A Tim Hortons restaurant in Toronto, on March 17, 2020.Fred Lum/the Globe and Mail
The owner of Canada’s most recognizable fast-food chain managed to grow its profit in its most recent quarter, even as a pullback in consumer spending that’s long been roiling retailers cropped up in the quick-serve market.
The chief executive of Restaurant Brands International Inc. QSR-T said his company’s brands – Tim Hortons, Burger King, Popeye’s Louisiana Kitchen and Firehouse Subs – have been “navigating a softer consumer environment.”
“There’s no denying that the environment has been tough,” Joshua Kobza told analysts on a Thursday earnings call.
That sentiment has proliferated the fast-food market in recent months with brands as big as McDonald’s conceding the effects of high interest and mortgage rates would see it adopt a “street-fighting mentality to win.” Last week, the Golden Arches’ same-store sales fell for the first time since 2020.
Despite the intense competition and headwinds, RBI managed to come out on top in its second quarter, bolstering not just its profitability, but also its sales.
The Toronto-based company, which keeps its books in U.S. dollars, revealed Thursday that its second-quarter net income totalled US$399-million or 88 cents US per diluted share in its latest quarter.
The result was up from net income of US$351-million or 77 cents US per diluted share a year earlier.
Revenue for the quarter ended June 30 reached US$2.08-billion, up from US$1.78-billion in the same quarter last year.
Consolidated comparable sales rose 1.9 per cent, led by strength at Tim Hortons.
“We clearly saw softer sales than expected across our businesses in Q2, and it’s not yet clear when we’ll see the category strengthen,” said executive chairman Patrick Doyle on the same call as Kobza.
While Doyle conceded the sales “weren’t what we wanted,” he said “we did pretty well on a relative basis.”
He and Kobza attributed some of the performance to the company leaning on value messaging and offerings.
At Tim Hortons Canada, for example, the chain has been advertising $3 breakfast sandwiches with a coffee purchase – a deal Kobza said he had taken advantage of Thursday morning.
Burger King has similarly been putting the spotlight on its $5 “Your Way” meals.
“I think we’ve been really disciplined in our everyday pricing, which has been paying really good dividends,” Kobza said.
Rivals, however, have used similar tactics. In Canada, Wendy’s has been advertising two for $4 breakfast combos and Starbucks has been offering 25 per cent off iced drinks on summer Fridays.
McDonald’s, meanwhile, dropped its starting price for cups of coffee to $1 in Canada and over the summer offers ice cream cones for the same price.
Asked about its pricing strategy and rivals, Kobza said “Tims is doing a great job outperforming the market, even in a difficult market.”
“That’s been the case for a while now,” he continued, while noting inflation has softened in Canada but there’s still higher unemployment compared with the U.S.
Tims, in particular, has been strong because it’s long had a leading share of Canada’s brewed coffee and breakfast sandwich market, executives on the call said.
The brand has spent the last year obsessed with expanding that hold even further. In recent months, it launched flatbread pizzas nationally and rolled out new wraps, bowls and sparkling fruit drinks in a bid to gobble up more afternoon and evening sales.
Despite recent successes with the expansion and in navigating headwinds, Doyle suggested RBI isn’t keen to rest on its laurels.
“We know (consumer) purchase habits are affected by a lot of macro factors and it’s our job to adapt, but clearly we have opportunities to position ourselves to perform even better in all environments and take share no matter the category conditions,” he said.
“We need to continue to improve operations across the board. This is something we can never take for granted even at a brand like Tim’s, which is already executing at a stunning level.”