04/24/2018 10:31 EDT | Updated 04/25/2018 12:16 EDT

Tim Hortons Owner RBI Announces Overhaul Plan As Sales Continue Sliding

Comparable sales at Tim Hortons locations have been flat or falling for a year and a half at this point.

Daniel Schwartz, CEO of Restaurant Brands International, in an interview with The Canadian Press in Oakville, Ont., June 5, 2017. The company has announced a plan to improve customer experience and improve sales at its Tim Hortons operations.

OAKVILLE, Ont. — Restaurant Brands International Inc. announced a plan Tuesday for improving the customer experience and sales at its Tim Hortons operations, which were the weak spots during an otherwise strong first quarter for the company.

Comparable sales at Tim Hortons — meaning at locations that have been open for more than a year — fell by 0.3 per cent in the first quarter. It's the sixth quarter in a row that the number has been flat or declining.

The brand suffered from intense competition, problems with its annual 'Roll Up the Rim' promotion and negative media coverage generated by a group of dissident franchise owners, RBI chief executive Daniel Schwartz told analysts.

Earlier on HuffPost Canada:

Schwartz announced the new "Winning Together'' plan, which he said would help improve profitability for the company's restaurant owners. He said the plan centres on improving the restaurant experience, product excellence and brand communications.

The initiative also includes more customer use of a Tim Hortons app, a new marketing campaign extolling the virtue of connecting with neighbours over a coffee and a $700 million initiative to renovate restaurants.

The strategy is intended to counter negative attention brought to the brand by a group of dissident franchisees, dubbed the Great White North Franchisee Association, which claims to represent more than half of Canadian franchisees, and has vocally criticized the parent company for cutbacks they say are hurting their business.

"Needless to say, we're not pleased with the narrative in the media,'' he told analysts in a conference call.

"The environment is competitive and the fact that there's a tonne of negative media created by this group of franchisees is also hurting the guest perception.''

Hoping for 'buy-in' to the new plan

Schwartz stressed that an advisory board elected by franchise owners has expressed support for RBI's strategy. He said in an interview that he has not met with the dissident franchisees, but that he hopes all franchisees "will buy into'' the new plan. GWNFA declined comment Tuesday.

"We've made good progress on building a strong and a positive agenda with the restaurant owners,'' he said. "The relationships with the owners weren't where they needed to be but we have been making improvements.''

In particular, he said "hundreds'' of franchise owners had signed up to refurbish the interior and exterior of their restaurants with the "welcome image'' that's part of RBI's plan for improving relationships with customers.

"We really want to work with our owners to accelerate the pace of renovations and the quality of the restaurant image in Canada,'' Schwartz said.

"We're really encouraged by the initial results that we've had, both quantitative and qualitative, in testing with our guests.''

Daniel Becerril / Reuters
Tim Hortons' executives react during the opening of a Tim Hortons coffee shop in San Pedro Garza Garcia, in Monterrey, Mexico, Oct. 27, 2017.

RBI's previously announced $700-million renovation plan to spruce up its restaurants is one of the factors in its feud with GWNFA. The franchisees say that the company has effectively changed the rent and royalty structure by saddling franchisees with increasing costs and requiring them to renovate stores at their own expense.

The dissident franchisee group was quick to point out it believed the plan was ill-conceived and would cost individual restaurant owners about $450,000.

During the conference call, however, Schwartz said "we have managed to increase average franchise profitability in Canada by a significant amount since we first acquired Tim Hortons.''

Schwartz also acknowledged problems during the quarter with its popular annual Roll up the Rim contest, referring to issues with a long-term supplier but offering no other details.

In February, the chain confirmed a "small batch'' of misprinted extra large-size cups were distributed in Atlantic Canada and Alberta for the annual contest, but added no major contest prizing was affected because third-party consultants audit the production process and the seeding of prizes.

"Needless to say, we're not pleased with the narrative in the media."RBI CEO Daniel Schwartz

The company, which keeps its books in U.S. dollars, earned US$147.8 million or 59 cents per diluted share for the quarter ended March 31. That compared with a profit of $50.2 million or 21 cents per diluted share a year ago. Revenue totalled $1.25 billion, up from $1 billion in the same quarter last year.

On an adjusted basis, Restaurant Brands, which also owns Burger King and Popeyes, says it earned 66 cents per share for the quarter, up from 36 cents per share a year ago. Analysts on average had expected a profit of 56 cents per share, according to Thomson Reuters.

Shares in the company shot up about four per cent or $2.50 to $71.56 in Tuesday trading on the Toronto Stock Exchange after reaching its lowest point earlier this month since September 2017.

— The Canadian Press with a file from HuffPost Canada

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