Tim Hortons parent company Restaurant Brands International Inc. reported an 18-per-cent increase in profit in its first quarter as demand rose for its fast-food offerings.
The results stood in contrast to McDonald’s, which reported slowing sales growth on Tuesday as consumers have become “more discriminating” in their spending. People have visited restaurants less frequently as companies have increased menu prices in recent years to offset rising prices for ingredients such as eggs and meat. Some fast-food chains have offered value items on their menus to compete for customers.
Toronto-based Restaurant Brands, which owns Tim Hortons, Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, reported that traffic increased at many of its restaurants, with growth in sales led by Tim Hortons in Canada. The company reported net income of US$328-million or 72 cents per share in the quarter ended March 31, compared with US$277-million or 61 cents in the same period the prior year.
“We do tracking very regularly to see how do we do in value for money perception with Canadians, and especially during a time like today, it’s even more important to be very attractive there,” Axel Schwan, president of Tim Hortons Canada and U.S., said in an interview.
Also on Tuesday, the company announced plans to spend US$300-million on remodelling an additional 1,100 of its Burger King restaurants in the United States from 2025 to 2028. Its goal is to have refreshed 85 per cent to 90 per cent of Burger King locations by the end of that period.
“We believe the brand is now fully funded to deliver against our long-term plans for Burger King,” chief executive officer Josh Kobza said on a conference call Tuesday to discuss the first-quarter results.
The new spending is in addition to previous investments as part of a turnaround plan for the chain. First announced in 2022, the US$400-million “Reclaim the Flame” plan included renovating many restaurant locations, a boost in marketing spending, and upgrades to technology and equipment.
Earlier this year, Restaurant Brands announced a US$1-billion deal to buy its largest Burger King franchisee in the United States in a bid to accelerate the pace of remodelling of those restaurants. That transaction is expected to close in the second quarter. Restaurant Brands has said it plans to eventually hand over most of those locations to new or existing franchisees.
First-quarter revenue grew by 9.4 per cent on a year-over-year basis, to US$1.7-billion, as sales grew across the company’s restaurants.
Comparable sales – an important metric that tracks sales growth not tied to new store openings – grew by 4.6 per cent across all the company’s restaurants, led by Tim Hortons Canada, which was up 7.5 per cent. Comparable sales grew by 4.2 per cent at Burger King International, 3.9 per cent at Burger King U.S. and 6.2 per cent at Popeyes Louisiana Kitchen in the U.S.
Tim Hortons has seen strong sales momentum as a result of efforts in recent years to simplify its operations, improve food quality and serve customers faster. Drive-through speed is also improving, with the time to move through a Tim Hortons drive-through now averaging 33 seconds, Mr. Kobza said. While he added that the pizza launch is expected to slow things down at Tim Hortons locations for a number of weeks while the teams acquire the “muscle memory” of preparing and serving them, the effect is expected to be temporary.
“We have a lot more still to do at Tims,” Mr. Kobza said on the call. That includes continuing to grow sales of food in the afternoon and evening, and of cold beverages. The chain recently added flatbread pizza to its menus, and the company contributed roughly $20-million to franchisees’ costs to install new ovens, which will open up more options for food items in the future, the CEO said.
While pizza may not seem like a natural fit at the chain known for coffee and doughnuts, Mr. Schwan said the launch was the product of more than two years of work, including extensive testing in selected markets.
Restaurant Brands has faced complaints from some of its Tim Hortons franchisees, who say that even as sales have grown, their profits have been squeezed. Last month, nearly a dozen Quebec franchisees sought court approval for proceedings against the company, saying that menu prices have not kept up with rising costs for supplies – both of which are controlled by the parent company. The complainants said their profitability had fallen significantly since 2021.
Quebec franchisees sue Tim Hortons, claiming declining profits
“I don’t think that I’m exaggerating when I say we have very good relationships with our franchise community, and what we are experiencing in Quebec is an absolute exception,” Mr. Schwan said. “And we’ll deal with that with the right legal approach.”
In February, the company reported that the average Tim Hortons location made $280,000 in earnings before interest, taxes, depreciation and amortization (EBITDA). That was an improvement from the year before, but still not back to the level of profitability in 2018, when the average location made $320,000 in EBITDA.
“Given the sales outlook and the sales that we’ve already seen, plus what we see in terms of some favourable commodity movement, we actually have a very positive outlook for further growth in Tim Hortons’ Canadian franchisee profitability through the course of 2024,” Mr. Kobza said on Tuesday’s call.
Susan Krashinsky Robertson