Tim Hortons parent hopes to polish chain’s reputation
TORONTO • Executives at the parent company of Tim Hortons say they will take steps to improve the chain’s battered reputation after the coffee seller posted another quarter of disappointing sales in Canada.
“We are not pleased with the narrative in the media that has usually reflected a purposely negative tone that has really been dictated by a small group of dissident franchisees and their advisers,” Daniel Schwartz, chief executive of Restaurant Brands International Inc.,
said in an interview after the company posted stronger than expected earnings, led by solid sales at Burger King and Popeye’s.
“This negative tone is starting to negatively impact our guest perceptions of the brand and undermines the good and honest intentions of our restaurant owners, their team members and our employees who are all working day to day every day to do the best for the guests and the brand.”
Schwartz’s remarks came after a number of recent surveys suggested the brand had fallen out of favour with some consumers and amid a prolonged wave of dissent and lawsuits from some of its own restaurant owners, who complained about the company’s practices to Innovation Minister Navdeep Bains in a letter earlier this month.
The Great White North Franchisee Association, a group comprised of more than 60 per cent of Canadian franchisees, is suing its head office for a slew of alleged practices that they say has squeezed profits since Brazilbased hedge fund 3G Capital merged Tim’s with Burger King in 2014. The federal government is investigating GWNFA’s allegations that Restaurant Brands failed to live up to promises made at the time of the merger, such as maintaining good relationships with franchisees.
Schwartz has blamed the group of unhappy Tim Hortons franchisees for ongoing negative publicity.
Meanwhile, sales don’t appear to be improving in Canada. While overall revenue at Tim Hortons grew by 2.1 per cent in the first quarter, including international locations, comparable sales fell 0.3 per cent due to weak performance at the company’s Canadian restaurants, the sixth quarter in a row of weak performance.
Schwartz said Tuesday that the company has launched a plan known as ‘Winning Together’ aimed at improving performance at Tim Hortons franchises. Some of the plan’s facets, including contributing $700 million to Canadian restaurant renovations and improving coffee selection with products such as espresso, have already been announced. The third aspect was a vow to work on the brand’s communication strategies through marketing and improved media relations.
Shares of the company rose four per cent in afternoon trading on Tuesday.
Karen Holdhouse, an analyst at Goldman Sachs, asked executives on the corporation’s first-quarter conference call what they would do from an operational perspective if changing the company’s communication strategies were not successful, and in particular, if the company planned to extend “an olive branch” to Canadian Tim Hortons consumers or to its franchisees.
“We have made good progress on building a strong and positive agenda with the restaurant owners,” Schwartz replied. “The relationships with the owners weren’t where they needed to be, but we have been making improvements,” he added, again referencing the ‘Winning Together’ plan.
However, the company has not changed its perspective about speaking directly to members of the Great White North Franchisee Association, preferring instead to deal with a 19-member franchisee board that meets regularly with head office. That board issued a blistering critique of the GWNFA last week, accusing them of helping to foment alienation among some customers by taking a stand against the new head office regime.
A Forum Research poll this week found 50 per cent of Canadians viewed the Tim Hortons brand in a positive light, while 23 per cent said that they view the brand negatively.
“I don’t know if (the new initiatives) will turn around sales,” Doug Fisher, president of Toronto-based foodservice strategy consultancy FHG International Inc., said Tuesday. “The problem that Tim’s is having now is that their average cheque is okay, but their customer counts are dropping.”
And while GWNFA has complained that head office is not allowing franchisees to raise their price points in response to the minimum wage increase in Ontario, their biggest operating region, head office might fear that “if customer counts are down and franchisees raise their prices to cover the labour cost increase, that will drive more customers away,” Fisher said.
“It is certainly a saturated market with lots of competition.”
Schwartz insists that “most Canadian franchisees” are supportive of management, and said several hundred restaurants have signed on to the company’s restaurant renovation plans.
Restaurant Brands earned US$147.8 million, or US 59 cents per share in the period ended March 31. That compared with profit of US$50.2 million (US 21 cents) a year ago. Revenue rose to US$1.25 billion, up from US$1 billion in the same quarter last year.
On an adjusted basis, the company earned US 66 cents per share for the quarter, up from US 36 cents per share. That beat average analyst estimates of US 56 cents per share, according to Thomson Reuters.
WE ARE NOT PLEASED WITH THE NARRATIVE IN THE MEDIA.