After facing criticism from some Tim Hortons restaurant owners, parent company Restaurant Brands International Inc. QSR-T executives say franchisee profitability is improving.
Earlier this year, the Toronto-based company reported that the average Tim Hortons location made $100,000 less in 2022 in earnings before interest, taxes, depreciation and amortization (EBITDA) than in 2018, the last time the company reported such numbers. Those profit declines have led to tensions with some franchisees.
Now, franchisees’ average profits are growing faster than the parent company’s adjusted EBITDA, which was up 10 per cent in the second quarter ended June 30, Restaurant Brands executive chairman Patrick Doyle said Tuesday. Mr. Doyle was referring to average franchisee profitability across the company’s restaurant chains, which also include Burger King, Popeyes and Firehouse Subs. He did not provide more specific numbers on franchisee profitability, which the company has committed to reporting at the end of each fiscal year.
“While we’re making very good progress on store-level profitability, I want to be clear that we aren’t where we need to be,” Mr. Doyle told analysts on a conference call to discuss the second-quarter results. “The progress is good, but greatness for each of the brands requires that we generate a great return for our franchisees.”
The company reported Tuesday that it has increased the “commodity prices passed on to franchisees.” Franchisees buy many of their supplies from the company, and food inflation as well as higher costs for other commodities that go into items, such as packaging, have led to Restaurant Brands charging more for those supplies. Restaurant owners have complained that this has squeezed their profits.
Meanwhile, Tim Hortons’ sales have been going up. Comparable sales, an important measure that tracks sales growth not tied to the opening of new locations, grew 11.4 per cent year-over-year – 12.5 per cent in Canada. The chain stood out among the company’s restaurants amid growing traffic in its home market. Order counts have been slightly negative in the U.S. for the other three chains, even as Restaurant Brands has seen sales growth from larger orders in the home market as well as growth in the international business.
Tim Hortons has benefited from people returning to the office at least part-time, which drives morning coffee and breakfast sales, even though overall commuter traffic remains below prepandemic levels. It has also been pushing more cold beverages, which now account for roughly 40 per cent of sales, and reported a 14.2-per-cent increase in food sales in the afternoon and evening in the second quarter.
“What you see in that p.m. daypart is often a higher ticket, which ultimately results in higher margin dollars for restaurant owners,” chief corporate officer Duncan Fulton said in an interview Tuesday.
At Burger King, which is in the midst of a US$400-million turnaround effort, comparable sales grew 10.2 per cent overall and 8.3 per cent in the U.S. in the second quarter. The chain’s Reclaim the Flame plan has set a goal to boost lagging sales growth in the U.S. by drawing in more customers and improving operations. The plan includes higher advertising spending, remodelling and relocating restaurants, and upgrades to technology and equipment. Chief executive officer Josh Kobza said there may be further investment in the chain in the future.
Comparable sales grew 6.3 per cent at Popeyes and 2.1 per cent at Firehouse Subs.
Restaurant Brands reported that its net income grew to US$351-million, or 77 US cents a share, in the second quarter, compared with US$346-million, or 76 US cents a share, in the same period last year.
The company’s revenue growth beat analyst estimates, rising 8.3 per cent to almost US$1.8-billion in the three months ended June 30.
Susan Krashinsky Robertson