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The pandemic comes at a tough time for Tim Hortons

The Canadian doughnut-and-coffee chain was working to regain its footing before quarantine sapped the company of its core consumers, says RB’s The Bottom Line.
Photograph: Shutterstock

The Bottom Line

The pandemic didn’t come at a good time for Tim Hortons.

That’s true for a lot of companies, of course. But the Canadian coffee-and-doughnut chain was hoping by this time to be demonstrating some real progress in its comeback efforts. It has overhauled management, installed new equipment in its restaurants, and started experimenting with innovative new drive-thru technologies.

The pandemic makes it difficult to demonstrate that progress. Same-store sales in Canada were down 13.7% last quarter, worse even than its struggling U.S. restaurants. The pandemic has sapped much of its core constituency—consumers who get a coffee and some Tim Bits on their way to work—and it’s unclear when those customers will come back.

Oh, and COVID-19 is making another appearance.

“We’re confident that our progress behind these core initiatives will put Tims on a path to strong long-term growth in Canada as we emerge from the pandemic,” Jose Cil, CEO of Tim Hortons parent company Restaurant Brands International, said on the company’s third-quarter earnings call on Tuesday. “However, the pandemic continued to have a substantial impact on activity levels in Canada that resulted in an uneven pace of recovery in sales at Tims.”

Tim Hortons is considerably smaller than Burger King, at least in terms of revenues and number of locations—in reality it is much closer in size to smaller sister company Popeyes—but it holds enormous importance to RBI.

Because the company gets much of its revenue through the sale of goods to its franchisees, as well as real estate, Tims accounts for close to 60% of RBI’s revenues.

That makes a Tims turnaround particularly important to RBI. The chain has been battered by conflict with its franchisees and marketing strategies that simply didn’t work, such as its brief flirtation with a burger made with Beyond Meat.

Same-store sales were struggling long before anyone heard of the coronavirus—they had fallen 4.6% in the fourth quarter of last year, for instance, and 1.2% in the quarter before that. When the quarantine hit in full, Tims fell hard and fast, with a 30% Canadian same-store sales decline in the second quarter.

The company named Axel Schwan regional president for Tim Hortons in Canada and the U.S., replacing Alex Macedo, who left the company in March. The company has made other changes to its executive team, hiring Hope Bagozzi to be its CMO in January. Cil said on Tuesday that Tims has since January “added a number of professionals across key roles with deep experience in the Canadian QSR market.”

Tims is putting hopes behind a number of changes, such as the rollout of new brewers and water filtration systems, now in 90% of the chain’s 4,000 Canadian restaurants. Cil said that has led to improved customer satisfaction scores.

Tims is also launching a dark roast blend coffee early next year. And the company has been aggressive in rolling out new technology at its drive-thrus, including digital menu boards that could soon connect with customers’ loyalty program, Tims Rewards.

Cil said that the loyalty program contributed 1% to the chain’s same-store sales last quarter. “The investment we’ve made to scale the program over the last 18 months have started to bear fruit,” he said. “Tims Rewards will be a powerful tool to engage with our guests, particularly as they reestablish their routines.”

But ah, those routines. Tims’ sales fell hard and fast when the pandemic hit in March, dropping 30% in the second quarter. They’ve been slow to recover, too, certainly slower than either of its sister chains.

Much of that problem has been its focus on the morning. Breakfast has proven to be a particularly challenging daypart—Burger King, for instance, was especially weak during the daypart, prompting the company to suggest that chain’s morning efforts need improvement.

The coronavirus has upended consumers’ morning routines. Rather than commute to work, customers are remaining home and working over the Internet. “We saw transit activity fall as much as 80% in March and April, and it was still down by about 50% in July,” Cil noted, adding that there was “incremental improvement in August and into the beginning of September.”

“I’m not in the business of predicting and projecting, so it’s hard to tell how this is going to evolve,” Cil said. “Our focus has been on ensuring in the immediate term that we deliver our great products, our coffee and our baked goods and doughnuts and other products safely.”

Still, the coronavirus has started leading more governments in Canada to place restrictions on restaurants again—dining rooms were closed in Ontario earlier this month, for instance.

And the company has started pushing afternoon products more to focus on non-commuting customers. The company brought back its Oreo Ice Cap, for instance, and launched a new roast beef and chicken sandwich.

Cil said the company remains confident in the “long-term” future of the business. It just has to get past the pandemic first. “We feel really good about the initiatives we’re working on,” Cil said. “They’re the right ones, the basics of the business that have made Tims the dominant brand that it is in Canada.”

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