At Tim Hortons it’s not business as usual: Profits are up, but so is franchisee discontent
OAKVILLE, Ont. — During a recent visit to the Tim Hortons headquarters, Daniel Schwartz happily pokes fun at some of the more regimented hallmarks of the chain’s owner, Restaurant Brands International Inc., right down to the optimal look of an office desk.
Stopping by a row of communal desks where chief executive Schwartz and chief financial officer Josh Kobza sit several times a month alongside the office’s 400 or so other workers, he points to one that is empty save for a solitary Kleenex box.
“This,” he said while gesturing with an exaggeratedly proud sweep of his arm, “is an ideal desk,” alluding to the company’s directive for neat employee workstations. He pauses, then slides the tissue box several inches over onto a cluttered adjacent desk. “There,” he said, regarding the barren white expanse before him with a broad smile. “Now it’s perfect.”
Schwartz and Kobza are keen to show how the “3G Way” — the efficiency-driven management style espoused by the Brazilian entrepreneurs behind 3G Capital, Restaurant Brands International’s largest shareholder — is playing out at Tim Hortons as they prepare for the annual general meeting of shareholders on June 5.
The headquarters is certainly a far cry from the earth-toned cubicles and perimeter of walled offices that were expunged in the building’s sweeping renovation two years ago and is symbolic of the change that has rankled a number of Tim Hortons’ Canadian restaurant owners.
Frustrated with tough new standards for their restaurants, higher product costs and a culture that no longer lets them solve problems with a phone call to head office, they formally organized as an association and got legal representation in March.
On the surface, everything seems to be going well. The 3G formula of cutting waste and simplifying processes while pursuing an aggressive growth agenda has helped it successfully engineer the takeovers of some of the largest U.S. businesses including Burger King, Anheuser-Busch, Kraft, Heinz and, most recently, Popeye’s Louisiana Chicken.
The formula has also helped deliver solid profits. Shares of Restaurant Brands International are up 50 per cent year-over-year, the company’s adjusted per-share earnings surged 45 per cent in 2016, and system-wide sales climbed 5.2 per cent at Tim Hortons and 7.8 per cent at Burger King.
Overall revenue rose to US$4.2 billion in 2016 from US$4.05 billion a year earlier, while the company managed to cut its total operating costs and expenses by 14 per cent to US$2.47 billion from US$2.86 billion.
As a result, its operating margin, the amount of revenue generated after paying operating costs, was 40 per cent in 2016, compared to 31 per cent at the world’s largest fast food company, McDonald’s Corp.
The path to profits has been, at times, unpleasant, especially for those used to the classic Tim Hortons corporate culture, where doing business was built around relationships and golf games. That management style made it Canada’s biggest quick-service restaurant chain, accounting for a quarter of the $26-billion fast-food market.
But scores of Tim Hortons’ employees at the Oakville head office west of Toronto were let go in early 2015 after the company’s merger with Burger King, and almost entirely replaced with a new crop of keen, young staffers.
The building also underwent a cosmetic makeover. A big chunk of it now consists of a warehouse-like room that reflects 3G’s cultural tenets: the company’s mission statement is on a banner and its goals are colourfully painted on the white walls.
Real-time electronic billboards display employee success metrics: for example, the number of croissants and breakfast sandwiches sold at each restaurant every day that week, and franchisee drive-thru times (less than 25 seconds puts a franchise in the green zone; more than 30 seconds puts them in the red zone).
“We want all of our employees to think of themselves as owners,” said Kobza, whose father owned a small business when he was growing up in Florida. Such a culture of accountability “is a mentality,” he added. “We want everyone to act as if they are running their own small business.”
On their desks, employees post a list of up to eight self-written objectives for everyone else to see. “You can’t manage what you don’t measure,” said Schwartz, echoing a maxim of management consulting guru Peter Drucker.
Staffers also partake in quarterly Lean Six Sigma training exercises to improve business processes and productivity.
In May, dozens engaged in a timed mock sandwich-making exercise meant to enhance their problem-solving skills. They were challenged to use non-verbal communication while racing around tables covered in pieces of felt shaped like bread, tomatoes, cheese and turkey slices.
“They have a much more structured approach to dealing with problems,” after going through the exercises, Kobza said. “They identify a problem’s root causes and come up with a clear action plan.”
The open concept room, meanwhile, is meant to emphasize collaboration and efficient use of time.
But those critical of the new management style say the company is being run by a group of merciless bean counters.
“It’s a very, very different place than it was,” said one former employee who stayed at Tim Hortons after the initial rounds of layoffs. “But I think the people who came in after the layoffs absolutely loved it, because they didn’t know what it was like before.”
The former employee applauds some aspects of 3G’s approach, despite a new era of cost controls that can border on the extreme, such as a clampdown on office supplies like pens and folders.
“They are very cards on the table. The culture is what it is, and they really lay it out for you,” he said. “Everyone can see what the CEO’s metrics are. You know what your own targets are, because you see them on your desk every day. And if it is not the place for you, you can always leave — no hard feelings.”
Schwartz laughs when asked about the office supplies. Though he denies there’s a lockdown, he said all costs need to be justified.
The bulk of the big expense cuts at Tim Hortons, he noted — a company jet, the regular use of Federal Express when emails would suffice — happened more than two years ago.
“But we frankly don’t spend that much time thinking about ways to cut costs,” he said. “We are focused on growth,” particularly in places such as the U.S., U.K. and the Philippines through local master franchise partners.
“We want to look back 20 years from now and say we wanted to be really impactful and we transformed an industry,” Schwartz said, pointing to one of the goals on the office wall about becoming the world’s biggest fast food brand. (Currently, it’s in third place, behind McDonald’s and Yum Brands Inc., owner of KFC and Taco Bell.)