When Restaurant Brands International (TSX: QSR-T) released its 2017 earnings results earlier today, Tim Hortons same-store sales remained flat despite positive growth in other parts of the business.
Analysts may be tempted to see the recent negative tone around the Tim Hortons brand in Canada and its impact on Tim Hortons’ sales as a blip on the screen – that, as the negative publicity subsides, the coffee and donut franchise will see a quick return to business as usual.
But does this analysis fail to address a more fundamental challenge facing RBI and its shareholders?
The reaction by some Tim Hortons’ franchisees to Ontario’s minimum wage increase, and RBI’s own response, sheds light on an important issue that warrants investors’ attention: that RBI is either unable or unwilling to protect a key asset – Tim Hortons’ frontline workers – and by extension to protect the Tim Hortons brand itself.
In its 2016 Annual Report, RBI notes that its success depends on the value of its brand. That’s true: for many, Tim Hortons represents Canadian values. It is a place everyone goes. Workers of all kinds – police, electricians, public servants, salespeople – head to Tims on their break; families stop in after skating; seniors meet there for a coffee with friends.
If this was the brand that RBI wanted to protect, how was it possible that some of its franchisees were able to mismanage so extraordinarily the increase to Ontario’s minimum wage?
Did RBI not work with its individual franchise owners to determine how they could best prepare for and adjust to the wage increase? Did it not foresee the potential fallout for the Tim Hortons brand if it was associated with short-sighted cost-cutting tactics at the expense of its workers?
Responding to initial media requests, RBI repeatedly stated that it is not responsible for employee matters of privately-owned franchisees. Later, RBI issued a statement claiming that the actions and comments of a few ‘rogue’ restaurant owners do not reflect the values of its brand.
To its credit, RBI noted that Tim Hortons’ workers should not be “treated as just an ‘expense’” and that they should be recognized for their contributions “by providing them with a fair and rewarding work experience.”
Great. But if RBI truly believes that workers are crucial to its business success, then shouldn’t the company amend its franchising agreements to require basic labour policies and practices, and negotiate financial measures that would ensure its franchise owners are able to implement them?
Just as RBI provides strict specifications for cleaning and maintenance procedures, standards related to workplace policies such as paid breaks and benefits, and reliable shift scheduling would help to ensure higher levels of customer service, lower turnover rates and higher productivity. By requiring these kinds of basic workplace practices, the parent company could feel assured that rather than spending time on hiring and retraining, its franchise owners could focus on promoting the company’s latest meal combo or its newest mobile app feature.
The rapid changes that Tim Hortons has undergone since RBI purchased the brand in 2014, and the manner in which those changes were implemented, have already caused problems between RBI and some of its franchisees, to the point where some have organized an association to address RBI’s management of the franchise relationship.
This speaks to a broader need for RBI to address its strained relationship with its franchisees and look for reforms that would benefit Tim Hortons’ franchisees and RBI and put the protection of front-line workers and by extension, the Tim Hortons brand, front and centre.
Failure to take meaningful steps now may point to a much more serious and fundamental problem – that the culture of RBI is at odds with the Tim Hortons brand and the values of its core customers who believe minimum wage workers deserve a paid coffee break, dignity and decent work. If RBI fails to give force to the values of a “fair and rewarding work experience” and allows Tim Hortons’ employees to be treated like a cost to be cut, its Canadian customers may just pay their last respects to the once emblematic brand and decide to get their coffee elsewhere.
Investors that care about building a viable and sustainable enterprise should be paying attention to this bigger picture and looking at what steps RBI is taking now to address the key challenges it faces with its Tim Hortons brand in Canada.