In the war of public opinion, log a victory this week for the industry’s detractors. Worse still, many of the reputational wounds were self-inflicted and intentional, the work of mega-marketers determined to be the brand trending on social media, even if the trade as a whole takes a ding. They might view the week’s head-spinning moments as reason to set off fireworks, but decide for yourself if a match should be touched to the fuse.
1. Pants on fire?
Before engineering a merger with the Tim Hortons doughnut chain, a sacred institution in its native Canada, the parent of Miami-based Burger King assured regulators north of the border that their fears of upheaval at Timmy’s were unfounded. Burger King wasn’t going to descend on Tim Hortons like a U.S. conqueror, scrapping revered traditions and taking an axe to the chain’s workforce.
Fast forward to the past week, when word leaked of layoffs at Tim Hortons’ headquarters. The number of pink slips wasn’t revealed, but local media speculated the number was in the hundreds. A study done by a Canadian think tank before the merger had warned that 44 percent of Hortons’ corporate staffers, or about 700 Canadians, could lose their jobs.
Details emerged this week that the promise to maintain Hortons’ payroll was more highly qualified than had been initially reported. Burger King’s parent, Brazil-based 3G Capital, had vowed not to reduce jobs at Tim Hortons’ franchises, and merely to maintain “significant” levels of employment at the doughnut chain’s home office.
But that’s not the only action that Canadians have blasted as a violation of 3G’s promises. After the merger was consummated to form a new company called Restaurant Brands International, management of the combined operation reportedly scuttled Timbits, a Hortons-branded product Americans know as doughnut holes. The product was so beloved by Canadians that demonstrations were convened at Hortons units.
“Timbits are more than just deep-fried balls of water and flour to Canadians,” the Oakville News quoted one picketer as saying. “If these Americans think they can just stomp in and take away our Timbits, they’re in for a Whopper of a surprise.”
Customers haven’t been the only ones upset by actions of the new management team, which is dominated by ex-BKers. Weeks after RBI announced that Mike Meilleur would continue in his pre-merger job as president of Hortons’ U.S. operations, he abruptly resigned, Canada’s Financial Post reported.
There have been reports in recent weeks that RBI may be seeking additional acquisitions. Possible targets may be audibly gulping as they wonder what to expect.
2. KFC goes over the top
No one, probably least of all KFC, would dispute that contention. The chain added a hot dog in some markets, a man-bites-hot-dog story to be sure. But instead of serving the frank in a bun, the Colonel’s brainchild slipped the wiener into a pocket formed by bending a boneless fried chicken breast in half. Every bite yielded enough fat to make a walrus feel anorexic.
The novelty instantly became a sensation, though KFC probably didn’t spend a dime to tout the Double Down Dog. Talk-show hosts, news anchors, tweeters, bloggers, snapchatters and munchies sufferers eagerly did it for them. “Just so you know, the new meaning of KFC is ‘Killing Fatties Cardiologically,’” Conan O’Brien quipped to his nearly 1 million late-night viewers.
The buzz might have been great for KFC, a chain that could use some grapevine time in the modern day. But the lunge for notoriety wasn’t so great for an industry striving to shake its rap as a business untroubled about undercutting the public’s health for lucre.
It’s also tough to make the case that quick-service chains are moving away from Frankenfoods when one of the stalwart brands releases a fried-chicken-encased hot dog from the lab.
3. Taco Bell brews up Cinnabon coffee
KFC’s Mexican sister in the Yum! Brands household also turned some heads this week with an unusual product introduction. GrubStreet.com, an information fount for restaurant enthusiasts, called it sight-unseen “the last word in unhinged fast-food mash-ups.”
The latest addition to Taco Bell menu boards “is most likely what it sounds like, a refreshing hot beverage that tastes like horrible coffee that was blended with dough and icing and industrial-grade spice extracts,” a staff writer posted.
On first flush, it may not be an unreasonable expectation for a coffee marketed as Cinnabon-flavored.
For those who haven’t been in a mall or travel hub for the last 10 years, Cinnabon is the nation’s leading cinnamon-bun chain. Its signature product is a gooey, chewy, icing-slathered cinnamon indulgence that a family can build a vacation around.
The leap is associating a flavor that deep with coffee, a connection many consumers clearly can’t make. Instead of investigating—i.e., actually trying a cup, and remembering that cinnamon-spiced coffee is hardly a rarity—they’re dismissing the product as yet another example of chemists going mad in Taco Bell’s test kitchen. The product has only been on the market for a few days, but a loud and influential faction is already tagging it as proof the fast-food market pushes unnatural abominations, not real food. “Taco Bell’s new Cinnabon coffee needs to be the end of this nonsense,” the GrubStreet piece is headlined.
4. Don’t two lattes cost that much?
Not all of the mud flung at the industry this week has been the result of a chain knowingly donning a target. Starbucks, for instance, became an unwitting lightning rod for reformers who contend that CEOs are paid obscenely high amounts.
Headlines this week trumpeted that Starbucks CEO Howard Schultz had been given a 24 percent raise in 2014, a hefty bump at a time when many paycheck earners have to content themselves with cost-of-living increases. The news fanned criticism about the widening gap in the income of business titans and the workers who keep the money machines running. A 24-percent pay hike, really? To a guy who’s rich enough to have once owned a pro sports team?
Often lost in the controversy were the absolutes of Schultz’s pay. His base salary, before and after the raise: $1.5 million. His stock awards as a result of the raise: $6.3 million. And his incentive bonus: $2.9 million. That’s $10.7 million in total, for leading one of America’s largest service companies.
To put it in perspective, McDonald’s raised the pay of CEO Don Thompson by 236 percent to $13.8 million in 2013, when sales were starting to slip. It paid him a projected $9.5 million last year, one of the worst in the company’s history.
During the time for which Schultz got his bonus, Starbucks’ profits climbed to $587.9 million after a $1.2 billion loss the prior year. By any objective measure of today’s compensation levels, he’s a steal.
5. A big step back in diversity.
The announcement of Thompson’s pending retirement from the top two jobs at McDonald’s wasn’t much of a shocker. Perhaps more jarring was an unforeseen consequence: When he steps down on March 1, the restaurant industry will have lost 50 percent of is African-American CEOs in less than a year.
Clarence Otis exited Darden Restaurants, the parent of Olive Garden and Capital Grille, after an activist investor succeeded in taking over the board in October. Steve Davis finally threw in the napkin a few weeks ago at Bob Evans, where he was unable to shake off a disgruntled shareholder and a persistent softness in sales.
A year ago, the industry could underscore its distinction as an industry of opportunity by pointing to the six African-Americans who headed public restaurant companies (the list included Lenny Comma, CEO of Jack in the Box, James White of Jamba Juice and Aylwin Lewis of Potbelly, all of whom are still in their posts, apparently very securely). According to the Multicultural Foodservice & Hospitality Alliance, only seven African-Americans held a corner office within a Fortune 500 company. No field could match the restaurant industry’s level of CEO diversity.
Through no fault of its own, the industry may have a tougher time proving its openness to diversity.
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