The owner of Canada’s most recognizable fast-food chain managed to grow its profit in its most recent quarter, even as a pullback in consumer spending that’s long been roiling retailers cropped up in the quick-serve market.
The chief executive of Restaurant Brands International Inc. (RBI) said his company’s brands — Tim Hortons, Burger King, Popeye’s Louisiana Kitchen and Firehouse Subs — have been “navigating a softer consumer environment.”
“There’s no denying that the environment has been tough,” Joshua Kobza told analysts on a Thursday earnings call.
That sentiment has proliferated the fast-food market in recent months with brands as big as McDonald’s conceding the effects of high interest and mortgage rates would see it adopt a “street-fighting mentality to win,” the company’s chief financial officer Ian Borden said during an April 30 earnings call.
Last week, sales at McDonald’s locations that have been open for at least one year fell for the first time since 2020.
RBI’s brands — alongside McDonald’s, Wendy’s and other fast food chains — have been leaning on value messaging and offerings to boost sales during a summer of intense competition that media outlets have dubbed “the value meal wars.”
Cheap burgers, $1 coffee
At Tim Hortons Canada, for example, the chain has been advertising $3 breakfast sandwiches with a coffee purchase — a deal Kobza said he’d taken advantage of Thursday morning. Burger King has similarly been putting the spotlight on its $5 “Your Way” meals.
“I think we’ve been really disciplined in our everyday pricing, which has been paying really good dividends,” Kobza said.
Rivals, however, have used similar tactics. In Canada, Wendy’s has been advertising two for $4 breakfast combos and Starbucks has been offering 25 per cent off iced drinks on Fridays in the summer.
McDonald’s, meanwhile, dropped its starting price for cups of coffee to $1 in Canada and over the summer offers ice cream cones for the same price.
Asked about its pricing strategy and rivals, Kobza said “Tim’s is doing a great job outperforming the market, even in a difficult market.”
“That’s been the case for a while now,” he continued, while noting inflation has softened in Canada but there’s still higher unemployment compared with the U.S.
Tim Hortons, in particular, has been strong because it has long had a leading share of Canada’s brewed coffee and breakfast sandwich market, executives on the call said.
The brand has spent the last year attempting to expand that hold even further. In recent months, it launched flatbread pizzas nationally and rolled out new wraps, bowls and sparkling fruit drinks in a bid to gobble up more afternoon and evening sales.
Tim Hortons, in an attempt to gain a share of the fast food dinner market, is introducing pizza to its menu. While some fans like the idea, others say Tim’s should just stick to coffee.
Despite recent successes with the expansion and in navigating headwinds, RBI executive chairman Patrick Doyle suggested the company isn’t keen to rest on its laurels.
“We know [consumer] purchase habits are affected by a lot of macro factors, and it’s our job to adapt, but clearly we have opportunities to position ourselves to perform even better in all environments and take share no matter the category conditions,” he said.
“We need to continue to improve operations across the board. This is something we can never take for granted even at a brand like Tim’s, which is already executing at a stunning level.”
How RBI fared in the fast food wars
The company, which keeps its books in U.S. dollars, revealed Thursday that its second-quarter net income totalled $399 million US ($547 million Cdn) or 88 cents US per diluted share, in its latest quarter.
The result was up from net income of $351 million ($481 million Cdn), or 77 cents US per diluted share, a year earlier.
Revenue for the quarter ended June 30 reached $2.08 billion ($2.85 billion Cdn), up from $1.78 billion ($2.44 billion Cdn) in the same quarter last year.
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Consolidated comparable sales rose 1.9 per cent, led by strength at Tim Hortons.
“We clearly saw softer sales than expected across our businesses in Q2, and it’s not yet clear when we’ll see the category strengthen,” said Doyle on the same call as Kobza.
While Doyle conceded the sales weren’t what they wanted, he also noted, “we did pretty well on a relative basis.”