Empty downtown cores still "biggest issue" for Tim Hortons recovery

The chief executive officer of Tim Hortons' parent company says the biggest issue facing the coffee chain continues to be its performance in downtown core locations, which lag the rest of the country when it comes to the pandemic recovery.

Restaurant Brands International (QSR)(QSR.TO) CEO Jose Cil told participants at the virtual Scotiabank Back to School conference on Tuesday that the coffee chain has made significant progress in its pandemic recovery, but that city-centre locations still have a ways to go to reach pre-pandemic levels.

"For us at Tim's, the biggest issue and the biggest drag continues to be urbanity – so the super-urban locations, in downtown corridors in Toronto and elsewhere," Cil said, adding that sales in those areas are down in the mid-to-high 20 per cent range compared to 2019. In rural locations, sales are down by the low-single digits.

"Certainly the mobility in workplace areas still continues to be the biggest drag on the business, but the encouraging news... is that when you look outside of the super-urban locations, the business is getting back to 2019, pre-pandemic levels."

City centres across the country have seen declines in traffic through the pandemic, as many companies allow employees to work from home instead of the office. While many businesses have allowed their workers to return to the office, some have delayed plans as a result of the fourth wave.

But other regions are showing strength for Tim Hortons. Cil says the recovery has been bolstered by the company's back-to-basics strategy, one that was launched in 2020 and focused on improving the quality of its coffee, doughnuts and breakfast items.

The back-to-basics plan came together after sales were flatlining in 2019 and the company decided to conduct "a deep dive" with consumers to understand what was and wasn't working at the coffee chain. Cil says the research found that when it came to deciding where to go get coffee in the mornings, Tim Hortons was at the top of the list for Canadian consumers. But when it came to breakfast items, the company fell to second or third position.

"For us, that was unacceptable and it helped us start focusing and honing in on what we needed to do in the business moving forward," Cil said.

The company also set aside $80 million for advertising for Tim Hortons, the bulk of which Cil says has yet to be spent.

Throughout the pandemic, sales growth at Tim Hortons lagged behind RBI's other two brands, Burger King and Popeyes. But the results changed in the second quarter reported in July, with system-wide sales growth reaching 33.4 per cent, up from a drop of 33 per cent in 2020.

'Massive potential' for Tims in China

In addition to the back-to-basics plan, Tim Hortons has sought to expand its presence internationally, particularly in China.

In August, TH International Ltd. – a joint venture between RBI and private equity firm Cartesian Capital Group that operates the Tim Hortons restaurants in China – agreed to go public with a special purpose acquisition company (SPAC). The deal has yet to close.

Cil says that when the company first announced the joint-venture partnership in 2018, it planned on opening 1,500 Tim Hortons restaurants in China over a decade. With the SPAC deal, the company could open more than 2,750 locations in five years.

Cil adds that the Chinese market has "massive potential" from a consumer standpoint. For example, he says the per capita coffee consumption in Canada is 700 cups per person per year. In China, it's just 20 cups per person.

"Maybe it doesn't get to 700 (cups per person), but there's a potential for growth, and we are well-positioned there," he said.

With files from The Canadian Press

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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