A Crack in the Cup

Introduction

There is no chronological order to the topics and chapters that follow. They are snippets of memories and impressions formed over years of working closely with Ron Joyce. Memories can fade but impressions seem to last. Who I am is not relevant to the story. It is simply a story seen through my glasses.

Chapter 1

The Brand

I’m sure some of you will remember the small white china cup that was so ubiquitous with Tim Hortons. They were made by Royal Doulton. Less expensive china was available but Ron Joyce insisted that we reinforce the commitment to a great coffee with a cup that shouted quality by its very name. The cups were expensive but had a great “feel” to them. I also recall the anxiety franchisees felt every time one shattered on the floor or was stolen.

It became fairly common to see these signature cups in University dorms and in kitchen cupboards of the more daring customers. I recall Ray Rhinelander, the first franchisee in St.John’s Newfoundland inventorying his cups at the beginning and end of each shift to try and control the epidemic of theft. Great advertising but very expensive! In 1983 upon the purchase of the hotelware division from Royal Doulton and the formation of Steelite International, the name on the bottom of the cup changed to Steelite but it was still the same cup.

In the late 70’s and early 80’s, stores were experiencing higher than normal cup breakage. Handles were snapping off and seemingly good cups were breaking for no apparent reason. Royal Doulton sent their technical experts from England to Tim Horton stores to observe firsthand. They responded quickly at their factory by reinforcing the bond between the handle and the cup. An interesting factory tour can be viewed at “factorytour.steelite.com” They observed that on a daily basis the cups were handled dozens of times, often roughly. Tim’s usage was much different than typical restaurants. The handling from dishwasher to counter to customer and back with continual banging together was not royal treatment. I will never forget how the expert explained it to us. “Imagine that each cup has a memory. Every time it gets a hard bang, it remembers it. Each bang creates microscopic spider web cracks. It’s not visible but it doesn’t go away. After multiple bangs it simply reacts, sometimes suddenly shattering as these spider webs connect. It cannot hold itself together any longer.”

What a simple but graphic way to explain a material problem. I have often used this analogy to explain breakdowns in relationships and even organizations. No matter how big the name or reputation, it can be broken. Often it is the multitude of bangs, imbedded in the subconscious that finally erupt unexpectedly. The eruption is often triggered by a seemingly minor incident. Like death by a thousand cuts. Malcom Gladwell in his book ‘The Tipping point/How Little Things Can Make a Big Difference” says and I quote , “ Ideas and products and messages and behaviors spread just like viruses do.”

The Royal Doulton cups are no longer part of the Tim Horton experience but that hasn’t dampened the enthusiasm of loyal customers. Perhaps the cup never did matter but in my gut I believe it did. In time the use of china inside the stores declined. It was the growing popularity of the drive throughs and the Roll up the Rim to Win contests that gradually made paper the cup of choice. No one would notice switching to “made in China” cups, would they?

What is the magic of this brand? It was well anchored in the consciousness of Canadians long before Ron Joyce sold Tim’s to Wendy’s International in January 1996.

Shortly after joining Ron’s team in 1977, I was placed in the construction/design group. Stores were built with Blue Steel brick,  tables used harvest gold formica, walls used flat cut English oak with red trim, and the floors used Frontenac 4101 quarry tile and each store had two wagon wheel chandeliers with red shades. Why after 40 years would I remember such trivial detail? I remember because I tried to change the materials and colors and ended up on the carpet in Ron’s office. He said “don’t change a dam thing until I figure out why this business is working so well.  DON’T CHANGE A THING”.

I don’t think the word “Brand” was in our vocabulary at that time. The energy that enveloped those of us that were fortunate to be part of it was amazing. I’m sure we individually thought we understood why the stores were successful. Henry Svazas in Real Estate must have felt his great choice of locations were the key. John Lynn in Research& Development must have felt the great products he continually perfected carried the name and Ron Buist in marketing was proud of his attention to detail. Alf Lane used his legal expertise to ensure we were doing things properly and Ron Fitchett in accounting believed his purchasing and financial management were key to moving forward. The operations team were called on to be unrelenting in reinforcing the basics in food service. (fresh well made product, fast friendly service, a clean store and good price value).

