‘Happy guests and happy franchisees’: Tim Hortons parent shakes up executive ranks amid solid results

Restaurant Brands International Inc., the parent company to Tim Hortons, made major changes to its leadership team on Wednesday amid a continuing push to expand its stable of fast food brands globally.

The changes will see Daniel Schwartz, 38, who has held the role of CEO since the genesis of RBI — a conglomerate that controls Tims, Burger King and Popeyes Louisiana Kitchen — become executive chairman, while Burger King president Jose Cil takes over as chief executive.

“If we get happy guests and happy franchisees, we are able to grow and grow exponentially,” Cil said in an interview Wednesday. “That’s the formula, that’s the focus.”

In a call to investors Wednesday, Schwartz insisted he will remain hands-on at RBI, which he has been helping to build since his early 30s.

“Titles aside, I’m going to be way more active than a typical chair,” Schwartz said, assuring investors that he and his partners at 3G Capital, all major shareholders in RBI, had no plans “to sell any of our equity.”

Schwartz, who helped Brazilian investment firm 3G Capital merge Tims and Burger King into RBI in 2014 after serving as CEO of Burger King, will also become co-chairman of RBI’s board along with assuming other responsibilities as a partner with 3G.

“I’m not going to be the CEO of another company.”

The announcement of the executive shuffle came along with the release of preliminary fourth-quarter results that signalled significant progress in the company’s efforts to turn around Tims, which has been beset by disputes with franchisees and slowing sales growth.

In those preliminary results, RBI reported that Tim Hortons’ same store sales grew 1.9 per cent globally and 2.2 per cent in Canada in the fourth quarter — its best results in two years, according CIBC analysts.

As further proof of its “confidence in the long-term outlook,” RBI’s board also announced it would increase its quarterly dividend to 50 cents.

In a research note Wednesday, the CIBC analysts said the sales figures exceeded expectations, proving that tweaks to Tim Hortons’ menu, such as all-day breakfast, along with a new back-to-roots marketing strategy and better franchisee relations are “undoubtedly making an impact.”

“We had not specifically expected a management change,” the analysts wrote. “But the promotion of Jose Cil acknowledges an excellent performance at Burger King…. We do not believe these moves reflect any change in strategy.”

Cil brings an expertise in franchise relations — a department that Tim Hortons specifically has struggled with in recent years, after a public battle with a group of discontented store owners. But Schwartz said the troubles were over, pointing to a fourth-quarter franchisee conference as one of several Tim Hortons efforts to mend relationships.

“Our relations with our franchisees are as good as they’ve been,” Schwartz said.

(The Great White North Franchisee Association, which says it represents angered franchisees, declined to comment on Wednesday.)

The shakeup at the helm of RBI is only meant to better reflect the day-to-day realities, with Schwartz focused on strategy and Cil focused on expanding RBI’s brands globally, Schwartz said.

“I’m going to be a very active — very active — board member,” he said. “Jose’s smiling as I’m saying this.”

BMO taps Wells Fargo executive to lead Global Asset Management unit

Bank of Montreal sent another signal Wednesday that it is serious about building its asset management operations in the United States, announcing that an outgoing executive of California-based Wells Fargo & Co. would be taking over as CEO of BMO Global Asset Management.

The appointment of Kristi Mitchem is effective March 18, BMO said. She will succeed Richard Wilson, who had been in the role since 2014 and who is retiring.

“Kristi is highly respected across the industry,” said Darryl White, CEO of BMO, in a press release. “I look forward to her joining our team and building on Richard’s success in leading BMO’s asset management business to drive exceptional performance and service for our clients.”

Mitchem, who also has experience at State Street Corp., BlackRock Inc. and Goldman Sachs Group Inc., was head of Wells Fargo Asset Management, where she oversaw approximately US$500 billion in assets under management. BMO GAM has more than $320 billion in assets.

The move comes a few months after BMO said it was aiming to double its wealth management-related earnings over the next five years.

At an October investor day, the head of BMO Asset Management noted that the bank had 19 per cent of its assets under management in the U.S., but that the U.S. market represented 50 per cent of a $100-trillion global asset pool.

“And so clearly in the U.S. we’re undersize,” an executive said at the time.

BMO said Mitchem will report to Joanna Rotenberg, the group head of BMO Wealth Management.

