Sylvain Charlebois is a professor in food distribution and policy and dean of the Faculty of Management, Dalhousie University.
Léger and National Public Relations last week released their annual report ranking Canada’s most admired companies. While some results were indeed surprising, others were not.
Both Google and Shoppers Drug Mart (owned by Loblaw) ended up at the top of the overall rankings, as well as the leaders in their sectors. Google has been No. 1 for six years now. It was surprising to see that eighth-place Kellogg’s is the most respected food company in Canada. Campbell and Kraft, two other food companies, closed out the top 10. Despite bread-price collusion accusations, Sobeys moved up 10 places and remained the most admired grocer, while Subway was recognized in the food service category.
But Tim Hortons’ year was just plain awful. It went from No. 4 to No. 50 in just 12 months. This significant free fall can be linked to the very public spat between Tim Hortons franchisees and the Tim Hortons parent company, Restaurant Brands International (RBI). This dispute has taken its toll and likely affected the reputation of the iconic Canadian company.
RBI has been at war with Tim Hortons franchisees since 2014 when the holding company was created, and things have gotten progressively worse. While franchise owners – family businesses, really – were committed to serving communities, RBI swooped in with an efficiency-driven agenda. Menu changes, royalty structure modifications, higher costs of supplies to operate outlets – all were revised to serve RBI’s shareholders, and it paid off. The share price hit a record high last October of $85.
RBI’s ultimate commitment has been to its shareholders and not necessarily to the Canadian public. This year’s Léger-National rankings confirm that Canadians have been keeping tabs.
But RBI’s profit-driven agenda has started to work against it over this past year. Rallies to raise awareness of minimum-wage campaigns made Tim Hortons a public target right across the country. To make matters worse, reports surfaced suggesting that in Ontario, where the minimum wage increased by 22 per cent on Jan. 1, some Tim Hortons employees had been asked to pay for uniforms and cut out breaks. While other food chains were adapting well, the rift between RBI and its franchise owners in Ontario became even more evident to the public.
Now sales are slumping, and as a result, RBI shares have fallen to about $70. RBI’s response is to invest $700-million over the next four years, including a change to the interior design in all of its Tim Hortons restaurants. But here’s the catch: Most franchise owners will be required to pay more than $450,000 per outlet to support the cost of renovation and create an open-seating concept. Given that the average Tim Hortons franchisee owns three outlets, the cost to support RBI’s new redesign strategy will be well more than $1-million for a typical franchise owner.
With this new strategy, RBI’s message to franchisees is quite simply this: Pay up or leave. RBI’s intent is clearly to renew its portfolio of franchisees and deal with operators who are more inclined to buy into the parent company’s philosophy. Not a great move on its part, if reputation is a metric it cares about as a company.
The Léger-National survey looks at perceived financial stability, corporate social responsibility, honesty, transparency, quality and innovation. It may not measure how nationalistic ideals affect Canadians’ perception of companies at home, but this factor clearly skews results. In Tim Hortons’ case, the brand itself is inherently linked to our perception of how it honours Canadian values. Canadian Tire, as an example, remained third in the survey, arguably because the brand itself is so entrenched with how respondents perceive their own country. It’s as simple as that.
What the survey is really telling us is that Tim Hortons is no longer seen as a Canadian company. Things are different now and Canadians can feel it. Franchisees have known for a while that RBI’s game is disconnected from Canadian beliefs and that the company is distanced from Canada and the restaurant business. Since the RBI takeover, the traditional uniforms, the successful Roll Up the Rim to Win campaign and the welcoming, friendly smiles have all been a façade. They hide the troubling truth about the Tim Hortons conversion. The recent Léger-National survey confirms that chain’s transformation into a foreign company is now complete.
RBI, which also owns Burger King and Popeyes, has its head office in Oakville, Ont., where Tim Hortons’ main operations used to be located. Rumours are circulating that RBI will move to the United States to take advantage of a more fiscally friendly environment created by new tax reforms. It can be expected that most Canadians will not care much once Tim Hortons moves south of the border. In their hearts, Tim Hortons is already a foreign company, a switch-over that is likely what RBI wants.
The brand will survive, but things will never be the same.