Published On: Thu, Jan 11th, 2018

Expect to pay more for your Timmies, says analyst

At least one analyst believes Tim Hortons customers will ultimately pay more for their double-doubles after a backlash sparked by cuts to employee benefits by some franchise owners linked to the increase in Ontario’s minimum wage.

“We believe that [Tim Hortons’ parent Restaurant Brands International Inc.] will eventually allow some menu price increases and franchisees will make adjustments,” Peter Sklar, retailing analyst at BMO Capital Markets, said in a note to investors Thursday.

He said stock in Restaurant Brands International (RBI) has come under pressure due to negative media reports related to cost control steps by franchisees, including cutting employee hours, eliminating paid breaks and reducing the subsidy of employee benefits.

“These measures have been perceived negatively by the press, with the media painting the franchisees as villains, and the Ontario government referring to certain franchisees as ‘bullies,’” Sklar wrote in his note.

There has also been a social media movement to boycott some Tim Hortons franchises.

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“While the direct impact on profitability is at the franchisee level and should not impact RBI’s corporate results (as royalties are based on revenue, not profits), there are still two potential negatives related to the minimum wage increase and resultant public backlash,” he wrote.

“First, as franchisees have reduced employee hours, there may be longer lines in (Tim Hortons) stores, resulting in weaker financial results. Second, if Canadians are sympathetic to the TH employees and the consumer boycott is meaningful and sustained, it could also impact sales.”

On Jan. 1 the minimum wage in Ontario increased to $ 14 per hour from $ 11.60, a 21-per-cent jump, which along with other labour law changes, will cost the average franchise owner more than $ 200,000 per year, the Great White North Franchisee Association estimates. The association was formed in 2017 to combat what it calls mismanagement by Tim Hortons corporate parents.

RBI, which is majority owned by Brazilian investment company 3G Capital, controls the Tim Hortons menu board and pricing, and some members of the association, a group RBI calls “rogue” and unsanctioned, have reportedly resorted to cost control measures targetting employees.

A spokesperson for the association said it now represents 60 per cent of Tim Hortons franchise owners across the country and has had no indication that RBI will allow menu price increases. She said the association also wants RBI to lower prices for food and other materials it supplies to the outlets.

An analysis by Bloomberg Intelligence said RBI, focused on controlling franchise costs, is unlikely to allow any price increase until lawsuits filed by franchise owners against corporate owners relating to pricing and other issues are resolved.

A spokesperson for RBI, which also controls Burger King and Popeye’s Louisiana Kitchen, did not immediately respond to a request for comment.

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Expect to pay more for your Timmies, says analyst