“(Mitchem’s) asset management expertise, creativity, and technological acumen will be a strong catalyst in our next chapter of growth,” Rotenberg said in the release.

The appointment of Mitchem speaks to the “growing international flavour” of asset management among Canadian banks, which have “absolutely dominated” that space within Canada over the past 10 to 15 years, Barclays Capital analyst John Aiken said.

“We’ve hit what one might call a saturation point, where you’re going to continue have growth, because Canadians are going to continue to save. And the banks, given their influence over distribution, are going to … presumably continue to get the lion’s share of sales,” Aiken said.

“But, if you’re going to look to continue to grow the platform at a stronger clip, you have to look for larger markets, and the U.S. remains the largest wealth management sector in the globe.”

The U.S. asset management industry has been hit harder by the passive-investing trend than Canada’s thus far, Aiken said, which is experience Mitchem could bring to BMO.

She is at least the second Wells Fargo veteran the bank has recruited for a high profile role in recent years; Brett Pitts was named chief digital officer in November 2017.

Mitchem will step into her new role as other big Canadian banks have made moves to enhance their own wealth businesses, adding to their slates of investment products and looking outside Canada’s borders for growth.

Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne

Why a declining population could actually help economies

Trade wars. Currency movements. Trade balances. Normalizing interest rates. Combating climate change and poverty. Year after year, the G-20 discusses the same narrow range of issues, never agrees on very much and follows up on even less with any real action. But this year might just be different. The Japanese are taking the chair and, to their credit, they have decided to put something that genuinely matters at the top of the agenda, namely demographics.

Even more striking, they are challenging a cozy consensus of the past couple of decades. Most mainstream economists and policymakers take it for granted that a declining population is bad for the economy and we need to do all we can to reverse it. But the Japanese are starting to argue that it may not be true. Technology might mean that we need fewer people, while all the services required by the elderly might actually stimulate demand. If true, policies to combat an aging population might be a big mistake.

Whether the Japanese ever actually get to force any new ideas on to the G-20 agenda remains to be seen. Some crisis or other, from a stock market collapse, to a chaotic Brexit, to a recession in China, may well engulf the world and demand the attention of the presidents, chancellors and finance ministers who normally attend its summits. With luck, however, they will find some time to pay attention.

Haruhiko Kuroda, governor of the Bank of Japan, kickstarted the debate with a speech that had the not-completely snappy title Demographic Changes and Macroeconomic Challenges. The consensus, the governor conceded, was that a falling population made it very hard for an economy to grow.

On one level, it is easier to see why that is true. After all, total GDP is just output multiplied by the number of workers, so if you have fewer people you automatically get lower GDP even if every individual produces the same amount, or even a bit more. Aging populations are less innovative and dynamic, and all those old people cost a heck of a lot to look after. The net result? Growth grinds to halt and government deficits rise and rise. Indeed, plenty of economists have started to argue that the general slowing of growth and productivity over the past two decades, and especially since the crash of 2008, are an early sign of the impact of the gradual aging of the whole industrialized world. Whichever way you look at it, it’s all bad.

Kuroda’s significant point, however, was this. Maybe that is not quite the whole story. It’s possible, he argued, that an aging population could be completely fine. Rapid progress in technology, such as robotics and artificial intelligence, means that we might need far fewer workers than in the past, while improving productivity (indeed, slightly oddly, at the same time as we worry about not having enough workers, we also worry about what to do about mass unemployment created by robotics). In fact, a shortage of workers will put pressure on companies to improve productivity.

At the same time, demand for labour-intensive industries for the elderly, such as healthcare and leisure, can boost demand and kickstart entrepreneurship. There is some truth in that, as well. The cruise-ship industry probably wouldn’t be booming quite so much without so many retired people around. On top of that, it is not necessarily true anymore that only the millennials are dynamic and innovative. The biggest growth in startups is coming from entrepreneurs aged 50 and older.

On the financial side, as pensioners cash in their savings, that too can stimulate demand and drain the glut of capital that has built up while populations were younger. The conclusion? A falling population is not necessarily as bad for the economy as usually assumed. More provocatively still, aging nations might be able to outperform younger ones.

That is of course especially relevant to Japan, where the working age population peaked in 1995 and its total population in 2008. Unlike just about every other major country, Japan has not tried to stem its declining numbers through immigration, remaining relatively closed to outsiders.

