Tim Hortons: The Canadian icon Canadians won't work for

Tim Hortons: The Canadian icon Canadians won’t work for

Tim Hortons can’t keep opening stores on every other corner forever

by
Peter Jones/Reuters

Peter Jones/Reuters

Last week, the CEO of Tim Hortons laid out part of his case for why the chain needs to be able to hire temporary foreign workers. This is what Marc Caira told Bloomberg News: “If you don’t have access to some of the foreign workers where they are required, it will ultimately also impact on the Canadians that work in that area, because we can’t really deliver on the promise that we want in terms of delivering quality service.”

Translation: Let us import these workers, or the double-double gets it.

When you’re a national icon, on par with the beaver and hockey, it makes sense to play to your base when embroiled in a scandal like the temporary foreign worker (TFW) imbroglio. So, in the wake of Employment Minister Jason Kenney tightening the rules for companies using foreign labour—including a ban on using TFWs for low-wage restaurant jobs in areas where unemployment is six per cent or higher, and caps on the number of TFWs at work sites—the company has warned of longer wait times and mixed-up orders, perhaps on the assumption that Kenney lies awake at night wondering if your Extreme Italian sandwich did indeed arrive with the onions held.

Tim Hortons graph

And yet Caira is not wrong, in that Tim Hortons is a Canadian icon a great number of Canadians don’t want to work for. It’s not just Timmies that’s having trouble finding domestic workers, of course. Across the country, restaurants complain they can’t fill openings. Much of the focus has rightly been on the question of whether restaurants should be paying more to attract Canadian workers. But at the core of the issue is a problem that’s been mostly overlooked: Many restaurant chains now rely on a business model based on blanketing the landscape with locations in order to generate growth. It’s a fundamentally flawed strategy, and Tim Hortons is only the most obvious example.

You can see this play out by looking at the chain’s same-stores sales figure, which reflects the performance of only those stores that have been open for at least 13 months. It’s a handy measure that lets investors peer through all that dust from new-store construction to gauge the underlying health of a chain. In the case of Tim Hortons, average same-store sales have been deteriorating for years. In its most recent quarter, Tim Hortons posted overall sales growth in Canada of five per cent. But same-store sales grew just 1.6 per cent. Were it not for the 160-odd new stores added over the previous 12 months, Tim Hortons sales and profits would likely have been considerably less.

Tim Hortons’ chief coffee slinger knows he has a problem. In February, while unveiling a new growth plan, Caira warned that opening more stores can’t be the company’s only path to growth. More product innovation is needed, he said, and he vowed that Tim Hortons’ long-struggling expansion into the U.S. would finally start to pay off, with profits rolling in by 2018.

Then, to no one’s surprise, Caira announced another massive round of expansion: 500 more stores in Canada over the next five years. (The chain already operates 3,600 locations here, almost all of them owned by franchisees, up by half from a decade ago.) The message was clear: The old growth strategy may be broke, but while we fix it, here’s another restaurant 500 m closer to wherever you happen to be right now.

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Now here’s why this matters to the TFW debate. A growth model that relies on opening vast numbers of new stores every year also relies on nearly unfettered access to cheap labour to keep profit margins from getting crushed. Tim Hortons has regularly said as much in its annual reports, in the section where it lists all the potential risks to its business: Any labour shortage due to “the cessation or limitation of access to federal or provincial labour programs, including the temporary foreign worker program,” could lead to declining revenues, profits and brand reputation.

In the past, Tim Hortons has said it employs around 4,500 temporary foreign workers, equal to about five per cent of its 100,000-strong workforce. That may not seem like a lot, but think of that temporary labour force as a release valve when local labour markets overheat with the addition of new stores. Then multiply it by all the other chains pursuing a similar strategy. You quickly arrive at an industry dependent on TFWs to fuel its exponential expansion. The question is: Since when did it become the job of government to subsidize flawed business models?

OK, scratch that question. This is Canada, after all, where governments at all levels and of all stripes love nothing more than to ride to the rescue of industry. But, in this instance, at least, Kenney is on the right track. In a conference call with the Calgary Herald editorial board last week, Kenney said Alberta—where restaurant owners are particularly angry—faces a market problem with its scarcity of labour. “We believe there should be a market response,” he said.

That’s going to mean higher wages. It will also mean higher prices. Neither is going to be good for Tim Hortons customers or shareholders. But that’s Tim Hortons’ problem, not Ottawa’s.