Yahoo Finance Tim Hortons plans to 'refocus on our founding values' as sales fall
The parent company of Tim Hortons said it plans to “refocus” on its coffee, baked goods and breakfast business after a year that saw dozens of product launches and promotions drag down sales at the coffee and doughnut chain.
Restaurant Brands International (QSR), which also operates the Burger King and Popeyes chains, reported Monday that sales growth at Tim Hortons fell 2.9 per cent in the three month period ending Dec. 31 compared to the same time last year. Comparable sales, a key metric in the retail industry, fell 4.3 per cent at Tim Hortons versus the same time last year, while Burger King increased 2.8 per cent, and Popeyes jumped an eye-popping 34.4 per cent.
RBI chief executive Jose Cil said on a conference call with analysts on Monday that he has made understanding and addressing the weak performance at Tim Hortons his “top priority.”
“We have not performed to expectations and have not properly put the strength of the Tim Hortons brand to work,” Cil told analysts.
“Despite our recent results, we have a clear plan and believe it's within our control to restore Tim Hortons to growth in Canada. To do so, we will embody the brand's founding values and execute on each of our principles around elevating core quality, innovating for growth, and modernizing the brand.”
Cil also said the company’s approach to product innovation and promotions over the last several years weighed on the brand’s results, particularly in the last year. Throughout 2019, Tim Hortons introduced nearly 60 different limited time offers, three times more than it had done in previous years. Among those launches was the introduction of the Beyond Meat plant-based burger, which was pulled off the menu within months.
“Our approach to product innovation and promotions over the last couple of years has led to disappointing results for the quarter and the year,” Cil said.
“Some new products over the last two years strayed too far from our core categories that we’ve always been famous for. Going forward, new launches will be more targeted and will build on our core categories.”
Duncan Fulton, RBI’s chief corporate officer, said in an interview with Yahoo Finance Canada on Monday that the 60 limited time offers meant Tim Hortons was spending too much time “on the edges” of what the brand is known for, which also complicated operations.
“It causes havoc at the restaurant level because there’s a ton of of part time employees that come in every week needing to learn (new items) and it causes confusion with guests who love us for our basics, and every time they come in, the menu board is plastered with new special offers,” Fulton said.
“You saw Tim Hortons try a burger for the first time. Quite honestly, we have no business doing burgers at Tim Hortons.”
Both Cil and Fulton stressed Monday that Tim Hortons will now be focused on getting back to the basics it is known for – coffee, baked goods and breakfast items.
That means continuing the rollout of its new fresh brewer technology, which is supposed to improve the consistency of Tim Hortons coffee. The technology is in place at more than 2,000 restaurants, and it will be installed in remaining locations by mid-year.
That also means a refreshed marketing campaign that is focused on highlighting the company’s leadership in coffee. Tim Hortons will also introduce skim milk and non-dairy alternatives like almond milk to store locations in the spring.
When it comes to breakfast, Tim Hortons is working “to enhance the taste, texture and overall quality of our bacon”, Cil said, as well as significantly improving the bread carriers for breakfast sandwiches.
Tim Hortons will also invest in modernizing its drive-thru operations, which has outpaced the in-store growth and now accounts for more than half of the brand’s total sales. The company will replace its paper-based menu boards – which Cil said cost millions of dollars each year to print and update – and replace them with digital boards, which will also free up employees who have to switch the boards several times a day.
‘They got distracted’
“These adjustments may seem basic, but that’s the point – being the absolute best at the basics that we’re already famous for,” Cil said.
Tim Hortons’ loyalty program – which has more than 7.5 million Canadians signed up – also weighed on the company’s result, dragging down comparable sales by three per cent as many members cashed in on free coffee and baked goods. The company said it will transition the program from rewarding number of visits to rewarding purchases, as well as drive digital registration.
The sluggish performance has also prompted RBI executives to host a series of town hall meetings with franchise owners across the country. Cil and the executive team travelled to Vancouver, Calgary, Toronto, London, Ottawa, Montreal and Halifax to discuss the company’s strategic plans for the brand.
Tim Hortons, in recent years, has had a fraught relationship with its franchise owners. But Fulton said the town halls have been transparent and productive. There are plans to host more sessions in the next eight weeks.
“They wanted to understand how we’re going to drive sales and they certainly applauded getting back to basics and doing the things we’re going to do to simplify their restaurant operations,” Fulton said of the meetings with franchisee owners.
Mark Satov, president and founder of Satov Consultants, said that while Tim Hortons has the room to fix its ongoing problems, the new “refocus” is necessary.
“They got distracted,” Satov said.
“They deserve the punishment they are getting because they messed with the franchisees and focused on crap like cereal and on lunch when (their competitor) McDonald’s is focusing on breakfast and doing it well.”
Sales at Tim Hortons have been a weak spot amid otherwise positive results for RBI in the last year. RBI declared a dividend of 52 cents per common share as the company reported revenue of US$1.48 billion, up from $1.39 billion last year.
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