Despite the recent influx of immigrants into Germany, its population is forecast to fall to under 70 million from 81 million over the next three decades (indeed, fascinatingly, Britain will almost certainly become the largest country in Europe). Italy is going the same way, with its population of 60 million set to fall to 50 million by the middle of this century. The U.K.’s population is roughly stable, but that is mainly because of immigration. As it leaves the EU, Brits will have to decide whether they want to accept a falling population, like Japan, or keep very open borders to maintain total numbers.

The conventional economic wisdom has been that countries need rising populations and that without them growth will stagnate and welfare systems will be unsustainable. Investors fret over demographic trends and steer clear of countries with falling populations, such as Japan, because they assume they cannot grow. And yet, in truth, this is uncharted territory. We haven’t actually seen an example of an industrialized, wealthy country with a falling population before, so we can’t say for certain what will look like. The results from Japan are not especially encouraging — growth has stagnated, although when you measure GDP per person the figures are far better — but it is still very early. Maybe it won’t be so bad after all?

‘Real spillovers’: UBS boss tells Davos a no-deal Brexit would do global harm

DAVOS — The volcanic effects of a no-deal Brexit would have unthinkable consequences for the global financial system and must be avoided at all costs, the leader of the world banking union has warned.

“An unmitigated, uncontrolled Brexit is the worst outcome we could imagine. Nobody wants this kind of tail-risk,” said Axel Weber, head of UBS and chairman of the Institute of International Finance (IFF).

“A no-deal would create real spillovers not just for the United Kingdom but for the European and for the global economy,” he said, speaking on the margins of the World Economic Forum in Davos.

Continued brinkmanship by both sides with just weeks to go before the withdrawal deadline on March 29 is starting to rattle nerves as far away as Washington and Tokyo. It is understood that IFF’s global board discussed the risks at a meeting in Zurich on Monday before the members went on to the Alpine resort.

London is home to 80 per cent of Europe’s capital markets and is the epicentre of the world’s US$660 trillion nexus of derivatives.

The City’s key role in the plumbing of global finance is poorly understood by leaders of most EU states and by officials in the European Commission, often lawyers with little feel for markets. This raises the risk of a serious misjudgment.

There could be major problems as swaths of contracts are suddenly reclassified even if there is a Brexit deal. An acrimonious rupture would threaten continuity of legal contracts and an instant financial shock. Weber, a former president of the German Bundesbank, said awareness was dawning that a no-deal would have dramatic implications. “I am of the firm belief that governments are coming to reason and will not let it happen. There has been a step up in discussions and I am confident there will be a deal at the 11th hour,” he said.

European banks are already in some distress as the eurozone struggles with a manufacturing recession, and the world’s central banks drain liquidity. The STOXX Europe index of bank equities has fallen by 35 per cent over the past year. It is close to levels seen in the depths of Europe’s debt crisis.

The business model of European banks is already in question as they are outflanked by technology upstarts. Chronically weak profits have left them trading at just 60 per cent of book value. The nagging concern is that many banks will not survive another major downturn.

European banks have borrowed heavily on the offshore dollar lending markets, often on three-month maturities that have to be rolled over constantly. They lack their own dollar deposit base. This is inherently treacherous because these markets can seize up in a crisis.

Weber takes a contrarian line on the shifting moods of financial markets. Last year in Davos he poked fun at the elites for optimism “bordering on euphoria.” At the time central banks were tightening, China was slowing. Markets were priced for perfection.

“All investors were positioned on one side. Headwinds were going to lead to a major repricing,” he said. It happened in October, and again in December. This year investors may have swung too far in the other direction, toward pessimism.

Weber said central banks had read the writing on the wall and would keep the expansion alive with a dovish tilt. World economic growth is settling down to trend levels. There are signs of a trade thaw between Donald Trump and China’s Xi Jinping. Trump will do a deal just as he did over NAFTA.

“I think the tail risks are actually less severe this year,” he said. Brexit remains the wild card.

Bank of Canada’s next rate move depends on data, says Stephen Poloz, but hike still on the table

Bank of Canada Governor Stephen Poloz said he is keeping a close eye on developments in the nation’s housing market, as well as global trade tensions and the impact of lower oil prices, as he gauges the timing of his next interest rate increase.