In reality, each was part of the whole package. There was always a constant pressure to do better. A familiar saying from Ron was “that’s good enough is never good enough”. But there is nothing unusual about this part of the success story. Tim Hortons was a good sounding name. But success meant Ron tirelessly pushing us to be better and do more than we thought possible. We were ordinary people doing extraordinary things. In the midst of the bricks and mortar, the coffee and donuts, the twin oval pylon signs and the TV commercials was the birth of a heart and a soul. It was a less tangible but an increasingly powerful force that set Tim Hortons above the rest. Ron’s determination to engage and celebrate the franchisees, suppliers, employees, politicians, communities, friends, family and celebrities in his vision became the connector.

I can best illustrate this with simple example. The first Tim Hortons Kids Camp was originally an old hunting camp located at Lorimer Lake near Parry Sound in Ontario. It consisted of several dilapidated cabins for sleeping, a rustic log cabin for dining and a beautiful waterfront. The intent was to provide monetarily underprivileged kids a unique, inspiring free camping experience. Recalling his own childhood Ron was painfully aware that taking underprivileged kids to a rundown camp in an old school bus did not provide them with an opportunity to see the “possibilities” life had to offer. He embarked on a major renovation program to replace and upgrade the buildings and facilities. Volunteers were recruited to form work parties to rake, cut trees, hammer and paint. As funds were raised, the old buildings were replaced with new modern facilities that even had hot and cold running water. Volunteers included franchisees, friends of franchisees, head office staff, suppliers and friends of Ron. It was hard work but no one complained. Weekend after weekend a cavalcade of workers headed for Parry Sound to help out. Ron made sure there was ample good food and libations.

After one such weekend when a particular group of hard workers stayed up late and drank his bar dry Ron said to me the next day “you know it would be cheaper to hire contractors based on how much I just spent on booze but what makes it worthwhile is to have them see the camp and to be involved and feel part of it. I highlight “feel part of it”. The generosity of those volunteers and their enthusiasm for the camp was infectious as they returned to their communities and jobs.

It wasn’t long before the franchisees in Atlantic Canada approached Ron and said “we are supporting the Kids Camp and sending kids to Ontario but why can’t we have kids come to the Maritimes and experience our part of Canada”. Volunteers from Ontario, Quebec and the Maritimes converged on Tatamagouche Nova Scotia to build the second kids camp. Soon Quyon Quebec and Kananaskis Alberta followed with volunteers flying and driving to be part of it.

Significantly, through this evolution of the kids camp Ron resisted letting it be exploited as a marketing program. Perhaps this insight and resolve came from his own life experiences growing up during the depression in Nova Scotia having lost his father at age five. Perhaps his service in the Navy developed an understanding of the importance of teamwork and leadership.  Many times he had to insist that if what we are doing is the right thing then the rewards will follow.

Regional marketing groups were formed in the early 80’s to encourage franchisees to engage with the community and with each other. Ron allocated a portion of the national advertising fund to be spent in each community. Ideas that worked well were adopted by other regions. Gary and Mary O’neill from Moncton New Brunswick had started supplying hockey sweaters to a local kid’s hockey league. What a great program. It developed into a national project and expanded to include soccer. It became known as the Timbit Hockey and Timbit Soccer program. At one time, kids wearing the Timbit jerseys could go into any Tim Horton store after a game, show the tag on their jersey and get a free cold drink and Timbit. Generations of kids that have being part of the Timbit program are now customers that stop by Tims on the way to work. It was an extra bonus when the kid’s parents accompanying them purchased their own treats. Support for hospices, hospitals, food banks, women’s shelters, free skating at Christmas and free swimming at community pools are a few of the community projects that evolved through this program.

In the late 70’s Ron was motivated to set up an Advisory Committee to involve franchisees in the selection of marketing and advertising programs which included the expenditure of the advertising royalty. It became evident that addressing franchisees other concerns warranted a larger portion of these meeting. We, in senior management were on the hot seat because the Advisory representatives demanded answers prior to reporting back to their local area franchisees. Initially construction deficiencies, equipment breakdown, delivery problems from the warehouse and pricing were time consuming issues. It helped create a more transparent accountability for management. It was a free and open discussion that produced results.

