Here’s Why Restaurant Brands International Needs To Focus On Tim Hortons Franchise Partners
Tim Hortons is a crucial segment for Restaurant Brands International (NYSE: QSR). The company has nearly 5,000 franchised restaurants under this brand and according to our estimates, this division accounts for nearly 30% of the company’s valuation. These franchised restaurants contribute nearly 20% of the total revenues of RBI.
While most of the Tim Hortons restaurants are currently in Canada, the company is looking to expand this brand into other regions and this would be by adding more franchise partners. A strong relationship with franchisees is crucial for the long term growth of the brand.
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However, it appears that the company is facing a rough time with its franchisees primarily due to its aggressive cost cutting measures. In March this year, Tim Hortons’ franchisees formed the “Great White North Franchisee Association” to counteract the “harmful actions” of the owner. After Tim Hortons was acquired by RBI in 2014, franchisees are unhappy with several measures taken by the new owners to improve profitability. Complaints such as higher costs to franchisees due to change in suppliers, RBI favoring larger franchisees, cheap quality of coffee cups, and other disposables have surfaced from the franchisees.
Impacting Customer Satisfaction
Unhappy franchisees are likely to impact customer satisfaction at Tim Hortons. The first casualty of this souring relationship between RBI and Tim Hortons franchisees has been the delay of the launch of its mobile order and pay system. The company was looking to launch this app in March of this year, however legal action threatened by the franchisee association led to a delay. Franchisees complained that they were not sufficiently trained for this new platform and were not ready for the launch. RBI’s competitors such as Starbucks and Dunkin’ Brands already have a mobile order and pay system in place and McDonald’s is likely to launch its platform soon. The company is already behind its peers in this technology advancement and delays can lead to a loss of competitive edge.
RBI did not have a good Q1 2017 with flat comparable sales growth for both Tim Hortons and Burger King. The company is banking on two key initiatives to drive sales for Tim Hortons. These include the launch of its mobile order and pay platform and espresso based beverages. (Read A Closer Look At RBI’s Growth Strategy For Its Tim Hortons Segment). However, strong relationships with franchisees are essential for the company to roll out new initiatives to drive growth. For now it appears that there is discontent among franchisees primarily on the cost cutting measures and other initiatives of RBI which are impacting franchisee profitability. An amicable solution and strong relations with franchise partners will be critical for the company to drive growth in the long term.
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