In an interview with Bloomberg TV at the World Economic Forum in Davos, Switzerland, Poloz cited those three issues as key determinants of future policy, even as he reiterated his belief that borrowing costs are still likely to go higher.

“It’s data dependent,” Poloz said. “It will depend on how the economy responds to the shocks we’ve described.”

The comments are in line with recent indications from the central bank that there’s less urgency in its push toward higher interest rates as the economy grapples with slumping oil prices. After five interest rate increases since mid-2017, markets are now anticipating the central bank will have no more than one more rate increase lined up before pausing indefinitely.

Unsettled Housing

One issue the Bank of Canada has been monitoring closely is the economy’s sensitivity to higher rates, particularly in housing, where the the increased borrowing costs have led to a a slumping activity in major markets like Toronto and Vancouver. As he gauges future policy, Poloz said Wednesday the housing market hasn’t “quite settled down” and he’d like to see it stabilize to know “where we stand.”

The comments on housing “suggests to me we may be on a pause for awhile,” given the recent weakness in home sales and prices,” Craig Fehr, strategist at Edward Jones & Co., told BNN Bloomberg Television after the Poloz interview.

At the same time, Poloz fended off criticism that recent tightening by some central banks was ill conceived and said higher interest rates will eventually be warranted in Canada given the economy is already at near capacity with inflation at target.

“We are at a stage in the cycle where it always looks like monetary policy is doing the wrong thing,” Poloz said. Given the economy is “near its steady state, interest rates also should be near their steady state.”

Poloz said the actual level of that steady state is still “an open question” but the central bank estimates it’s between 2.5 per cent and 3.5 per cent. The Bank of Canada’s policy rate is currently at 1.75 per cent.

Bloomberg.com

China ‘absolutely necessary’ for Ontario Teachers’, CEO says

Ontario Teachers’ Pension Plan has a long-term plan for China that’s unlikely to be derailed by political tensions, its chief executive officer said.

“China’s a long game from our perspective and while there’s always skirmishes of one kind or another, in the short term, we believe that it’s absolutely necessary to be there,” Ron Mock said in a Bloomberg Television interview Wednesday at the World Economic Forum in Davos. The fund invests a lot in technology in China which is very different than doing so North America, he said.

Mock’s comments come as relations between Canada and China are at one of the most strained in their history. Canada is holding Meng Wanzhou, chief financial officer of Huawei Technologies Co. in Vancouver at the request of the U.S. who want to extradite her while China has detained two Canadians and sentenced a third to death on a drug charge.

The Toronto-based fund is Canada’s third-biggest pension plan, with about $194 billion (US$145 billion) in assets, and oversees the retirement savings of 323,000 retired and working teachers in the province.

OTPP is also ready to invest billions of dollars in Brazil now that the worst seems to be behind for the Latin American country, Mock said. Brazil plans to sell a large number of state-owned companies are nearly ready, President Jair Bolsonaro said in an interview with Bloomberg on Wednesday in Davos. Sales will include airports and ports, he said.

“Those kinds of things don’t come on the market very often. And if it’s the right asset with the right partners, we’re not shy about moving into it,” Mock said. “It could be billions or tens of billions in some cases, let’s just say it could be billions.”

Mock said that OTPP’s assets in Brazil have “performed extremely well” and that he has teams on the ground and that the opportunity set is starting to pick up.

–With assistance from Erik Schatzker.

Bloomberg.com

McDonald’s riles franchisees with demand to pay for kitchen wall in remodelling plan

McDonald’s Corp. has its own wall problems. They’re both literal and metaphorical.

The world’s biggest restaurant company is creating strife with its U.S. franchisees by including a new wall in a remodelling plan. McDonald’s restaurant owners are arguing that adding a barrier between cashiers and kitchens — intended to hide unsightly kitchen equipment — is a waste of money and doesn’t help customer service or operations, according to letters and an email viewed by Bloomberg News.

“We can NOT afford the waste that a ‘one size fits all’ reinvestment program creates,” McDonald’s franchisees said in a letter this month to fellow store operators. “We must allow our owner operators to take back control of the reinvestment that is happening, stop the useless and problematic investing (Sam Walls), and focus our reinvestment in what will actually produce a return on investment (drive thrus and kitchens).”