These are just a couple of examples of many programs that Ron initiated and supported designed to build strong relationships.

I recall him chastising one of his senior executive (reaming out was the term used at the time) for an offhand comment about franchisees.  Ron said “don’t ever forget whose paying your salary. If they are not successful we don’t have a job. They are our customer.” I’m not suggesting everyone loved Ron and his sometimes hardnosed and explosive approach but they did respect him.

If it’s not obvious, I am absolutely convinced that the trust, loyalty and belief in the Tim Horton Brand is rooted as much in the relationships withTim Horton franchisees and their involvement and their employees involvement in the individual  community as in the coffee, baked goods, locations and massive media advertising. Community connection has been the foundation. The big question going forward is “now the train is running is the platform still needed?” Is the heart and soul replaceable in an era of robotics?

It’s easy to discount the past as “The Glory Days”.  We can’t go back in time but if we can glean some threads of understanding regarding the importance of those early relationships perhaps the future can sustain a few more bumps.

There was a sentiment at one time that Tim Hortons customers were loyal because it was a Canadian owned business. This myth was dispelled when the owner, Nova Scotia born Ron Joyce sold Tim Horton’s to Wendy’s International in 1996. (Something he still regrets). Since then, in 2004 Wendy’s were pushed into selling their new crown jewel and by 2006 Tim Horton’s was expatriated back to Canada. In 2014 it was purchased by 3G Capital for a staggering $12 billion. So it doesn’t seem to really matter where the owners are from. During these ownership changes, growth continued at an impressive rate. Trust in the brand does not seem to be diminished or enhanced by whom the corporate owners are.

Chapter 2

The 3G Challenge

There is no doubt at all that 3G Capital understand the value of a brand. They paid a much higher price to obtain Tim Hortons than is the norm for this type of business. Within the Tim Horton brand lies an untapped potential to expand worldwide with thousands of stores if not tens of thousands. Tim Hortons Brand has a high international recognition. Of the top ten Brands in Canada in 2015, three are now owned by 3G Capital which includes Tim Hortons, H.J.Heinz and Kraft Foods. 3G are good at identifying and purchasing strong Brands.

They are good at identifying opportunities within the companies they buy. They cut waste, use technology effectively, streamline systems and dramatically reduce overhead.

The decision to purchase Tim Hortons must have been enhanced as well by unique clauses in the franchise agreement established back in the Ron Joyce era. Following the establishment of the corporately owned and operated distribution network around 1968, the franchise agreements were updated to require franchisees to purchase all their supplies with the exception of milk and cream from head office. This worked well for all parties under Ron’s era but has been the center of friction between franchisees and franchisors following the departure of Ron Joyce from the Wendy’s board in 2002. Unique is the total control the franchisor has to manage the maximum level of franchisees profit.  In addition to controlling the selling price at the cash register they control what franchisees pay for their product at their sole discretion. Whatever markup on product they choose is not negotiable. It takes a benevolent dictator to have that much power and not abuse it.  With the aid of today’s technology there is an opportunity to manage the franchisees profitability down to a level deemed to be sustainable in the opinion of the franchisor.

But if “economies of scale” were to out trump “ relationship building” for short term profits for the shareholders then the brand  may be a disrupted by a bump that knocks the handle off the cup. After all, the Brand is the sum of people’s perception.

So what is going on with Tim’s?

A large number of franchisees are concerned enough to form an association ( GWNFA). There are lawsuits filed. The relationship appears to be stressed. Even franchisees are divided into two camps. One group trusts the owner and will continue to be supportive. They believe RBI will ensure they are financially successful over the long haul.  One group doesn’t. Is this a normal push-pull experienced in an evolving business or is it a fracture line?

The most recent bump on the cup became viral on the week of January 1. The Ontario government raised the minimum wage $2.40 an hour at a cost to employers of $3.38 per hour.  Many small businesses are trying to figure out how to cope with half their bottom line wiped out.  It would seem that the government was anticipating a push back and unions were out of hibernation. For the media it became a relevant, emotionally packed story. Even a TV celebrity jumped on the bandwagon ridiculing and berating the actions of a Tim Horton’s franchisee in a vicious rant.

