Profit slips for Tim Hortons restaurant owners amid high commodity costs, inflation

By Brett Bundale, The Canadian Press on February 14, 2023.

Tim Hortons’ parent company released new financial figures on Tuesday for the coffee and doughnut chain’s locations in Canada that appear to illuminate concerns raised by some franchisees about restaurant-level profitability.

Restaurant Brands International Inc. said the average Tim Hortons restaurant in Canada made $220,000 last year in earnings before interest, taxes, depreciation and amortization (EBITDA), with the average franchisee owning four locations.

The last time the company revealed restaurant-level figures was for 2018, when the average location earned $320,000 and the average franchisee owned 3.5 locations.

The numbers suggest Tim Hortons franchisees earned on average $880,000 before interest, taxes, depreciation and amortization in 2022, a drop of more than 20 per cent from $1.1 million four years ago.

The slipping profit has become a mounting issue among some franchisees.

Restaurant Brands executive chairman Patrick Doyle, who was appointed to the role in November to “accelerate growth for franchisees and shareholders,” said the company will now disclose restaurant-level EBITDA annually to “elevate our accountability to our franchisees.”

Restaurant profits are down due to recovering traffic post-pandemic, all-time high commodity cost increases and soaring inflation, he said.

The company has a plan to improve profitability but franchisees also need to “do their own part,” said Doyle, who is credited with leading a transformation at Domino’s Pizza in his former role as CEO of the chain between 2010 and 2018.

“You’ll see us do our part (with) menu innovation, marketing, restaurant design, technology and digital,” he said during an earnings call. “We are all in with franchisees who share our ambitions for the growth we know we’re capable of delivering.”

But Doyle said that “along the way, it’s likely that a few people will leave the system and transition their restaurants to franchisees who share our long-term mindset for success and growth.”

Restaurant Brands also announced on Tuesday that chief operating officer Joshua Kobza will become chief executive effective March 1, replacing José Cil who will remain with the company for a year as an adviser and assist in the transition.

Improving sales and traffic at restaurants as inflation eases will help improve franchisee profits, Kobza said during the earnings call.

“If we can put together the combination of driving sales and traffic back into the restaurant, plus have some moderation in some of those (cost of goods sold), I think that’s the formula … to drive some meaningful improvement in franchise profitability this year.”

The company, which also includes Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, reported its fourth-quarter net income rose to US$336 million compared with a profit of US$262 million a year earlier.

The company, which keeps its books in U.S. dollars, said its profit for the three months ended Dec. 31 amounted to 74 cents per diluted share compared with a profit of 57 cents per diluted share in the last three months of 2021.

Revenue totalled US$1.69 billion, up from US$1.55 billion a year earlier.

On an adjusted basis, RBI said it earned 72 cents per diluted share in its latest quarter, down from an adjusted profit of 74 cents per diluted share a year earlier.

Analysts on average had expected a profit of 73 cents per share and US$1.67 billion in revenue, according to financial markets data firm Refinitiv.

This report by The Canadian Press was first published Feb. 14, 2023.

Companies in this story: (TSX:QSR)

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