Sales at Tim Hortons increased 8.9 per cent in the most recent quarter, helping boost its parent company's profit as it grapples with supply chain issues, labour shortages and dwindling downtown traffic.
Restaurant Brands International (RBI), which operates the Tim Hortons, Burger King and Popeyes brands, on Monday reported an adjusted net income of $353 million, or 76 cents per diluted share, up from $320 million, or 68 cents per diluted share, last year. The profit increase was due to a rise in comparable sales – a key metric in the retail industry – at Tim Hortons and Burger King. Tim Hortons saw comparable sales jump 8.9 per cent, while Burger King's increased 7.9 per cent.
Overall sales at RBI during the third quarter of the year increased from $1.34 billion last year to $1.5 billion in 2021.
While RBI's (QSR)(QSR.TO) chief executive Jose Cil said he is encouraged by the progress seen at Tim Hortons in Canada, traffic declines in downtown cores across the country continue to weigh on its post-pandemic recovery. Cil told analysts on a conference call on Monday that "super-urban" stores, which represent 10 per cent of all Tim Hortons locations, saw a sales decline of nearly 30 per cent – an improvement from its last quarter.
"With reopening plans paused across the vast majority of the country, and workplace mobility still significantly behind pre-pandemic levels, we know we're not out of the woods yet," Cil said.
"There's a clear, concentrated drag from urban and super-urban locations and our business there. And this is where lagging workplace mobility most impacts our business."
Labour issues persist
Declining downtown traffic is not the only challenge facing Tim Hortons. The coffee and doughnut chain is also facing supply chain issues and labour shortages that have disrupted the broader retail industry in recent weeks and months.
"We're seeing increased levels of inflation on the commodities and labour front," RBI's chief financial officer Matt Dunnigan said during Monday's conference call.
"We do expect margins (at Tim Hortons) to moderate slightly over the next couple of quarters, as we navigate through this elevated volatility, monitor and adjust our pricing as appropriate, and ensure strong operations and service levels."
Many Tim Hortons restaurant owners are also dealing with a highly competitive labour market that has made it more challenging to hire people, RBI's chief corporate officer Duncan Fulton said in an interview.
"It's in part driven by all of the government subsidies that have been in place, necessarily, to support people that had lost jobs or lost hours during the COVID-19 pandemic," Fulton said, adding that he expects the hiring process to improve as the government scales back some of its COVID-19 pandemic supports, such as the CRB program and wage and rent subsidies.
"I do think as those government programs that have helped people stay at home wind up over the next month or two, it's going to result in a lot of people re-entering the labour market."
Labour shortages and supply chain issues have been felt most acutely at the Popeyes brand, which saw comparable sales decline 2.4 per cent in the quarter. Cil says 40 per cent of Popeyes locations are operating with reduced service, shutting dining rooms and shifting to drive-thru, delivery and takeout only. Fulton said Tim Hortons owners have been able to avoid cutting back hours in the same way that Popeyes has.
RBI is now looking at ways to streamline operations at its restaurants, including simplifying the menu, to help address the labour shortage issue.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.