For goodness sake hasn’t anybody paid attention to the election of President Trump and the lingering anger over the sub-prime meltdown? Aren’t we continually reminded about the growing gap between the have’s and have not’s? The movement to help the less fortunate is not a new agenda item.  Hello! Somebody dropped the ball. Was there a “do and not to do list”? Franchisees operate their franchises under their own incorporated companies but are certainly receptive to sound reasoning and solid advice. Was it a coincident the whole energy of the movement focused on a store owned by Tim Horton’s daughter and Ron Joyce’s son? Many small business owners sucked in their breath and thought thank god it’s not me and on the next breath thought this is not good for a brand. A cost of being part of a high profile chain was emphasized when demonstrations took place at Tim Hortons all across Canada initiated by an incident at one store.

Other than a brief comment attributing the incident and media releases to a couple of rogue franchisees, RBI has declined further comment. Media couldn’t find any franchisees willing to comment. They wouldn’t for good reason. The subject was volatile with demonstrations ramping up. Franchisees are obligated in their license agreement to refer media questions to head office. That makes total sense. The stakes are too high. There can’t be 1000 spokespersons. The brand can be damaged by a wrong word, a misinterpreted comment or the interviewers own biased agenda. Sometimes silence can be the safest strategy but sometimes crisis are opportunities to build trust with the partners in the brand.

I believe this incident highlights an important issue that should never be overlooked. A management decision to cut back on certain benefits was challenged based on what we can call a moral or rights issue rather than a legislated or legal obligation. No laws were broken but there is a universal sentiment that a benefit given year after year is expected to be continued. It was seen as an affront to deprive  those that are trying to cope with rising costs for affordable shelter, food and clothing. In other words, the basic necessities of life. Perhaps this should be a hallelujah moment. It is not relevant to the story that the franchisees in the headlines are victims as well and they care deeply about their employees and in return are respected. It doesn’t matter that they in particular were targeted because of their name, not their character. It is not relevant that a number of small business owners all over Ontario are scrambling to deal with the survival of their businesses. Small business owners are rightfully called to make above all, the proper moral decisions in the operation of their business regardless of the cost. A knee jerk reaction to a difficult business problem can seriously impact people and can damage a brand.

But it’s a fuzzy line that’s being drawn. It doesn’t seem to move beyond the small business owners. There seems to be less fanfare and objection when larger companies downsize, firing hundreds of employees not just to survive but for the simple opportunity to increase profits.

So again, what is happening inside our Tim’s that is causing such a commotion?

Today CEO’s and Board of Directors of companies are well versed and understand their role above and beyond legal compliance. Sure they must maximize profits for their shareholders but at the same time they must ensure management are making plans and decisions to continue operating profitably over the long term (sustainability). This has often justified the sale of a company or placed it under new management as was perhaps the case with Tim Hortons sale to 3G. . It’s improbable that a company as diverse and profitable as 3G Capital would invest $12billion without a sustainability plan. They have a strong track record and tend to view purchases as long term investments.

It’s a no brainer to conclude that sustainability is a high priority of RBI. So what is the plan? Does the existing business model still work as all their economies of scale are rigidly applied? Are the franchisees whom are digging in their heels by forming an association simply dinosaurs in a new economy or are they the last line of resistance to salvage for themselves and their families not only their business but their trust, respect, and security. Are they misunderstood protectors of the heart and soul of the Brand or just renegades  No doubt franchisees will continue to be part of the equation for the future but how will they fit in RBI’s new model. It is a highly sensitive question hitting at the core of the brand. The train is running. Is the platform important?

Stay tuned for Chapter 3 and more as we explore

• Importance of the community and how it relates to Tim’s future
• Cannibalism and how it has divided the chain.
• Bumps along the way.
• Some fun stories from the “Glory Days”

 

 

Definitions:

RBI is Restaurant Brands International owned by 3G Capital. RBI  in turn owns Tim Hortons, Burger King and Popeyes.

3G Capital is a global investment company located in New York which also owns RBI, H.J. Heinz Company and Kraft Foods Group.

TDL   stands for Tim Donut Limited the original company that owned  the Tim Horton chain. It was later changed to The TDL Group and is now known as under the  RBI umbrella.

Chain is a common terminology used to describe a group of stores or franchises operating under the same name and management group.