Tim Hortons betting back-to-basics strategy doesn’t leave egg on its face as economy reopens

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One of Tim Hortons’ top executives was keen to talk about eggs after the chain announced a US$1.2-billion dent in annual sales during the pandemic.

Eggs, said Duncan Fulton, a Tim Hortons spokesman and chief corporate officer at its parent company, Restaurant Brands International Inc., are firmly in the category of things they can control. That focus on “controlling what is within your control” has become something of a corporate mantra lately.

The virus, economic shutdowns, and the mass disappearance of morning routines, commutes and coffee breaks are all outside the company’s control. But eggs are within, as are the beans used for the new dark roast coffee blend and the machines that brew it.

“The egg is the foundation of a breakfast sandwich,” Fulton said in an interview, describing the chain’s recent, tectonic shift from a “multi-ingredient egg omelette” for its breakfast sandwiches to an egg that is cracked and cooked fresh on site. The new eggs, he said, are the most revolutionary thing to happen to Tim Hortons’ breakfast menu “in the history of the brand.”

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The fresh-cracked eggs, like the new dark roast blend and brewing machines, are all part of the company’s back-to-basics strategy, which was launched before the pandemic to turn around the chain’s flagging fortunes.

But its fortunes are worse now, as detailed in its annual report released Thursday, and Fulton sees the plan as more important than ever.

Tim Hortons is expecting that billions of consumer dollars currently being spent on cooking at home will come hurtling back to the restaurant sector when the economy reopens, and it wants to be ready to catch more than its pre-pandemic share of that spending.

“The question is, who’s going to be poised to be there as people start re-establishing routines?” Fulton said.

On Thursday, Tim Hortons reported system-wide sales of roughly US$5.5 billion globally in 2020, down about 18 per cent from US$6.7 billion in 2019. But the chain has been gradually clawing back sales for months after taking a major hit at the start of the pandemic.

Same-store sales — a key way of measuring performance in retail — dropped to negative 40 per cent in March 2020, and slowly improved in the months following as the chain ramped up its delivery and drive-thru businesses.

RBI said Tim Hortons’ same store sales improved to negative 11 per cent during its fourth quarter, ended Dec. 31, and locations with drive-thrus sometimes achieved parity.

“Obviously, we’re not doing cartwheels on that, but we are encouraged by the performance and the improvement,” RBI chief executive Jose Cil told investors on a conference call Thursday.

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But as stricter lockdown measures came back into force in much of Canada, Cil said same-store sales at Tim Hortons “softened” in January.

“We’ve seen a clear distinction between the nature and impact of these lockdowns in Canada versus the U.S.,” he said.

In the United States, where pandemic restrictions have generally been looser, fast-food sales appeared to have fared better. In its latest quarterly report last fall, Dunkin’ Donuts posted same-store sales growth of 0.9 per cent in the U.S.

We’ve seen a clear distinction between the nature and impact of these lockdowns in Canada versus the U.S.

RBI chief executive Jose Cil

In a research note on Thursday, Citibank analyst Sergio Matsumoto noted Tim Hortons lagged McDonald’s, which posted a 7.7-per-cent same-store sales decline in 2020, roughly half of Tim Hortons’ decline.

U.S.-based Burger King and Popeyes Louisiana Chicken, both owned by RBI, also posted relatively stronger results than Tim Hortons.

Burger King’s sales dropped 11.1 per cent in 2020 from the previous year, while sales at Popeyes were up 17.7 per cent, mostly on the strength of its wildly popular chicken sandwich.

Still, RBI’s adjusted earnings per share of 53 cents was 19 per cent below expectations, according to Citibank. Matsumoto said Tim Hortons back-to-basics strategy will be a key factor in determining whether the chain returns to positive sales growth.

The company announced the strategy in January 2020 after months of sagging sales. A previous flurry of increasingly peculiar menu experiments, including an ill-fated line of Beyond Meat sandwiches, had not stopped the slide.

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Franchisees complained that the new items confused customers, complicated operations in their tiny kitchens and slowed down average drive-thru times — an important bellwether in the business.

At the start of 2020, Tim Hortons vowed to stop its erratic pursuit of market share at lunch and dinner time, and refocus on its core: coffee, breakfast and baked goods.

“We’re pretty optimistic,” Fulton said. “Point number one for optimism is, everything that we were talking about a year ago on the back-to-basic strategy and investing in product quality, you’re seeing roll out now.”

So far, he said, the fresh-cracked eggs are the strategy’s crowning achievement, even though it was a massive organizational shift for the 4,000 stores in Canada, most of which operate under tight timelines in small, modestly appointed kitchens.

The chain rolled out new machines that can cook 12 eggs at a time, with the restaurants now cumulatively cracking 700,000 or so eggs a day.

Ontario Premier Doug Ford is apparently a big fan, complimenting the new egg sandwich as “the best thing you guys ever did” during a news conference earlier this week about the province’s COVID-19 response.

“I can’t think of a single bigger platform improvement in the history of the brand then the move to fresh cracked eggs in the morning,” Fulton said. “We can’t control a global pandemic. We can’t control government orders to lock down at home, but we know what’s going to drive this business consistently for the long term.”

Financial Post