Tim Hor­tons fran­chisees vexed by cor­po­rate penny-pinch­ing

Northwest Arkansas Democrat-Gazette - - MUTUAL FUNDS - LES­LIE PAT­TON In­for­ma­tion for this ar­ti­cle was contributed by Craig Gi­ammona of Bloomberg News.

Tim Hor­tons cof­fee and dough­nuts are about as closely linked with the Cana­dian iden­tity as hockey and uni­ver­sal health care, but the in­sti­tu­tion is un­der at­tack.

That’s the view of many of the chain’s fran­chisees, who are chaf­ing un­der the cor­po­rate own­er­ship of Restau­rant Brands In­ter­na­tional Inc., the fast-food con­glom­er­ate that also runs Burger King and Popeyes Louisiana Kitchen. They claim that ef­forts to squeeze money from restau­rant op­er­a­tors are de­stroy­ing Tim Hor­tons’ niceguy im­age and forc­ing them to scale back com­mu­nity pro­grams, in­clud­ing youth hockey.

Restau­rant Brands, which sub­sumed Tim Hor­tons in 2014, is backed by the Brazil­ian in­vest­ment firm 3G Cap­i­tal — fa­mous for pur­su­ing hard-nosed deals and then ag­gres­sively man­ag­ing ex­penses. At Tim Hor­tons, cor­po­rate is now charg­ing fran­chisees more for ev­ery­thing from rent to ba­con, which they say is hurt­ing their bot­tom lines, driv­ing up prices at the register and irk­ing cus­tomers.

“We won’t be able to give the ser­vice that we’re known for,” said fran­chisee David Hughes, who owns five Tim Hor­tons in south­ern Al­berta. “These guys have turned ev­ery­thing into a profit cen­ter.”

Ten­sions between fran­chisees and cor­po­rate bosses are com­mon through­out the restau­rant in­dus­try. But the rift at Tim Hor­tons has been es­pe­cially con­tentious. Hughes and about half of the chain’s Cana­dian own­ers formed a coali­tion in March called the Great White North Fran­chisee As­so­ci­a­tion, aim­ing to am­plify their con­cerns. Last month, the group filed a class-ac­tion suit ar­gu­ing that Restau­rant Brands ex­ec­u­tives have breached their obli­ga­tions to lo­cal op­er­a­tors.

As Tim Hor­tons man­age­ment charges higher prices for cof­fee and other sup­plies, restau­rants have had to lay off work­ers, the fran­chisees say. Store own­ers are stock­ing up on bags of su­gar at Costco, where it’s cheaper than what the cor­po­rate par­ent charges. Even knives and scis­sors are more ex­pen­sive un­der 3G Cap­i­tal.

Daniel Schwartz, a 3G part­ner who serves as Restau­rant Brands’ chief ex­ec­u­tive of­fi­cer, said that the com­pany has met with the Great White North Fran­chisee As­so­ci­a­tion. But he doesn’t want to ar­gue with fran­chisees in pub­lic.

“There’s been a lot of change,” Schwartz, 36, said in an in­ter­view last month. “With change comes anx­i­ety and un­cer­tainty.”

Tim Gilks, a for­mer Tim Hor­tons ex­ec­u­tive who runs a com­modi­ties- con­sult­ing firm, said the com­pany is now charg­ing each restau­rant about $13,750 more for cof­fee a year. While com­mod­ity costs have gone up for ev­ery­one, cor­po­rate is push­ing prices well be­yond that in­crease, he said.

Din­ers are notic­ing the changes, es­pe­cially the higher menu prices, Hughes said. In Al­berta, cups of cof­fee are now 2 cents more ex­pen­sive than they used to be. That doesn’t sound like much, but cof­fee drinkers are crea­tures of habit — and even a small uptick may register with them.

Fran­chisees have been in­creas­ingly vo­cal since 2014, when 3G and War­ren Buf­fett’s Berk­shire Hath­away first com­bined Tim Hor­tons with Burger King. That deal cre­ated Restau­rant Brands, which lo­cated its head­quar­ters in Tim Hor­tons’ long­time home of Oakville, On­tario.

Wade MacCal­lum, who owns six Tim Hor­tons in Canada, said he was told things would be “busi­ness as usual” when Restau­rant Brands took over. In­stead, 3G has over­hauled ev­ery­thing, he said.

“The 3G busi­ness model is based on cost cut­ting,” said MacCal­lum, who serves on the board of the fran­chisee as­so­ci­a­tion. “I don’t think there’s a part of the busi­ness they haven’t touched.”

It’s not just restau­rant op­er­a­tions that are af­fected, fran­chisees say. Restau­rant Brands also has cut lo­cal mar­ket­ing from a fran­chisee-funded ad­ver­tis­ing pool. Hughes said his area used to get between $60,000 and $100,000 a year to spend on com­mu­nity pro­grams such as hockey, camps for chil­dren, swim­ming days and lo­cal bar­be­cues.

“You’ve got three or four generations that have been brought up with Tim Hor­tons,” said Hughes, who runs the Great White North group. “We were in­volved in the com­mu­nity. Restau­rant Brands, they’re not in­ter­ested in that. All those things that we are fa­mous for — the kids’ camps — those are the things that make us dif­fer­ent than ev­ery­one else.”

Restau­rant Brands said that there’s a ded­i­cated team that sup­ports fran­chisees across North Amer­ica, and the com­pany has been fo­cused on cul­ti­vat­ing the Tim Hor­tons brand over the long term since it took over in 2014.

“We are very proud that in each year since, we have been able to grow same­store sales and fran­chisee prof­itabil­ity in both Canada and the U.S.,” the com­pany said in an emailed statement.

Restau­rant Brands also has re­warded in­vestors, with the stock gain­ing 28 per­cent last year and about 30 per­cent so far in 2017.

But there have been re­cent signs of a slow­down. Tim Hor­tons’ same- store sales slipped 0.1 per­cent last quar­ter, missing an­a­lysts’ pro­jec­tions. That could add pres­sure to mend ties with fran­chisees.

The chain was founded more than 50 years ago by hockey leg­end Tim Hor­ton, who first sold cof­fee and pas­tries for 10 cents each. The op­er­a­tion — known by cus­tomers as “Tims” — has since grown to about 4,600 lo­ca­tions glob­ally, be­com­ing a ubiq­ui­tous pres­ence in Cana­dian shop­ping cen­ters, air­ports and street cor­ners from Van­cou­ver to Hal­i­fax.

Tim Hor­tons is crit­i­cal to Restau­rant Brands, which got more than 70 per­cent of its rev­enue last year from charg­ing the fran­chisees for food, equip­ment, roy­al­ties and rent. That makes it more lu­cra­tive than Burger King, whose fran­chisees don’t have the same pur­chas­ing deal.

Sales are also higher at Tim Hor­tons, which last year av­er­aged $1.39 mil­lion a store, ver­sus $1.16 mil­lion for Burger King.

The Great White North said it filed the com­plaint be­cause of the par­ent com­pany’s “lack of trans­parency and un­will­ing­ness to an­swer im­por­tant ques­tions.”

Last month, the as­so­ci­a­tion an­nounced that about half of U.S.-based Tim Hor­tons store own­ers had also joined the move­ment. There are about 700 Tim Hor­tons shops in the U.S.

“We built this brand one store at a time, and it was based on that com­mu­nity thing,” Hughes said. “Some­how, we’ve got to get back to that.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.