How Tim Hortons and Other Fast Food Chains Are Navigating the Value Meal Wars
The owner of Canada’s best-known fast-food chain managed to boost profits in its latest quarter, even as a pullback in consumer spending that has long roiled retailers has taken its toll on the fast-food 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 — are “navigating a softer consumer environment.”
“There’s no denying that it’s been a challenging environment,” Joshua Kobza told analysts on an earnings call Thursday.
That sentiment has proliferated in the fast-food market in recent months, with brands as big as McDonald’s admitting that the effects of high interest rates and mortgages would see them adopt a “street-fighting mentality to win,” the company’s chief financial officer, Ian Borden, said on an April 30 earnings call.
Last week, sales at McDonald’s restaurants open at least a year fell for the first time since 2020.
RBI brands, along with McDonald’s, Wendy’s and other fast-food chains, have relied on value messages and offers to drive sales during a summer of intense competition that the media has dubbed “the value meal wars.”
Cheap burgers, $1 coffee
At Tim Hortons Canada, for example, the chain has been promoting $3 breakfast sandwiches with the purchase of a coffee — an offer Kobza said he took advantage of Thursday morning. Burger King has also been promoting its $5 “your way” meals.
“I think we’ve been very disciplined in our daily pricing, which has paid very good dividends,” Kobza said.
Competitors, however, have adopted similar tactics. In Canada, Wendy’s has promoted breakfast combos that include two drinks for $4, and Starbucks has offered 25 percent off frozen drinks on Fridays in the summer.
McDonald’s, meanwhile, has lowered its starting price for cups of coffee to $1 in Canada and is offering ice cream cones at the same price over the summer.
Asked about his pricing strategy and competitors, Kobza said, “Tim does a great job of outperforming the market, even in a tough market.”
“That’s been the case for some time now,” he continued, noting that inflation has come down in Canada but unemployment is still higher than in the United States.
Tim Hortons, in particular, was strong because it has long held a large share of the Canadian market for brewed coffee and breakfast sandwiches, executives on the call said.
The brand has spent the past year trying to expand that reach even further. In recent months, it’s rolled out flatbread pizzas nationwide and introduced new wraps, bowls and sparkling fruit drinks in an effort to gobble up more afternoon and evening sales.
Tim Hortons launches pizza in hopes of winning late-night customers
Despite recent successes in expansion and managing headwinds, RBI executive chairman Patrick Doyle suggested the company was not willing to rest on its laurels.
“We know that (consumer) buying habits are impacted by many macroeconomic factors, and it’s our job to adapt, but we clearly have opportunities to position ourselves to perform even better in all environments and gain market share regardless of category conditions,” he said.
“We must continue to improve our operations in all areas. This is something we can never take for granted, even for a brand like Tim’s, which is already at an exceptional level.”
How the RBI fared in the fast food war
The company, which keeps its accounts in U.S. dollars, said Thursday that its second-quarter net income rose to $399 million (C$547 million), or 88 cents per diluted share, in its latest quarter.
The result was up from net income of $351 million (C$481 million), or 77 US cents per diluted share, recorded a year earlier.
Revenue for the quarter ended June 30 reached $2.08 billion (C$2.85 billion), up from $1.78 billion (C$2.44 billion) in the same quarter last year.
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Consolidated comparable sales increased 1.9 percent, led by strength at Tim Hortons.
“We clearly saw weaker than expected sales across all of our businesses in the second quarter, and it is not yet clear when we will see the category strengthen,” Doyle said on the same call as Kobza.
Although Doyle admitted that sales weren’t what they wanted, he also noted that “we’ve done pretty well on a relative basis.”
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