Sales at Tim Hortons have plummeted and the numbers are brutal — here are five ways to fix it

Tim Hortons is flagging.

The Canadian commercial icon is doing so poorly that some industry observers regard it as an albatross for its owner, Restaurant Brands International Inc. RBI also owns the Burger King and Popeyes brands.

It can’t be that bad, you might be thinking. And you’d be right.

Tim Hortons is still one of the biggest fast-food purveyors in Canada.

And in RBI, Tims is backed by the world’s fifth-largest fast-food company, with more than 27,000 restaurants worldwide.

But for the past six years, since its acquisition by RBI, Tims has been a small cog in the RBI conglomerate. By 2019, Tims accounted for less than 20 per cent of RBI’s total sales.

RBI has not ignored Tim Hortons. But RBI’s top priorities are its turnaround of its much larger Burger King brand and making its chicken-based Popeyes chain a serious rival to Kentucky Fried Chicken (KFC).

When RBI reported its second-quarter results last month, the numbers for Tim Hortons were brutal.

Tims’ same-store sales (revenues at stores open for one year or longer) plummeted by 29.3 per cent. Burger King was down only 13.4 per cent on that crucial measure. And Popeyes same-store sales actually jumped by almost 25 per cent — during a pandemic, no less.

Fact is, in each of the years RBI has owned Tim Hortons, the coffee-and-doughnut chain has suffered declining sales growth, from a heady 9.3 per cent in 2015 to last year’s negative three per cent.

Burger King and Popeyes, by comparison, grew their 2019 sales by 9.3 per cent and 18.5 per cent, respectively.

Tims’ underperformance today is a legacy of the poisonous relations between RBI and Tims franchisees early in the RBI era. That was soon followed by consumer backlash sparked by franchisees in their high-profile attack on minimum-wage hikes.

A Tims that calls itself “an important part of Canada’s culture” now seemed to many to be just a run-of-the-mill insensitive employer.

Tim Hortons is still RBI’s largest source of profit. In 2019, RBI derived 47 per cent of its total adjusted EBITDA from Tims, 43 per cent from Burger King and eight per cent from Popeyes.

But Tim Hortons is shrinking. Last year’s three per cent drop in revenues, to $6.7 billion, was the first sales decline in Tims’ 56-year history.

Burger King did much better, with a 2019 sales increase of six per cent, to almost $23 billion. Popeyes did better still, with sales up almost 19 per cent, to $4.4 billion.

But Burger King is a turnaround project. RBI is the first of many Burger King owners since that chain was founded in 1954 to figure out how to turn Burger King into a dynamic enterprise.

And RBI has wisely treated Popeyes, acquired just three years ago, as a start-up, though it was founded in 1972. RBI has used must-have new menu items and savvy marketing to quickly lift Popeyes from also-ran status to a credible threat to KFC.

RBI has invested heavily in Tims, as well. A costly RBI renovation campaign over the past two years has given Tims stores a more neighbourly feel, with banquettes and lounges that strengthen Tims’ image as a community gathering place.

Having proved with Burger King and Popeyes that it can inject new life into mature fast-food brands, RBI has the ability to execute on measures that would rejuvenate Tims.

Trim the menu. A Tims strategy for boosting sales has been to load the menu with more items, upward of 100 at present. But that overtaxes staff, which keeps customers waiting.

RBI would do well to count the number of impatient would-be customers who leave Tims empty-handed.

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Tims would benefit from a disciplined menu of just 20 or so must-have items. Time-consuming sandwich prep would be scrapped, replaced with three or four prepared sandwiches, in which Starbucks Corp. does a lucrative business.

Know your customers. Tims has arguably botched its Roll Up the Rim to Win customer-rewards program, one of the oldest and most popular in Canada, with changes it made this year. Tims has lost some traditional, online-averse customers by shifting the contest entirely online and cutting the prize pool by more than half, to roughly $30 million in retail value.

Unlike McDonald’s Corp., which cossets seniors, Tims does not offer special hours and products for seniors, a large and growing sector of the population.

And Tims has ignored customers who have repeatedly asked for express lanes for coffee-only purchasers and have complained about coffee cups that still leak.

Tims’ top management doesn’t seem to get around much, studying customer preferences first-hand in their own and competing stores.

Revamped new-product development. Blockbuster new products like Tims Ice Capp don’t come easily to Tim Hortons, which suffers a high rate of new-product flops. They include faux meat items (withdrawn), gourmet Dream doughnuts (most have been cancelled) and Oreo ice capps (time-consuming to prepare and a drag on sales).

Better to focus on coming up with a breakfast sandwich that tastes like it’s made with real eggs and cheese, as McDonald’s Egg McMuffins do.

RBI has cited a pandemic-caused drop in Tims’ all-important breakfast trade as a culprit in Tims’ underperformance. And that is a factor. But so is an unappealing breakfast menu.

RBI knows how to do new-product development. The chicken sandwich RBI launched at Popeyes last year, a stacked affair resembling a Big Mac, has a put a rocket under Popeyes’ sales.

Too many stores. In overstored downtown Toronto, a plethora of Tims locations are fighting for the same limited amount of business. The tried-and-true success formula in retailing is fewer stores, each selling more goods per square foot. Appealing seasonal specials help boost sales and get first-time customers into the store. An example is the $2 sundae McDonald’s offers, for which Dairy Queen charges about $5.

Too many countries. RBI might want to rethink its “solution” to slowing Tim sales in opening a scattering of stores in China, Singapore, the U.K. and elsewhere. Odds of success there are low. Why not focus instead on fixing Canada? Then figure out the vast U.S. market, where Tims has always underperformed, even in the pre-RBI era.

Another option for RBI, of course, is to spin off Tim Hortons altogether.

Before it was absorbed by RBI in 2014, Tim Hortons was an independent company that had to get by on its own wits. And it did so brilliantly, its stock outperforming that of Facebook Inc., Apple Inc., Google Inc. and the stock market’s other highest flyers in the decade before its takeover by RBI.

That might be the best option, if Timmies is to remain among Canada’s favourite restaurants.