Skip to content

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

Tim Hortons' parent company released new details on the financial performance of its Canadian coffee shops on Tuesday that appear to shed light on concerns raised by some franchisees about restaurant-level profitability.
Tim Hortons signage is pictured in Ottawa on Wednesday Sept. 7, 2022. THE CANADIAN PRESS/Sean Kilpatrick

Tim Hortons' parent company released new details on the financial performance of its Canadian coffee shops on Tuesday that appear to shed light on concerns raised by some franchisees about restaurant-level profitability.

Restaurant Brands International Inc. said average Tim Hortons restaurants 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 franchisees owned 3.5 locations on average.

The numbers suggest the average Tim Hortons franchisee earned $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 for some franchisees and Tim Hortons' parent company. 

Restaurant Brands executive chairman Patrick Doyle, who was appointed to the role in November to "accelerate growth for franchisees and shareholders," 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."

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."

To improve accountability to franchisees, he said the company will now disclose restaurant-level EBITDA annually.

In the most current quarter, however, Doyle said restaurant profits are down due to recovering traffic post-pandemic, all-time high commodity cost increases and soaring inflation.

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."

Restaurant Brands, which is also the parent company of 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.

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

The Globe and Mail reported last week that a group that represents some Tim Hortons restaurant owners in Canada has said its members are increasingly frustrated with declining profitability. 

The Alliance of Canadian Franchisees told the newspaper that the issue of profitability has reached a crisis state for many.

The association directed interview requests to its lawyer, who did not immediately respond to a request for comment. 

Duncan Fulton, chief corporate officer of Restaurant Brands, said the company works with an elected franchisee advisory board and doesn't recognize other groups.

"There's no doubt that our advisory board has voiced franchisee concerns about profitability," he said. "We understand that and we share their desire to grow their profitability."

Still, Fulton, who sits on the board of the industry association Restaurant's Canada, said the issues some Tim Hortons franchisees are experiencing reflect broader challenges across the industry. 

"The entire restaurant industry is facing unbelievably high cost increases, particularly in commodities," he said, adding that restaurant owners are facing "unprecedentedly high increases in the underlying costs of buying food and beverages."

Yet Tim Hortons franchisees have the advantage of benefitting from Restaurant Brands' purchasing power as Canada's largest restaurant chain, Fulton said. 

"Our restaurant owners buy food and beverages from us at prices that are on the whole lower than what other restaurant owners in Canada can get the same things for."

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

Companies in this story: (TSX:QSR)

Brett Bundale, The Canadian Press