Tim Hortons president Elias Diaz Sese has apologized to his restaurant owners for not listening to them and pledged to improve their situation – underscoring strains at the fast-food chain as franchisees push back against the company's tightfisted management style.
On a private conference call with franchisees this week, the second in two weeks, Mr. Diaz Sese and other company executives said they would take "immediate action" to fix problems raised by the Great White North Franchisee Association, which was formed three weeks ago to deal with a growing array of grievances.
"We may not have listened enough," Mr. Diaz Sese said on the internal call, a recording of which was obtained by The Globe and Mail. "Please know this was never our intention. And I am truly sorry for this."
Franchisee discontent has escalated since 3G Capital, a Brazilian private-equity firm, acquired control of Tim Hortons in December, 2014, and merged it with its Burger King chain to form Restaurant Brands International Inc. in Oakville, Ont. As it did with Burger King, 3G quickly slashed head-office staff and other costs, efforts that the franchisee association warned in a March letter to the company – obtained by The Globe – are hurting the brand, the quality of operations and sometimes the restaurant owners' bottom line.
RBI shareholders are not complaining. The spending reductions have helped bolster RBI's bottom line while its shares have jumped almost 16 per cent on the Toronto Stock Exchange so far this year. Still, sales gains at Tim Hortons' restaurants that have been open for a year or more are slowing in a competitive field that is being rocked by shifting consumer trends, including demand for healthier fare.
But Mr. Diaz Sese and other company executives – including RBI chief executive officer Daniel Schwartz – took a conciliatory tone in speaking to franchisees on Tuesday. Even so, they fell short of agreeing to deal with the new franchisee association, saying executives would instead work with the existing franchisee advisory board, whose members are voted in by the restaurant owners but are viewed by many of them as being too close to the company and part of the problem.
The executives acknowledged franchisee "stress" related to corporate efficiency initiatives. "We are listening – we hear you," Mr. Diaz Sese said. "We are taking immediate action. We are committed to doing better."
Sami Siddiqui, president of Tim Hortons' Canadian division, said he takes "responsibility for areas where we need to improve." They include the following:
- The company will look to return to franchisees regional marketing funds for their community events such as hockey games, which help raise brand awareness but had been scaled back by the new owner in favour of centralized marketing.
- To deal with franchisees’ troubles reaching head-office staff and a backlog of their requests for help through the company’s new automated help desk, Mr. Siddiqui said he will hire new staff to help clear the backlog and handle inquiries. Franchisees say they need head-office support to help meet the requirements of the company’s Global Performance System (GPS), which it established as a way to evaluate the restaurants.
- The company will put GPS on hold for a month as well as corporate staff visits to restaurants to check for GPS violations, as the company looks to “refine” the system’s metrics.
- For struggling franchisees whose sales are slipping, including those in economically challenged Alberta, the company will consider bringing back rent relief, and, more broadly, will look at reducing the price it charges franchisees for everything from food to paper cups. Still, overall franchisees’ profit has increased significantly, on average, in each of the past two years, Mr. Siddiqui said.
- Franchisees say the “perfect pairings” promotion of $5.99 for a regular sandwich plus a side dish has left restaurant owners, who help cover its cost, in the red. Mr. Siddiqui said the company will drop the promotion on April 26 as it gears up for a major espresso-based coffee re-launch. He said the promotion helped Tim Hortons snare one percentage point of lunch-business market share from competitors.
- The company will delay its launch of a preorder-and-pay mobile app until “later this year” from its originally scheduled roll-out of March 30. Last week, the franchisee association threatened to seek a court injunction to stop the roll-out because, it said in another letter to the company – also obtained by The Globe – Tim Hortons was rushing the launch and could face operational disruptions and sales losses while pushing more costs onto store owners. Mr. Siddiqui said there had been “misinformation” that the app launch would be postponed only two weeks.
Mark Wafer, a Tim Hortons franchisee in Toronto and an association member, said he is surprised at the number of concessions RBI is prepared to make, reflecting "the massive impact the association is already having on our business."
But he also cautioned in a message to franchisees not to get complacent: "We have much work to do." He said the association does not want, nor does he want, an adversarial relationship with RBI.
"We do, however, in order to ensure our futures, work to keep our partners at RBI accountable for actions they take that negatively impact our lives," Mr. Wafer said.
The association said in an e-mailed statement to The Globe on Friday it was formed "to address mismanagement of franchise operations" by the franchisor and its RBI parent, whose tactics it called "heavy-handed" and "ruthless."
Mr. Siddiqui said on the call that franchisees have asked him why it took the forming of an association for the company to take action. Without replying directly to the question, he said he had been travelling across the country over the past two weeks to meet restaurant owners and will continue to do so. But he said the advisory board is the most effective way for franchisees' voice to be heard.
"I want to acknowledge there are some issues with the GPS metrics and operational visits," he said. "The metrics have to be set appropriately and we need to be more thoughtful in the approach. We have work to do on both fronts."
In an e-mailed statement, RBI spokeswoman Shannon Hall said GPS is an important part of maintaining its high brand standards and providing the best customer experience. It is working with a sub-committee of its advisory board to review the GPS, she said.
She added: "We continue to review additional opportunities to increase profitability in collaboration with the elected members of the Tim Hortons advisory board."
What sparked the latest anger among franchisees was a recent spate of restaurant GPS audits by corporate staff that resulted in franchisees being penalized for matters that were not previously on the GPS checklist.
Poor GPS scores can result in franchisees being passed over for additional restaurants and, in extreme cases, losing their current ones, they say.
Franchisees say they are being penalized for such issues as having the wrong toilet paper and soap dispensers in their restaurants' washrooms; for their staff using the wrong-coloured scissors to cut meat, cheese and lettuce; for not using the required cleaning equipment, which they say is often unavailable.
Matters came to a head in January, when the company introduced new GPS measurements and 69 per cent of restaurants failed, compared with just 15 per cent failing before that, the association said. And when the customer satisfaction measurements were adjusted at the beginning of March, 85 per cent failed, it said.
It said the GPS does not take into account local challenges such as labour shortages or variations in average order sizes or the distance between the menu and drive-through window, which affects waiting times.
"RBI's GPS system sets unattainable standards which RBI enforces subjectively to expel franchisees without fair – if any – compensation," the association said.
At association meetings in March, some franchisees burst out crying, overcome by stories of failed GPS scores and how they are being treated by head office staff, some said later. Many are frustrated, for example, that the company decided recently that the franchisees could not put garbage bins in their drive-throughs, resulting in the area becoming littered with garbage and restaurant staff having to spend more time cleaning.
Mr. Schwartz, CEO of RBI, said the company will not raise franchisees' royalty and rents when a five-year commitment to maintain them that it made to Ottawa at the time of the takeover expires. And he said RBI is committed to its Canadian business model of franchisees owning just one or two restaurants and has no intention of replacing them with master franchisees who own many stores – as some restaurant owners fear – which is its strategy outside of this country to hasten international expansion.
"We want to be here for the long run," Mr. Schwartz added. "We want to own this brand forever."
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