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The COVID-19 pandemic hit A&W harder than most fast-food chains, but the company is seeing opportunities in drive-thru restaurants and an agreement with Pret A Manger

Susan Senecal, CEO of A&W.Pooya Nabei/Handout

Just a few years ago, you might have said that A&W’s prospects were sizzling. The first ever quick-service restaurant (QSR) in Canada held down second place in the burger-chain hierarchy, after McDonald’s. It had a bigger share of the market than Wendy’s and Burger King put together. And it had a major hit on its hands with its Beyond Meat Burger, a continent-wide first, which helped the brand make inroads with millennials. But the COVID-19 pandemic hit A&W harder than most QSR chains. Now CEO Susan Senecal—a 30-year A&W veteran—has some ground to make up, just as ill winds threaten to snuff the economy’s flame.

How big is the QSR market in Canada?

It’s big. Total food service is around $60 billion. QSR is about half of that and burgers about a third. So it’s in the $15- to $20-billion range.

In 2017, about a year before you became CEO, A&W had a 14.4% share of QSR burger dollars. Where are you now?

Well, our strategy is for us to hit the $2-billion mark over time. Last year’s sales were around $1.6 billion, and we have our minds set on continuing to grow.

So, is it accurate to say A&W hasn’t grown its position?

No, actually. We lead when it comes to new restaurant openings. We’ve been growing our same-store sales, as well. But others have probably grown. I’d say we’re making good progress in the marketplace, and we’ve outpaced our competitors for new restaurant growth and often for same-store sales, as well.

How would you compare A&W’s performance during the pandemic to your competitors’?

The story of the pandemic was that drive-thru restaurants were able to remain open. We have a lot of restaurants in shopping centres and in urban locations without drive-thrus. For many regions, dine-in was completely shut or dramatically restricted, and shopping centres were completely closed. So our business was disproportionately impacted by the pandemic.

How did you respond?

One of the scary things was, we’re used to having great high-touch relationships with our franchisees. We see one another multiple times per year. All of that went away. On top of that, everyone’s pandemic experience was different. We had urban downtown restaurants that went from being open 24 hours a day to zero. For some of our franchisees who had drive-thrus, it was the opposite. They were looking for staff. So, there was a real multiplicity of experiences, and we had to adapt our approach.

Are you still dealing with the after effects?

We had our first negative same-store sales growth in decades in 2020, but we were back to double-digit growth the following year. As of fall 2021, we were back to having all of our restaurants reopened. Our shopping centres and urban restaurants have still not seen the return to the kind of traffic numbers there were pre-pandemic, but they’re heading in the right direction.

Ten years ago, A&W decided to target millennial customers. Why?

We wanted to shift our focus to the new generation of guests. A&W opened in 1956, so we and the baby boomers were born around the same time, and we had kept that generation in mind over the decades. In 2012, we made the decision to shift to a younger demographic—millennials, of course, being the children of boomers.

What differentiates millennial customers from boomers?

A lot of our appeal was based on nostalgia. We were the first QSR burger restaurant in Canada, and for many boomers, we were their first QSR burger experience. They had fond memories about sitting in the car with their parents or taking a first date to A&W. Millennials did not have those nostalgic connections. They knew the brand, but what really stood out for them was the quality of food. At the same time, there was growing interest in food quality and how it’s produced. We took advantage of that. We started to focus on our ingredients. We launched beef raised without the use of hormones and steroids in 2013 as the first part of that change.

Did you worry about alienating baby boomers?

We always had to think about it. The funny example is the music in our restaurants. We were conscious of doing our best to keep everyone feeling welcome.

How has your sales pitch to millennials evolved over the past 10 years?

We made discoveries along the way—for example, the connection of grass-fed beef to regenerative agriculture. That was a way for A&W to support food producers and do our bit in terms of sustainability. You probably know we launched Beyond Meat in 2018. That was very successful with our guests. We love to innovate.

Susan Senecal, CEO of A&W.Handout

Was it your decision to put Beyond Meat on the menu?

I don’t think there’s any one person at A&W who makes decisions, but I was at the table when we had our first taste. We’d been looking for what we were calling the quintessential veggie burger. I can tell you I tried many, many patties. We had a mantra: We wanted the burger someone would choose, not the one they’d settle for.

Tell me about the tasting process.

We usually tasted the patty first. Then we would make them into burgers with different sauces. I think it was November 2017 when we were able to get some Beyond Meat patties. The first thing we noticed was the look and the sizzling—it looked very appetizing. When we tasted it, there were five or six of us around the table, and I said, “I think this is it.” That was one of the fastest launches ever for A&W. Within six months, people could buy them at our restaurants. We were the first QSR in North America to launch a Beyond Meat burger.

It sold out almost immediately. How did you overcome that?

We sort of had to regroup. We stopped for a few weeks until we could rebuild supplies. We wanted to make sure we didn’t run out again.

These are not great times for the Beyond Meat company. Sales have plummeted and the stock is crashing. What is behind that?

