Tim Hortons will roll out a major overhaul of its loyalty program after blaming coffee giveaways for contributing to its sales woes.
Sales in 2019 dropped more than US$150 million compared to the previous year, according to a report from Restaurant Brands International Inc., the coffee chain’s parent company.
RBI chief executive José Cil said the chain’s loyalty program, Tims Rewards, was partially to blame after it ballooned to 7.5 million members, all regularly redeeming a free coffee or baked good after every seventh purchase.
We’ve attracted far more guests to our loyalty program far more quickly than we had planned
RBI chief executive José Cil
“We’ve attracted far more guests to our loyalty program far more quickly than we had planned,” Cil told investors on a conference call Monday morning.
Tims will shift to a points-based program later this month. Customers get 10 points for every purchase, which they can eventually use to redeem menu items other than just coffee and baked goods.
The program essentially preserves the previous one-in-eight giveaway structure, since 70 points are good for a free coffee, tea, premium doughnut or bagel. But customers can now accumulate more points to get larger menu items: for example, a premium breakfast sandwich is 220 points.
The point is to drive sales growth by getting customers to try new products. Through the program, Tims will send targeted offers to members, in an attempt to convert a customer who only buys coffee into one who also buys breakfast sandwiches.
But to send those offers, Tims needs plan members to register online. Only 25 per cent of the current 7.5 million members have done that.
In April, members who haven’t registered will be bumped to a worse program and only receive a reward after 12 purchases instead of seven.
In Tim Hortons’ fourth quarter, comparable sales — a common gauge for success in retail — fell by 4.3 per cent across the chain. Comparable sales were worse in Canada, down 4.6 per cent, primarily because of the loyalty program. Cil said the program contributed negative three percentage points to the comparable sales figure.
“You would come to Tim Hortons and you would buy eight coffees,” said Duncan Fulton, RBI’s chief corporate officer. “Now you come to Tim Hortons eight times and you buy seven coffees. Extrapolate that math out over the entirety of the quarter. We always knew that in the short term it was going to be an investment and an associated sales drag.”
A group of franchisees complained that the program hasn’t provided any benefits despite the massive number of giveaways. In a list of concerns circulated to members, and obtained by the Post, the Alliance of Canadian Franchisees said the program was impacting food cost percentages.
In a report last week following checks with Tims’ franchisees, UBS analyst Dennis Geiger said any boost in customers from the loyalty program is “more than offset by the check drag from free coffee redemptions.”
System-wide sales were US$1.68 billion, down from US$1.73 billion, according to RBI’s quarterly report. In fiscal 2019, Tim Hortons’ sales fell to US$6.72 billion, from US$6.87 billion in 2018.
“Over the past several months, I’ve made Tim Hortons in Canada my top priority,” Cil said. “We have not performed to expectations and have not properly put the strength of the Tim Hortons brand to work.”
In an interview with the Financial Post last month, RBI acknowledged that the constant menu additions in 2019 complicated its kitchen operations and slowed down service times. Tim Hortons now will focus on remastering its basics: coffee, baked goods and breakfast, RBI said.
Correction: A previous version of this story misstated the launch date of the new Tims Rewards format. The points-based system will roll out on Feb. 26. As of April 22, members who aren’t registered online will be bumped to a lower-tier rewards program.