Tim Hortons looks to $700M revamp of stores
Franchisee group mired in feud with company criticizes ‘ill-conceived’ plan
TORONTO Tim Hortons has announced a $700-million program over four years to refresh and modernize about half of its store network across Canada, hoping to woo more customers to its outlets with communal seating and electric outlets at tables to charge phones and other electronics.
But beyond luring in more customers, the firm’s biggest challenge could be convincing an unhappy group of franchisees to buy in to the strategy after a year of upheaval, mudslinging and lawsuits.
New Tim Hortons president Alex Macedo, who joined the brand in December, said franchisees were told of the coming changes in a conference call last Thursday, “and so far we are happy with the reaction,” he said in an interview. “We are going in the same direction, and the franchisees that are aligned for the long run understand that this is the right way to go.”
Franchisee politics aside, the brand is in need of a boost after posting five consecutive quarters of tepid same-store sales. Rival McDonald’s Canada has steadily increased its market share of coffee and breakfasts in recent years and Starbucks Canada is outpacing both chains in sales growth, according to market research firm NPD Group.
“We have been listening to our guests and seeing what is happening with the competition in terms of consumer behaviour, and we have an opportunity with Tims to have a restaurant experience that is more inviting, more comfortable and will set ourselves up for digital transformation in the future,” Macedo said on Tuesday.
The design does not include the sort of self-serve kiosks implemented by McDonald’s across the country. “We are exploring other things, but it’s a little too early to share that,” said Macedo, adding the company is currently focused on increasing customer use of its mobile app introduced last July.
Management says it will share costs for the new store design with franchisees. Dubbed “Welcome Image,” the concept also includes new tables made out of Canadian Maple, couches and a portrait of the original company ’s co-founder, NHL defenceman Tim Horton.
“I think it will definitely help bring new people into the store,” Macedo said, citing positive customer feedback from 10 test restaurants operating under the new formatin Canada.
“When you have a more comfortable environment for people they will tend to say longer and it has an impact on the average cheque. It’s also about frequency — getting people who already come in to make an extra visit and come in more, because the restaurant design is so appealing.”
Macedo declined to say how much franchisees had been asked to pay or how much of the cost would be borne by management, but said the proportion of money that franchisees contribute will be the same as they have been asked to provide in the past. “We put a considerable amount of capital into our renovations,” he said.
Reaction from the group of franchisees who formed an association last year to oppose a number of head office’s policies was swift.
“This is just one more in the string of ill-conceived programs brought forward by a group of executives who do not understand food service, franchise operations or marketing,” said a letter Tuesday from the Great White North Franchisee Association to its members, or about half of the chain’s franchisees in Canada.
Relations have soured between franchisees and head office in the wake of the company’s 2014 merger with Burger King to form Restaurant Brands International, majority-owned by Brazilian investment firm 3G Capital.
The association says Tim Hortons executives on Thursday ’s call have requested franchisees spend up to $450,000 per restaurant for the renovation program.
“We think, that once again RBI wants to fix a problem it cannot solve, mainly lack of sales, by getting us to spend money while they contribute very little,” says the letter, which advised members to hold off on agreeing to the renovations until head office discloses more details.
“With 60 per cent to 80 per cent of our customers using the drivethrus and never entering our stores, it would seem these renos are a steep price to pay for eat-in transactions,” the letter said. “(Restaurant Brands International) has not provided any data on eat-in transaction increases, saying it’s too early to determine that.”
The letter is the latest evidence of rancour between head office and the splinter association of franchisees, who have filed two class action lawsuits against their parent company, accusing it of misusing their advertising funds and passing added costs on to the store owners for products such as sugar and bacon.
Last month, the group threatened to sue the firm in the wake of a malware attack that disabled cash registers at some locations, forcing owners to close their stores.
Representatives for the association were unable to comment on Tuesday.
The Tim Hortons brand has been taking a beating since January, when some franchisees moved to offset a 20-per-cent minimum wage hike in Ontario by cutting paid employee breaks. The franchisees had asked head office to allow them to implement price increases, following the lead of other big restaurant chains in the industry, but head office declined. The situation erupted into a public relations scandal and sparked a consumer boycott and protests outside some Tim Hortons outlets.
Robert Carter, executive director of food service at NPD, said it’s becoming a challenge for chains to increase traffic at their quickserve restaurants. “If you look at the growth in the market, a lot of it is in the off-premise segment, at drive-thrus, takeout sales through apps and digital deliveries (such as Uber Eats). So to enhance your room to get more people to come and sit down can be a challenge.”
We have an opportunity with Tims to have a restaurant experience that is more inviting, more comfortable and will set ourselves up for digital transformation in the future.