Menu prices are expected to edge up at Tim Hortons in the coming months as the coffee and doughnut shop grapples with ongoing supply chain snags and higher food and labour costs.
The chain's parent company Restaurant Brands International Inc. said Tuesday it recorded a surge in commodity volatility and elevated inflation in its latest quarter.
"Given the level of commodity costs and labour inflation we're seeing, we expect additional price increases in 2022," José Cil, CEO of the company that also includes Burger King, Popeyes Louisiana Kitchen and Firehouse Subs, said during a call with analysts.
His comments came as RBI raised its dividend and reported its fourth-quarter profit and revenue rose compared with a year ago.
While the results topped expectations, the company is continuing to struggle with staffing shortages and supply chain issues — a situation confronting the entire restaurant industry from fast-food chains to full-service eateries.
RBI is trying to ease the labour crunch for franchisees by simplifying back-of-house processes and developing plans to help with hiring and retention, Cil said.
Yet with rapidly increasing inflation, adjusting menu prices is one of the key ways the company can recoup costs.
Menu prices are based on multiple factors, including commodity prices, shipping costs, competitor pricing and regional variances, said RBI chief corporate officer Duncan Fulton.
The company also examines market research on what consumers are willing to pay, he said.
"It's an ongoing process," Fulton said in an interview. "We want to stay competitive for our guests and we want to be fair to the franchisees."
Price increases at Tim Hortons tend to be in line or just below the consumer price index, Cil said. Statistics Canada said last month the consumer price index rose 4.8 per cent in December on a year-over-year basis.
Still, improving sales are also key to the chain's recovery out of the pandemic.
Matt Dunnigan, chief financial officer, said Tim Hortons recorded healthy year-over-year growth, with sales improving throughout the quarter.
"We will continue to manage through the volatility that has extended into this year and ... remain focused on driving volume growth in a high quality way," Dunnigan said during the call.
Tim Hortons reported a 10.3 per cent increase in comparable sales for the quarter ended Dec. 31.
RBI said COVID-19 contributed to labour challenges at its restaurants, which in some regions resulted in reduced operating hours and service modes and supply chain pressures.
Yet the vast majority Tim Hortons locations in Canada are back to normal operating hours with dining rooms reopened to customers, albeit with restrictions such as capacity limits in some provinces, Fulton said.
The company, which keeps its books in U.S. dollars, said it will pay a quarterly dividend of 54 cents per share, up from 53 cents.
RBI said its net income attributable to common shareholders totalled US$179 million or 57 cents per diluted share, up from US$91 million or 30 cents per diluted share a year earlier.
Revenue for the quarter totalled US$1.55 billion, up from US$1.36 billion in the last three months of 2020.
On an adjusted basis, RBI said it earned 74 cents per diluted share in its latest quarter, up from an adjusted profit of 53 cents per diluted share a year earlier.
Analysts on average had expected an adjusted profit of 69 cents per share and US$1.52 billion in revenue, according to financial markets data firm Refinitiv.
This report by The Canadian Press was first published Feb. 15, 2022.
Companies in this story: (TSX:QSR, TSX:QSP)
Brett Bundale, The Canadian Press