.

Price increases to customers on some hot drinks and breakfast items at Tim Hortons also came into effect on Wednesday, with head office citing increased operating costs.

Hughes asserts that Tim Hortons restaurant owners, who buy commodities, office products and restaurant fixtures from head office, can buy items more cheaply directly from suppliers.

The head office purchasing portal would charge a franchisee $ 99.87 for a door gasket but the supplier’s direct cost is $ 86, Hughes noted, and the cost of $89.73 for an under- counter shelf would cost $ 77 direct from the supplier.

Calling the franchisee lawsuit “baseless,” Schwartz said he did not want to speculate on whether the franchisee actions are hurting t he brand as it remains committed to its growth initiatives.

“None of ( the initiatives) change based on this other stuff,” he said.

“We have a positive outlook for the brand for the balance of the year and for many years.”

The company is “more excited about the potential for Tim’s Canada today probably than ever before,” he added.

Schwartz is especially bullish about its i nternational plans for Tim Hortons, which were extended to Spain on Wednesday. Tim Hortons has opened outlets in the Philippines and the U. K., and has plans to expand into Mexico.

Robert Carter, executive director of foodservice at market research firm NPD Group, said stiff competition in a weak restaurant market are making things tougher for Tim Hortons’ outlets in Canada, franchisee concerns aside.

“People are still going to Tim Hortons, but from a customer count perspective they are not growing as much as Starbucks and McDonald’s.”

In t he meantime, t he Canadian restaurant marke t has seen pl o dding growth in r ecent years, with sales up j ust 1 per cent over t he l ast year, and quick- service restaurants have seen heightened competition from grocery stores selling take- home meals, from the rise of meal kit companies and the opt i on of services such as UberEats to deliver restaurant meals.

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