Restaurant Brands International Inc. (RBI) enjoyed an improved third-quarter profit amid sales gains at its Tim Hortons restaurants as it races to introduce new initiatives and mend fractured relations with some of its franchisees.
The Oakville, Ont.-based parent company benefited from efforts at its Tim Hortons chain to pump up sales by introducing all-day breakfast items and restaurant upgrades by some franchisees. At the same time, the company is working to quell a franchisee revolt against management for what many say is its practice of squeezing franchisee profits by shifting costs to restaurant owners.
“The way we’re working with our restaurant owners and the relationships with the franchisees is much stronger today than it was even at the beginning of this year,” Daniel Schwartz, chief executive officer of parent RBI, said Wednesday after RBI released its third-quarter results.
Tim Hortons is testing a flurry of other initiatives, such as a new loyalty program, a children’s menu and deliveries, as it tries to improve communications with dissident franchisees to get them onside after several quarters of disappointing sales.
The growing discontent among some Tim Hortons restaurant owners culminated last month in the company abruptly terminating the licences of the leader of a rebellious franchisee group. That followed RBI ousting another outspoken restaurant owner about a month earlier.
Since September, RBI has been in secret talks with the remaining leaders of the Great White North Franchisee Association – the rebellious group – to find a resolution to their disagreements, industry sources have said.
Association spokeswoman Patti Jameson said in an e-mail Wednesday it is pleased to see some positive sales momentum at Tim Hortons and hopes the trend continues.
“We are cautiously optimistic that some of our issues raised are being considered and dealt with in a positive way,” she said
Mr. Schwartz said Tim Hortons franchisees are enjoying stronger profits, although the franchisee association has questioned that assertion in the past. It refrained from directly commenting on the matter on Wednesday.
Mr. Schwartz also pointed to more effective marketing at the chain. A new online ad this month entailed Tim Hortons sponsoring a hockey team from Kenya that came to Canada to take part in a scrimmage with NHL stars Sidney Crosby and Nathan MacKinnon.
And he said Tim Hortons is making progress in remodellings, although he said the upgrades can take time to translate into higher sales. Franchisees have finished 100 restaurant renovations and will do “hundreds” more in the fourth quarter, he said.
Lewis Towell, an analyst at research firm GlobalData, said Tim Hortons is making headway but still needs to find more innovative ways to reach customers, especially in hotly competitive markets such as the United States.
“In the quickly developing foodservice market where companies must increasingly cater to health-conscious and well- informed consumers, Tim Hortons must shift to being more future focused,” Mr. Towell said.
While RBI’s latest results indicate improvements at Tim Hortons, they suggest some softness at the company’s Burger King chain as it grappled with an intensely competitive U.S. market.
Sales at existing restaurants at Tim Hortons rose 0.6 per cent in the third quarter, up from a 0.3-per-cent increase a year earlier, while in Canada alone – its main market – those sales climbed 0.9 per cent from 0.6 per cent in the previous year.
At Burger King, those same-restaurant sales, an important retail measure, rose 1 per cent in the third quarter, compared with a 3.6 per cent increase a year earlier.
Analyst Mark Petrie at CIBC World Markets said the rebound at Tim Hortons is ahead of expectations, probably largely driven by this summer’s launch of all-day breakfast. But he said that is offset by a “notable” sales deceleration at both Burger King and RBI’s Popeyes Louisiana Kitchen chain in the highly competitive U.S. market.
RBI is trying to attract more customers to Burger King by introducing cheaper-priced meals in the face of stiff competition from McDonald’s Corp. and Yum Brands Inc’s Kentucky Fried Chicken
Mr. Schwartz said that in the third quarter Burger King shifted too much to higher-priced items and is now moving back to more “value” deals such as 10 chicken nuggets for $1.
“It is a more competitive environment than we’ve seen historically,” he said. “I don’t think we had the right balance between premium and value. We’ve already shifted to that more balanced approach that we’ve had historically.”
RBI’s third-quarter profit attributable to the shareholders rose to US$136.5-million or 54 US cents a share from US$91.4-million or 37 US cents a share a year earlier, based on accounting standards used until the fourth quarter of last year.
Total revenue fell to US$1.18-billion from US$1.21-billion.
The company said it had a profit of US$133.6-million and revenue of US$1.38-billion under new accounting standards applied since the first quarter.
On an adjusted basis, the company earned 63 US cents per share. Analysts on average had expected a profit of 65 US cents a share, according to Thomson Reuters Eikon.