We’re not experiencing any difference in consumer demand. But I think it depends on the company’s priorities and on the supply chain. There’s lots going on in the world that probably led to people making different choices than they might have if things were smooth sailing.

You recently signed a pilot agreement with Pret A Manger to use the brand in Canada. What need does that address?

One is speed and convenience. Pret is a pick-up-and-go idea. We’re only about 10 weeks in, so there’s probably lots that we’re gonna learn. Often we see people that are buying both—so they’re buying an A&W breakfast, for example, and grabbing a sandwich for lunch. Or they’re coming in for dinner and picking up a yogurt pot for the next day. We’ve not done very much in terms of marketing so far, so we’re just observing what happens.

You mentioned earlier that you’ve been growing the number of stores steadily. How many are you planning to add next year?

We’ve been opening 20 to 40 restaurants a year, on a very steady basis, for many years. We see that number continuing to tick up by double digits every year. A lot of our growth has been in drive-thru restaurants, as well as finding opportunities in the convenience area, with partners like Petro-Canada.

How nervous are you about opening more stores on the cusp of a recession?

We look at our business on a long-term basis. The demand for QSR restaurants really varies according to a couple of things. If people are working and mobile in the economy, and their kids have stuff to do, we become a convenient choice. Obviously, a recession would be hard on Canadians, and anything that’s hard on Canadians makes me worry for them. It’s not a factor in deciding whether or not to open a restaurant.

How is A&W weathering inflation?

We’re certainly seeing a true, heightened cost of production. Many of the changes that were brought about in the past couple of years—the enhanced needs for safety and so on—cost a lot of money. We’re fortunate that we have long-term partnerships with great suppliers that have seen us through what would have been the most challenging supply chain issues during the pandemic and in recent times. So, we’ve been able to keep our prices affordable, and our franchisees are focused on that.

Unlike, say, Tim Hortons, you don’t seem to have much franchisee drama. Why not?

If you talk to anyone from A&W for more than a few minutes, whether it’s a franchisee or one of our team, you’ll hear two things. One is about strategy, and one is about climate. And those two elements are linked. You want to create a good strategy, but you also want to be able to execute it really well. For that, you need alignment and understanding, and the efforts of people in every restaurant, at every till, at every drive-thru, in every kitchen. To do that, we have something we call climate—the behaviours we think we need to implement the strategy. We carefully select those key behaviours, and we commit to them. That requires us to have a lot of in-person, high-touch relationships with our franchisees, to make sure all of us understand and can demonstrate the behaviours. Those same types of behaviours tend to result in very long-term relationships. In many cases, we have second- and even third-generation groups of franchisees. I think that really changes how people view the partnership.

More and more service workers are unionizing. Is unionization a concern for A&W?

I’m gonna go back to climate, because I think what people are looking for is fairness. They’re looking for respect, they’re looking for trust. I think human beings are pretty good at carrying on conversations. What we’re not so good at sometimes is starting communications. Too often, if there’s something bothering someone, they don’t really address it. But it doesn’t go away. It kind of sticks in their craw. Whereas climate offers a really nice, easy way to get you to pay a lot of attention right away. Because I’m saying “climate,” right? And it’s a joint commitment.

My understanding was that you were actively trying to discourage unions at A&W. Did I hear right?

No, I wouldn’t say so. I think what we’re really trying to do is create the kind of environment where our staff, our guests and everyone feel welcome at A&W, and would like to engage in conversation that can make things better.

The publicly traded face of A&W is the A&W Revenue Royalties Income Fund. Why isn’t A&W a public corporation?

It’s a great segue from strategy and climate, because our strategic horizon is a long-term one. Climate is very important to us, and we want to be able to continue to invest in that. But at the same time, we wanted to offer the public, and ourselves, the opportunity to access the public markets. A top-line fund seemed like the natural fit.

How would being a corporation prevent the company from investing in “climate”?

I’ve never tried it, so I don’t know. But I think the benefit we have here is we make all of our decisions among the management team. We make investments, we try things, we innovate. Not all of those things might make sense from a public corporation standpoint.

You’ve been steadily expanding, but the share price of the income fund is about where it was six years ago. Does the structure create a disconnect between the company and its shares?

The role of the Revenue Royalty Income Fund is to distribute the cash to unitholders. There’s not too many dividend ideas out there that have been as consistent, or as successful, over the long stretch. So, we’re pretty proud of the results of that fund.

In 2020 you cut the dividend by 37%. Could that explain why your share price has trailed your competitors’ over the past couple of years?

Our business results are really what drives the performance of the fund. We had a harder pandemic because of our concept mix. We’ve seen ourselves bounce back very, very strongly as a result of that. But it’s on the back of results that we’d never want to repeat. I think that’s probably more of a factor.

You once said that strategy for A&W is a blank piece of paper, which I think means you respond to opportunities as they come. What opportunities are you responding to these days?

Because we’re with the millennial generation, a big one is family visits. So that’s on our radar. We’ve been working hard to make sure that our restaurants, our menu and what we do are very favourable to families. I think that’s super important for people right now.

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