By Sylvain Charlebois (AIMS Senior Fellow)
Destroying Canadian icons seems to be a trend these days. In 2017, it was Sears. While employees were losing their pensions because of poor management, lawyers and consultants were receiving millions. Now, as minimum wage policies are slowly shifting across the nation, and not just in Ontario, Alberta and B.C., Tim Horton’s, or perhaps Restaurant Brands International (RBI), is displaying what many would consider unwise resistance.
Several Canadian retail icons have crumbled, due to weak managerial strategies. This was the case with Eaton’s and most recently, Sears. Most closures, though, have historically been self-inflicted. With Tim Horton’s and RBI, the act seems almost deliberate, even tactical, and implicitly calculated. Most executives and members of the board at RBI have unquestionable business and financial acumen. RBI’s shares have almost doubled in value since its inception in 2014 when Burger King merged with Tim Horton’s and landed its Head Office in Oakville, where Tim Horton’s used to be.
But RBI’s share price is starting to weaken. After hitting a record high price of about $84 in October 2017, it is now down to approximately $77. It appears that markets may be starting to connect franchise-based challenges with the parent company, which also owns Burger King.
RBI is all about cost management, and has served several food outlets so far beyond reproach. But Burger King and Tim Horton’s are two very different franchising worlds. A typical Tim Horton’s franchise owner has about 3 stores on average. Most are regionally located, family-owned operations looking to support communities and create jobs for the next generation. With the Burger King division, on the other hand, RBI deals with franchise owners who typically own about 150 restaurants, sometimes even more. RBI’s role with Burger King is inherently different. Burger King franchise owners are massive companies, dealing with an outer-agent in RBI, and act more like an association of buyers. In addition, Burger King is no iconic brand but more of a me-too project which came out of the McDonald’s expansion years ago. Similar observations can be made about Popeye’s, another fast food chain recently purchased by RBI.
RBI is run by competent leadership who know a thing or two about how to operate franchises in the food industry. But its style, fueled by the ever increasing number-focused obsession of Brazilian group 3G Capital, does not offer the stewardship the iconic Canadian brand needs.
On the other hand, RBI’s aims may be deliberate. RBI’s intends to expand beyond Canada, and make Tim Horton’s a global brand, something Tim Horton’s has failed to do over the last few decades. So far, results in the U.K. are promising but more investments will be required. RBI is essentially using its established iconic status in Canada to support its international ambitions. In the process though, lies several victims, including franchise owners, and most important, low-wage employees being asked to pay for uniforms and limit paid breaks. When numbers matter too much, as it is the case for RBI, human capital is treated, heartlessly, as unimportant. And now, an increasing number of Canadians are noticing.
But there is more to this. Relocating RBI’s Head Office is a strong possibility. The company has never shied away from the idea, giving itself five years to do so, after its expansion in 2014. With the U.S.’s new tax reform, the fiscal climate is more attractive for a potential move south of the border. Burger King’s move north was considered a corporate tax inversion ploy in 2014. With a new tax regime in the U.S., we should not be shocked to see Tim Horton’s become a true American-owned brand. Canada will matter less and less, as the company expands internationally.
Nonetheless, the brand is suffering and will continue to suffer for a while, to the dismay of many Canadians. Many of us gather at Tim’s for regular chats, to celebrate birthdays — there have even been a few weddings at Tim Horton’s. None of this seem to matter to RBI. Regrettably, Tim Horton’s faith, the brand that is, could end up looking like the life of the legendary hockey player, Tim Horton, himself. They both started as Canadian, moved to the U.S. for a while before, well, we all know the rest of the melancholic story.
SYLVAIN CHARLEBOIS, Professor in Food Distribution and Policy, Dean of the Faculty of Management, Dalhousie University.