The new loyalty program at Tim Hortons has a franchisee group questioning whether handing out free coffee and doughnuts to millions of customers is worth the cost.
The program, called Tims Rewards, has shattered internal expectations at Tim Hortons since its launch last spring, jumping to roughly 7.5 million active users in a matter of months. Customers get a free coffee or baked good after every seventh purchase.
But the Alliance of Canadian Franchisees, an independent association of Tims store owners, is suggesting that some owners are worried the giveaways are adding to their costs while not boosting sales.
ACF recently issued a list of the common complaints and questions it has heard during “outreach” with franchisees. In that document, a copy of which was obtained by the Financial Post, ACF said the loyalty program was specifically impacting food cost percentages for franchisees. In advance of a cross-country series of town hall meetings between Tims executives and franchisees this week, ACF encouraged owners raise the list of complaints in the meetings to help guide the company’s strategy.
On Thursday, Tim Hortons said it has been open with franchisees that the giveaways are part of an initial investment to attract customers to the program before gradually transforming it into “our most powerful marketing vehicle.”
“There’s two key phases to launching a successful loyalty program,” said Duncan Fulton, chief corporate officer at Tims’ parent company, Restaurant Brands International Inc. The first phase is convincing millions of people to start using it. “That’s usually the hardest part,” Fulton said. Instead, it took less than a year.
“Anyone in the industry would kill to have the kind of customer acquisition phase that we’ve had,” he said. “And obviously that involves a short-term investment.”
That investment involves “having guests that were paying for seven coffees now paying for six coffees,” Fulton said. “We’re now quickly shifting into the second phase.”
Discounting is slightly more than offsetting the traffic levels, which is causing a little bit of softness in sales
Jose Cil, CEO, Restaurant Brands International
In its last quarterly update, in October, Restaurant Brands chief executive Jose Cil suggested the giveaways were starting to impact sales. “Discounting is slightly more than offsetting the traffic levels, which is causing a little bit of softness in sales,” he told investors.
In its second phase, Tim Hortons wants to start using the program to gradually ratchet up sales. That means shifting to a loyalty model that is able to send personalized offers to members.
“If you have never tried one of our breakfast wraps and I can encourage you to try a breakfast wrap, that’s going to be an incremental sale,” Fulton said. “When you love our breakfast wrap and start buying it more frequently, it becomes a more permanent incremental sale.”
To do that, Tim Hortons needs to be able to contact its loyalty members. As of now, customers tap their red card each time they checkout, but aren’t required to register online with their name and contact information to get the perks. In fact only around 25 per cent of the 7.5 million active users have registered online and provided Tims with contact information, Fulton said.
“It’s very important for the future of our loyalty program that we have registered guests,” he said. “You’re going to see some evolution to the loyalty program this year.”
He wouldn’t say what the evolution will look like, other than that it will involve making it more compelling for members to register online.
Michael Van De Wiel, a franchisee in St. John’s who sits on the Tims internal advisory board of franchisees, pushed back against the assertion that the program was negatively impacting franchisees.
“I really don’t feel it that much,” said Van De Wiel, who owns seven locations and represents Newfoundland and Labrador franchisees at the 19-member advisory board. “I talk to my owners frequently,” he said. “And sometimes I ask them outright: ‘Do you want to cancel the loyalty program? And overwhelmingly I get, ‘No way.’”
ACF executive director Nick Javor declined to comment.