Can A New Tim Hortons CEO Resolve RBI’s Challenges ?
Restaurant Brands International (NYSE: QSR) is facing several challenges from its Tim Hortons’ franchisees. While the franchisees have been discontented for a while (Read Here’s Why Restaurant Brands International Needs To Focus On Tim Hortons Franchise Partners), they are now seeking a class action law suit against the company for misappropriation of money from a national advertising fund. The suit claims $500 million in damages and franchisees allege that the company failed to respond to questions about use of advertising funds collected from them. While RBI has rejected these allegations, Tim Hortons President Elias Dias Sese stepped down from his position soon after these allegations were made and the company’s international CEO Daniel Schwartz is taking over his responsibilities. Dias will now take charge of RBI’s international expansion strategy.
Tim Hortons is an important segment for RBI and discontent among franchisees can impact the growth and profitability of this segment. A better relationship with franchisees is critical for RBI and a change in leadership can lead to a fresh perspective and help the company resolve these issues amicably. Daniel Schwartz, who will now be in charge of Tim Hortons, has already been meeting store owners to discuss their concerns and this line of communication should help RBI. The company had a disappointing Q1 2017 and it needs its franchisees to focus on product innovation and the roll out of its digital ordering platform. At this juncture lack of cooperation from franchisees is likely to impact the profitability of the company, especially when the industry is facing headwinds and competition is intensifying.
According to our estimates, Tim Hortons accounts for more than 60% of the company’s valuation and its franchisees’ restaurants contribute 30% of the company’s valuation.
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Restaurant Brands International follows a 100% franchised model for its Burger King segment and is likely to do the same with Tim Hortons. The company’s expansion strategy depends on its relationship with franchisees as it looks to grow Tim Hortons beyond Canada. We believe a change of guard at the leadership level should help the company in strengthening these relationships as the new head of Tim Hortons is an experienced leader who is already working towards resolving the issues.
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