Tims’ slump may be over but old worries linger
Leadership changes at an independent franchisee association signalled more infighting ahead
• Tim Hortons on Thursday detailed the damage done to its business during the worst days of the pandemic, reporting a US$ 542- million decline in sales between late March and the end of June.
But although Tim Hortons appears to be in the middle of a late- summer rebound, leadership changes at an independent franchisee association signalled there may be more infighting ahead for the coffee-and-doughnuts chain.
Tim Ho r t o n s ’ global sales dropped by 33.4 per cent in its second quarter, ended June 30, according to an earnings update Thursday from Restaurant Brands International Inc. ( RBI), the global fast- food conglomerate that also owns Burger King and Popeyes Louisiana Kitchen.
Tim Hortons’ comparable sales — a measure of success that gives a clearer picture of year- over- year changes by omitting data from newly opened stores — fell by more than 40 per cent when lockdown orders forced business closures across Canada in late-march. By May, those declines were around 25 per cent. And they improved to “the negative- mid teens” as of the end of July, the company said.
The rebound has been slightly better at Tim Hortons in the United States, where comparable sales improved to the negative- single digits in July.
“We’ve come a long way since March,” RBI chief executive Jose Cil said on a conference call with investors.
RBC analyst Christopher Carril said in a note to investors that Tim Hortons’ results were “better than expected,” with adjusted EBITDA of US$ 147 million ahead of consensus expectations of US$129 million.
Another analyst, however, noted on the conference call that Tim Hortons had been posting negative comparable sales even before the pandemic.
At that time, the chain was in the middle of a backto-basics campaign, refocusing on its coffee and breakfast menu and abandoning a confusing lunch- and- dinner strategy that had Tim Hortons experimenting with Beyond Meat burgers and poutine, among other items.
The back- to- basics push appeared to be the beginning of a new chapter for the chain, a year removed from a brand-damaging court battle with the Great White North Franchisee Association. That fight ended in 2019 with a multi- million- dollar settlement for the franchisees.
Late last year, following the settlement, the Great White North Franchisee Association hired former Tim Hortons senior vice- president of development Nick Javor to be its paid, full-time executive director.
Under Javor, the association has rebranded as the Alliance of Canadian Franchisees ( ACF) and, as of last month, appointed a new board of directors, none of whom is a Tim Hortons franchisee owner. The ACF now appears to be more free to take on Tim Hortons without putting its board members at direct risk.
“Franchisees who acted as board members in the past were subjected to retribution, including solicitor letters threatening legal action, disproportionate and costly restaurant audits, and other forms of intimidation,” the ACF said on its recently updated website.
The new board members include Canadian franchise law attorney Edward Levitt, analyst and media personality Lou Schizas, consultant and former supermarket owner Elysabeth Angers and C.D. Howe senior fellow Hugh O’reilly, according to ACF’S website. Ted Nolan, the philanthropist and former NHL player and coach, is serving as an adviser to the board.
In a call for more franchisees to join as members, the ACF said membership dues would pay for research, help negotiate better supplier contracts and “fund any necessary legal challenges to protect your business and family.”
RBI has refused to deal with the association, preferring to deal instead with its internal advisory board of 19 elected franchisees. The company on Thursday said it has declined ACF’S request to review Tim Hortons’ marketing plans, as well as its sales and profitability numbers.
“A group of people who are entirely external to Tim Hortons — who are not franchisees — want access to this type of confidential information and we’re simply saying no,” RBI chief corporate officer Duncan Fulton said in a statement to the Financial Post.
“These external people have no right to any confidential information about Tim Hortons at all.”
The ACF declined a request for an interview, but provided an email response to RBI’S remarks. “It is absolutely not correct that we have asked RBI for any confidential information of any sort,” Javor said.
“Like many trade associations do, members share best practices information about their operations. That helps us better inform our entire membership. We do not make this information public, but limit it only to our members and to our board who have all signed non-disclosure agreements.”
But Rick Murray, a Toronto franchisee who heads the Tim Hortons advisory board, said he was a member of the independent franchisee association three years ago, but now struggles to see the usefulness of the ACF.
“I’m a little bit perplexed as to why all of a sudden the association has become an issue again,” he said, adding that he didn’t believe the ACF could raise a question or concern that the advisory board hasn’t already brought up with management.
Advisory board member and Alberta franchisee Tanya Doucette rejected the suggestion that an internal group could be too close to management to be effective.
“The idea that we’re too cosy, I mean, are we polite with one another? Of course. But are we dogged in pursuit of what restaurant owners need? Absolutely,” she said. “We’re relentless. We’re texting them, we’re emailing them, we’re on conference calls all the time.”
Through the worst days of the pandemic, the advisory board held daily conference calls with Tim Hortons leadership. Those calls have only recently been reduced to once a week.
RBI restaurants have started to reopen dining
We do not make this information
public.
rooms in regions where regulations allow it, but the company warned it was uncertain about “when our business will return to normal” and that it expected to see continued impact from the coronavirus pandemic in the current quarter.
RBI reported that 93 per cent of its restaurants are now open around the world, with sales back to 90 per cent of what they were last year. The company’s net income attributable to shareholders was US$106 million, compared to US$142 million last year.
Online orders across the company’s three fast- food chains increased by 120 per cent compared to last year. At Tim Hortons, online delivery orders in the quarter are nine times higher than they were a year ago, the company said.
However, four Canadian privacy commissioners during the quarter launched a formal investigation into Tim Hortons’ data collection practices on its mobile app, after Financial Post’s James Mcleod reported the app was tracking user locations and inferring where they lived and worked, as well as whether they were visiting competitors.
Tim Hortons has since said it will scale back data collection on its app, though RBI confirmed on Thursday that it has not done the same for the Burger King and Popeyes apps in Canada.
“We’re fully co- operating with the privacy investigation and we’ve been very proactive about reminding users of the ... details of our privacy policy,” Cil said in an interview.
“For us, it’s incredibly important to be transparent on data privacy practices. We have a long- term view here. We’re trying to do the right thing for guests.”