Saying he is “not happy” with Tim Hortons sales results in Canada, Restaurant Brands International CEO Daniel Schwartz on Tuesday blamed a group of “dissident franchisees” for driving negative media attention and vowed to improve communications there.
“We’re not pleased with the narrative of the media,” Schwartz said during the company’s first quarter earnings call.
The comments came following a quarter in which Tim Hortons same-store sales in Canada were flat, amid a competitive market for coffee in the country. Overall, the brand’s same-store sales in the quarter, which ended March 31, declined by 0.3%.
That was disappointing to parent company RBI, which gets most of its sales from the Canadian doughnut and coffee chain.
“We are not happy with sales growth and overall results at Tim Hortons,” Schwartz said.
These weak results have come amid a dispute between the brand and some franchisees there. Those operators have formed a franchisee association, the Great White North Franchisee Association, and franchisees there have sued the brand multiple times. Some of those disputes have spread to the U.S., where lawsuits have been filed on both sides of the franchise aisle.
The disputes, combined with some protests by of the brand over some franchisees’ treatment of workers, have been cited for the brand’s dwindling reputation in Canada.
Schwartz provided a long explanation for what he sees as the reasons for the negative media attention, which he blamed both on his own company and on the franchisees.
“Even when things are going well, we don’t like to promote ourselves,” Schwartz said. “We have not historically dedicated much time to media relations.
“That has led to the publication of several articles, particularly in Canada, that mischaracterize our intentions and often cite inaccurate information, driven purposefully by a group of dissident franchisees.”
He said that the media narrative “misinterprets” the efforts of “good, honest” franchisees who “work tirelessly every day to do the best for our guests.”
Schwartz also vowed to “do a better job” with communication.
“We should have done a better job of communicating with Tim Hortons franchisees in the past,” Schwartz said. “We promise to do a better job going forward.”
Burger King bought Tim Hortons in 2014, creating Restaurant Brands International, which has since added a third chain in Popeyes Louisiana Kitchen. RBI is known for an ultra-efficient business model that cuts back on corporate spending and increases standards for operators.
Schwartz said that Tim's operators since then have seen increased average revenue per store and better unit economics. “The brand remains strong,” he said.
He said that the group of dissident operators “does not represent the voice of the whole franchise system or the company.” Media attention to this group has led to a “negative effect on the perception of the brand.”
“Most Canadian franchisees are engaged and working with us to drive the business forward,” Schwartz said.
He also described a detailed effort to fix the brand, such as bringing in Alex Macedo as the brand president. Macedo helped lead Burger King’s U.S. turnaround. The brand also relocated its headquarters to downtown Toronto, which the company believes will help it “attract even more top talent.”
Tim Hortons’ plan includes improving the restaurant experience, something the company believes can be accomplished with remodeled restaurants. Tim's and its franchisees plan to spend more than $540 million to remodel its restaurants, and expect that most of its 3,800 Canadian restaurants will be spruced up by 2021.
Schwartz pointed to the company’s experience at Burger King in the U.S., which had a problem with old stores when 3G Capital bought the chain in 2010.
Burger King’s same-store sales in the U.S. have been on a roll lately, including a 4.2% increase in the first quarter.
“Now, working closely with our franchise owners in the U.S., we have renovated the vast majority of the system, which has helped with sales,” he said. “One of the things that gives us confidence is that renovating restaurants in the long run contributes to one’s ability to drive sales.”
Tim Hortons also plans to improve its products, particularly getting back its “coffee leadership” in Canada.
The company also says improved brand communications will help with sales and brand perception. Tims has a new ad campaign in Canada that talks about meeting neighbors at Tim Hortons for a cup of coffee.
And improved communications with franchisees will help, too, Schwartz said. He said the chain’s “elected franchisee advisory board” has spoken out against the dissident franchisees to support management.
“We plan to be way more proactive with the media and telling our own positive story,” Schwartz said. “It’s still early. There’s no silver bullet. But we think the focus on the restaurant experience, product excellence and brand communication” can drive the improvement the company wants.