National Post (National Edition)
TIM HORTONS SALES REFLECT THE LOSS OF COMMUTERS.
Third quarter sales at coffee chain fell US$254 million year-over-year
TORONTO • Tim Hortons is struggling to claw its way back to pre-pandemic sales levels, blaming another tough quarter on the disappearance of morning commuters.
The coffee chain had been slowly regaining ground after a massive sales decline in March due to COVID-19 restrictions, but that recovery appears to have stalled.
Tim Hortons has been unable to compensate for the loss of morning sales as commuters stay home and pandemic-related restrictions on the hospitality sector return to some regions, according to a quarterly update on Tuesday.
“When's the last time you ordered a coffee and a bagel at 6 a.m. to be delivered to your house?” asked Duncan Fulton, the chief corporate officer at Tim Hortons parent company Restaurant Brands International Inc.
RBI on Tuesday reported that year-over-year sales across the Tim Hortons chain were down by US$254 million in its third quarter.
The chain was already struggling with sales declines before the pandemic and last January launched a back-to-basics strategy for 2020 aimed at turning things around.
The plan was to stop chasing traffic at lunch with Beyond Meat burgers and other ill-fated menu experiments, and return to Tim Hortons' roots by focusing on coffee, doughnuts and breakfast, while also upgrading its drive-thrus and digital presence.
But without a morning commute, Tim Hortons has returned to chasing market share at lunch and snack time, rolling out a new crispy chicken sandwich and a roast beef sandwich in September.
Restaurant Brands chief executive Jose Cil said the sandwiches were among “a number of proactive measures to drive sales” during other meal times that have not been impacted as badly as breakfast.
Cil said Tim Hortons slightly improved its comparable same-store sales — a key measure of success that gives a clearer picture of year-over-year sales growth by omitting data from newly opened stores — late this summer, when there were looser restrictions, fewer COVID-19 cases and rising “mobility rates.”
But the gains stopped in late September after a second wave of COVID-19 infections hit Canada, forcing some parts of Ontario and Quebec to restrict indoor dining once again.
“As a result, the environment in Canada remains challenging,” Cil told investors on a conference call on Tuesday.
“The spread of COVID-19 and resulting stay-at-home orders have had an especially significant effect on high-frequency, routine-based visits in the morning, which are a particularly important part of our business in Canada.”
Comparable sales at Tim Hortons fell by more than 40 per cent when the stayat-home orders started in late March. By May, those declines were around 25 per cent. Though they improved to “the negative mid-teens” by the end of July, that forward progress appears to have stalled this fall.
In the third quarter, which ended on Sept. 30, comparable sales were down by 13.7 per cent in Canada, and 12.5 per cent globally.
Bernstein senior research analyst Sara Senatore said in a note to investors on Tuesday that the comparable sales decline at Tim Hortons was in line with consensus expectations.
“You're definitely seeing the impact of a very changed morning routine in Canada,” Fulton at RBI said. “Our drive-thru business is up double digits. Our delivery business is exploding. Those are all good things. But the reality is, we still have a large majority of the country that's not going to work in the morning.”
Despite the trouble at breakfast, Fulton said the back-to-basics strategy was still in full swing, pointing to changes to Tim Hortons' breakfast sandwiches, which include new English muffins, biscuits and “crispier” bacon.
“We're going to be really well-positioned when normal routines return,” he said.
RBI, which also owns Popeyes Louisiana Kitchen, also announced a plan to upgrade more than 10,000 drive-thrus at Tim Hortons and Burger King locations by 2022.
The drive-thrus have become a major asset for restaurants during the pandemic, and are responsible for up to 90 per cent of sales at some Tim Hortons locations, Fulton said.
Among the planned changes are digitized menu boards that will eventually be able to provide personalized offers to customers enrolled in a particular chain's loyalty program.
Improving drive-thrus was one of the key tenets of the 2020 back-to-basics plan, after drive-thru response times had been slowed down by the onslaught of lunch experiments in previous years.
Fulton noted the chain has toned down its experiments — known as limited time offers — this year to around 25, down from roughly 70 last year.