Tim Hortons is betting that a flurry of new initiatives, including all-day breakfast, will help bolster lacklustre sales growth.
After Tims parent company Restaurant Brands International Inc. (RBI) revealed strong quarterly profit gains Wednesday, RBI chief executive officer Daniel Schwartz stressed that the company was focused on what’s ahead, despite lawsuits from many of the chain’s franchisees who say they’re being gouged and the brand is suffering.
“We clearly have more work to do and that’s the nature of a franchise business,” Mr. Schwartz said in an interview after the company reported second-quarter profit that beat analysts’ forecasts.
“You never catch up on all the opportunities that the restaurant owners bring forward to you. But we’re all headed in the right direction now.”
He said the latest financial results do not reflect Tims' latest efforts such as all-day breakfast, which launched last weekend, as well as a coming children’s menu and planned loyalty program. But Mr. Schwartz expects these initiatives will shore up future sales at restaurants that have been open a year or more.
Overall same-store sales at Tims were flat in the second quarter, an improvement over a drop of 0.8 per cent a year earlier. In Canada, Tims' key market, same-store sales rose 0.3 per cent, compared with a decline of 0.6 per cent a year ago.
Oakville-based RBI, which also owns the Burger King and Popeyes Louisiana Kitchen chains and reports in U.S. dollars, said its second-quarter profit rose to US$169.1-million, or 67 US cents a share, from US$89.5-million, or 37 US cents, a year earlier.
On an adjusted basis, the company earned 66 US cents a share, topping analysts' average projections of 63 US cents, according to Thomson Reuters I/B/E/S. Revenue grew to US$1.14-billion from US$1.13-billion.
RBI is racing to quell the discontent among a growing number of franchisees who formed the Great White North Franchisee Association (GWNFA) last year to represent their grievances and, just last week, filed yet another lawsuit against the company, alleging the U.S. franchisees are the victims of price gouging and equity theft.
Late last year, RBI named Alex Macedo, a former Burger King executive, to head Tim Hortons and made some other top personnel changes, including last month’s hiring of Duncan Fulton, a former Canadian Tire Corp. executive, for the new position of chief corporate officer at RBI. He is mandated with improving communications with franchisees and the media along with polishing the brand image.
Tim Hortons recently said it was investing $100-million in upgrading its supply chain to try to ensure that franchisees are shipped the right products to their restaurants on time, underlining distribution problems about which the franchisees have complained.
Tims is also pouring money into renovating many of its restaurants, although it is franchisees who are picking up much of the $700-million tab. And the chain is testing deliveries and digital-ordering kiosks.
“We’ve improved communications with franchisees,” Mr. Schwartz said on Wednesday. "All these initiatives will ultimately be reflected in improved sales in the future.”
Sales in the second quarter were driven by cold drinks and breakfast sales but offset by softness in brewed coffee, he said. The company is developing a new loyalty program to try to woo back frequent customers. Mr. Schwartz said Tims is also counting on all-day breakfast to bolster its business since that meal is the fastest-growing segment of the market and complements the chain’s core coffee offering.
The company does not recognize GWNFA because it has a franchisee advisory board that he says is “the only elected voice of our restaurant owners,” Mr. Schwartz said.
Still, some franchisees, who are worried about speaking individually on the record for fear of being sued by the company, say discontent remains about what they say are overly high prices they are charged by the company for their supplies and other services.
And GWNFA has been unsuccessful in getting the franchisee advisory board to recognize the dissident group – or even put to a vote whether it should recognize the association, a source said. GWNFA says it represents more than half of franchisees.
The association has also backed franchisee Mark Kuziora, the owner of two Tims restaurants, who was told by the company this spring he wouldn’t be able to renew his licence, which expires on Aug. 31, for one of his locations. He filed a class-action lawsuit against RBI over the matter. Active in the association, he had signed his name last year to an association lawsuit alleging the company misused franchisee advertising funds.
A company executive has said it denied Mr. Kuziora’s licence renewal request because of “a documented history of problems … including food-safety violations and not meeting a number of other Tim Hortons operating standards.” Mr. Kuziora refutes that.
Mr. Schwartz told an analyst call that increased prices at Tim Hortons in Canada were a factor in its improved second-quarter same-store sales but “we haven’t quantified that.”
He told analysts the company is still betting heavily on international growth including in the United States, where Tim Hortons sales gains have been relatively weak. “We haven’t scratched the surface with Popeyes or with Tims yet” globally, he said.