Canadian Covid Outbreaks Problem Tim Horton’s Turnaround

A pedestrian walks past a Tim Hortons restaurant.

Ben Nelms | Bloomberg | Getty Images

Canada’s worsening wave of Covid-19 cases is putting pressure on Tim Hortons, the country’s iconic coffee chain, and this could hide some of the advances its reversal is making.

Parent company Restaurant Brands International is a popular stock among Wall Street analysts. Barclays Capital, for example, has selected it as one of its top addresses for medium to long-term investors. Burger King and Popeyes are rapidly recovering in the US, and a successful turnaround from Tim Hortons would clear the portfolio’s lag.

So far this year, Restaurant Brand’s shares are up 12%, giving the company a market value of $ 31.8 billion. The stock rose 1% in morning trading after first quarter earnings and sales beat estimates.

Tim Hortons was the only chain in Restaurant Brands’ portfolio to see a drop in sales in the same store, despite comparing it to a double-digit drop from last year. Globally, sales in the same store decreased 2.3% and Canadian sales in the same store decreased 3.3%. Declining system-wide revenue from Tim Hortons weighed on organic revenue at Restaurant Brands, which was negative year over year. Typically, Tim Hortons contributes around 60% to total restaurant brands sales.

Jose Cil, CEO of Restaurant Brands, said there was “no doubt” that the biggest factor influencing the coffee chain’s performance was the constraints on mobility in Canada.

“The Americans experience a very different way out of Covid than the Canadians,” said Cil.

Both Burger King and Popeyes saw positive US sales growth in the same store.

This month, Canada’s new Covid-19 infection rate surpassed that of the United States for the first time since the pandemic began. Ontario, which is home to nearly 40% of the country’s population and nearly half of Tim Hortons’ locations, mandate is extended until May 20.

Canada’s vaccine adoption was also slower than the U.S., where 30% of the population was fully vaccinated, according to the Centers for Disease Control and Prevention. Ontario has just opened first-dose availability to those 40 years of age or older, and plans to expedite eligibility for all adults by the end of May.

But there are some bright spots for Tim Hortons. In areas where Canadians can have more normal routines, consumers are returning to coffee shops. Suburban restaurant sales have risen flat to slightly compared to the same period last year, executives said. In addition, the company has around 1,000 more transit locations in Canada than its competition, which enables it to attract consumers looking for convenient ways to collect their coffee.

The chain was already in turnaround mode before the pandemic and its continued investments in the business are starting to pay off. The new dark roast coffee combined with improved coffee-making equipment and water filtration resulted in the highest increase in coffee transaction percentage in three years. Breakfast rolls with freshly cracked eggs contributed to sales growth in the breakfast category in February.

In March, Tim Hortons announced a $ 80 million Canadian investment ($ 65 million) in advertising, new menu items and its loyalty program. Franchisees invest an additional 0.5% of sales in advertising contributions.

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