The division shows how McDonald’s big push to revamp thousands of U.S. locations has encountered hiccups lately. In an effort to stay ahead of fast-food competitors and keep same-store sales growing, Chief Executive Officer Steve Easterbrook is championing remodels that include self-order kiosks, new systems for delivery orders and extra drive-thru lanes at some restaurants. But the company recently said it’s delaying those renovations by several years to appease franchisees who have complained about the expensive changes.

Franchisees own more than 90 per cent of McDonald’s 37,000 locations globally. The so-called SAM walls — short for service area modernization — would potentially hide equipment, or a cluttered kitchen. It syncs with the company’s move to appear more upscale and its recent addition of table service.

While McDonald’s doesn’t comment on internal discussions, the company is “committed to continuing to work closely with our franchisees so they have the support they need to run great restaurants and provide great quality experiences and convenience for our guests,” according to an emailed statement from spokeswoman Andrea Abate.

New Association

A new group of McDonald’s franchisees formed last year to foster “true collaboration” with the parent company. The group, dubbed the National Owners Association, has held meetings to discuss concerns such as cash flow and profitability. Last month, more than 1,200 McDonald’s franchisees and suppliers gathered in Dallas. Key among the concerns is the remodel additions that include the contested wall.

Renovations such as a large wall can be costly for franchisees, who say a proposed barrier could also create security concerns, according to a survey of about 245 McDonald’s store owners that was viewed by Bloomberg News. Kitchen staff wouldn’t be able to see the dining room or customers entering and leaving the restaurant. The survey was done by the National Owners Association.

In a letter dated Jan. 15, the group’s president Blake Casper said that franchisees should stop their remodel projects if they think the walls are a wasted investment. Casper, also a McDonald’s store owner, and the group declined to comment.

Bloomberg.com

Dyson, whose founder is a vocal Brexit supporter, is moving its head office out of Britain to Singapore

Dyson, the British appliances company founded by a vocal supporter of Britain’s departure from the European Union, has decided to leave for Singapore.

The company, which makes vacuum cleaners and hair dryers and has an electric car in the pipeline, is moving its headquarters from Malmesbury, in southwest England, to Singapore in response to demand for its products in Asia, the company said Tuesday.

“An increasing majority of Dyson’s customers and all of our manufacturing operations are now in Asia,” the company said in its financial report. “This shift has been occurring for some time and will quicken as Dyson brings its electric vehicle to market.” The company said it would also double the size of its technology centre in Singapore.

The company insisted the relocation of the headquarters would involve only two job moves: Jorn Jensen, the chief financial officer, and Martin Bowen, the general counsel, will move to Singapore. Overall, the company said, it employed more than 12,000 people around the world, with more than 4,500 in Britain.

A spokeswoman said the move was not a response to Britain’s plan to leave the EU, known as Brexit, or conditions in Britain. “We remain committed to the U.K., but are growing quickly in Asia, too,” she said.

Still, that did not stop people on Twitter from suggesting that the move was hypocritical and contradicted claims by James Dyson, the company’s founder and chairman, that the country would be better off outside the EU.

Singapore signed a free-trade agreement with the EU in October, but Britain’s relationship with the bloc remains unclear, as it is still negotiating its departure.

“Dyson’s decision to move his HQ to Singapore reflects his narrow business interest,” said Sam Gyimah, a Conservative member of Parliament, on Twitter. “Betrayal of the public who put their faith in him as a British business advocating a No Deal Brexit.”

Dyson told The New York Times last year that “Europe is a protectionist setup designed to keep competitors out. It’s not a good thing to be in.”

“It was the right decision for Britain,” he said of the vote to leave.

In a conversation with the BBC about Brexit last year, Dyson also praised Singapore’s ability to change. When asked about how Britain would make money around the world, Dyson said, “We’ve got to refocus ourselves, as indeed Singapore did 50 years ago when it split from Malaysia.”

The company, which started by making vacuum cleaners, has become a ubiquitous presence across the country, with electric hand driers adorning the walls of many public bathrooms and air purifiers and hair dryers in many homes.

Dyson, 71, has lost none of his charm, lending his voice to TV commercials for the company’s products. He remains the face of the company and is now one of Britain’s richest people, as well as a knight.

The New York Times