An empty Tim Hortons coffee cup sitting on a concrete barricade on Richmond St. East, on Nov. 10, 2020.Fred Lum/The Globe and Mail
Sylvain Charlebois is professor of food distribution and policy and the director of the Agri-Food Analytics Lab at Dalhousie University. He was part of a group of advisers to the Alliance of Canadian Franchises in 2020-2021.
The continuing internal feud at Tim Hortons between some franchisees and Restaurant Brands International Inc., the chain’s parent company, is nothing short of epic. For more than seven years, we have seen public accusations and a raft of legal threats between parties. But it now looks like RBI QSR-T has just had enough.
We recently learned that RBI has terminated the contract of a long-standing franchise owner: Ron Fox, who owned a few Tim Hortons franchises in the Brantford, Ont., area for well over two decades, was leading a group of frustrated Tim Hortons franchisees who are concerned about declining profitability amid soaring costs for food and supplies charged by the franchisor. RBI also sent default notices to members of the group’s board, which includes none other than Jeri Horton-Joyce, the daughter of chain founder Tim Horton.
At its heart, it’s a clash of ideologies: RBI had stormed into the lives of Tim Hortons franchisees in 2014, formed from a multibillion-dollar merger between American fast food restaurant chain Burger King and a then independent Tim Hortons company. The new owner, RBI, is hyperfocused on corporate metrics of profit and cost-cutting, but it inherited mom-and-pop franchisees that embodied the quintessential Tim Hortons brand.
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Now, with its latest moves, RBI has shown which side always wins in such a conflict. When a small-business owner purchases a franchise, especially in the food sector, that person is simply buying a sponsored management position within a larger network. RBI will likely let go of a few more recalcitrant franchise owners over the next several months
It began with Brazil’s 3G Capital Inc., which controlled Burger King, Anheuser-Busch InBev SA/NV and Kraft-Heinz Co.; 3G and the famous Warren Buffett were behind the deal to merge Burger King with Tim Hortons and create RBI. The goal was to enhance value by cutting, restructuring and leveraging the value out of the franchises’ supply chains to support global brands. After RBI acquired Popeyes Louisiana Chicken in 2017, it became the fifth-largest fast-food operator in the world.
Franchisees, on the other hand, prided themselves for being incredibly community-focused. And they were. Tim Hortons dominated the market by monopolizing hockey rinks, soccer fields and small-town Canada.
When RBI took over, it quickly made significant changes in the company’s cost structure, alienating the Tim Hortons franchise’s long-standing players. That’s why some of them formed an association in 2017, called the Alliance of Canadian Franchises, formerly the Great White North Franchisee Association, representing about 1,000. The alliance has a public board, a website, a podcast – everything – all separate from RBI.
RBI’s series of marketing blunders early on galvanized the rebel alliance. RBI introduced several new products on the Tim Hortons menu that made little sense. The chain’s delayed loyalty program launch, the introduction of meatless products – the disasters just piled on.
But RBI turned the marketing fortunes around and has had a few marketing coups of late: several appropriate seasonal changes to the menu, the incredibly successful “Tim Biebs” campaign and the launch of highly popular breakfast cereals, which turned grocery foot traffic into more coffee store business. Suddenly, the brand connected again with communities, progressively mastering the magic of the old while fostering a new, evolving business model worldwide.
The franchise now has stores in 15 countries, including India and now Pakistan, since earlier this year. Tim Hortons will have 3,000 stores in China by 2026. The chain currently operates a little over 3,500 stores in Canada. In just a few years, Tim Hortons will have more stores outside of Canada than within Canada. Even though the chain has reached a point of saturation in Canada, closing 53 stores last year, same-store sales were up more than 11 per cent last fiscal year.
Slowly, the dissenting voices within the ranks of the franchisees have become just noise, and the influence of the old regime is fading away.
The goal for RBI is this: The parent company wants Tim Hortons to have a franchise structure more like that of Burger King, which is another RBI division. Burger King franchise owners operate 150 restaurants on average, not just two or three.
That structure comes with much less corporate and personal pampering, higher supply chain efficiencies and sound cost-management practices. When most franchise owners operate around 150 restaurants, consensus on these features is easily attained.
About two-thirds of Tim Hortons franchisees are perfectly fine with RBI’s modus operandi. But enough was enough. Instead of waiting for the dissident alliance to exhaust its resources, RBI has clearly decided to clean house.
The bottom line: A franchise comes with some support and moderate perks, but that support will change with different ownership, and when that changes, franchisees should also expect rules to change. In food franchising, in particular, franchisees are rarely in control, no matter how successful their own stores are.
Since Subway is now for sale, its store franchisees around the world should take note.