VAUGHAN, Ont. — Recipe Unlimited Corporation reported financial results last week for the 13 and 26 weeks ended June 28, 2020.
“From the beginning of this crisis, we’ve focused on the long-term financial health of our franchisees and are confident that the actions taken throughout this event (including the introduction of Recipe’s rent-certainty program, royalty subsidy and franchisee-payment deferrals), will build and protect the long-term health of our brands and our franchisees,” says CEO Frank Hennessey.
Hennessey says the company was deeply impacted by the COVID-19 pandemic and the corresponding restaurant closures. In the second quarter, the company’s system sales decreased to $389.8 million, or 55.3 per cent, from 2019. While restaurants were closed or partially closed during the second quarter, Recipe experienced a dramatic increase in demand in its off-premise and retail channels with off-premise revenues increased by 55.1 per cent from 2019, while the number of off-premise orders increased to 6.8 million orders, representing a 42.6 per cent increase from prior year. Total contribution from the company’s retail and catering segment was $14.8 million in the second quarter, representing an increase of 105.6 per cent from 2019.
During the health crisis, the company focused on the long-term financial health of its franchise partners by introducing a number of initiatives to provide direct support to franchisees through to the end of 2020, including:
- The Recipe rent-certainty program to assist its franchise partners with direct rent support (estimated to cost Recipe approximately $35 million in 2020)
- A temporary royalty-reduction program, which reduced royalty rates by one per cent
- Working with each franchisee to arrange lender accommodations and expanded credit facilities
In addition, the company took significant measures to strengthen its financial flexibility during the COVID-19 disruption period, including:
- in March 2020, the company drew $300 million on its revolving credit facility to provide liquidity during the COVID-19 period
- in May 2020, the company amended its lending covenants with its banking syndicate and private noteholders. These actions are expected to provide additional liquidity and covenant flexibility during the COVID-19 shutdown and recovery periods
- suspended its NCIB share buyback program and dividend payments for the balance of 2020
- suspended many central, new-store development and corporate-store renovation plans
- implemented various cost-reduction measures, including temporary salary reductions and suspension of board fees, resulting in cost savings of $2.1 million
- restructured certain head-office positions, which is expected to generate annual cost savings of approximately $2.6 million
- for all corporate and franchise restaurants and central leases, Recipe is continuing to negotiate rent deferral or reductions for the COVID-19 disruption period and is applying for CECRA rent subsidies with landlords where applicable
- participating in the CEWS wage-subsidy program where applicable
As of June 28, 2020, many of the company’s corporate and franchise restaurants have gradually re-opened according to the staged approach as set out by the Canadian government. At the end of the second quarter, 90.7 per cent of restaurant locations (or 1,228 locations) have safely re-opened or partially re-opened for off-premise sales and/or patio dining, and 9.3 per cent of its Canadian corporate and franchise restaurants (or 126 locations) remained completely closed.
During the second quarter, Recipe also funded $0.8 million for the purchase of personal-protective equipment for both corporate and franchise locations, to ensure the health and safety of its staff and customers. As the company moves into the recovery phase of the COVID-19 disruption period, it will continue to make the necessary investments to ensure its corporate and franchise restaurants can operate safely.
Management expects that post COVID-19, the restaurant industry will be very different. There will be fewer restaurant seats in the market from competitors that will not re-open and from changes in consumer behaviour. Management believes the company is well positioned with certain brands to build on its off-premise (takeout and delivery) and retail channels because of its established business platforms (IT investments in digital apps for online ordering and relationships with grocery chains).
Management will be redefining its key initiatives and priorities for the balance of fiscal 2020 and 2021, as it evaluates the impact of COVID-19 on its business and the changes it will need to implement in response to the expected changes in consumer behaviour.
Focus on the short to medium term will include:
- expanding dining-room sales by maximizing seating capacity and table turns through strategic seating plans, table separations and/or safety shields between tables and reservation systems, while still maintaining social-distancing protocols with focus on keeping associates and guests safe
- reducing menu size and complexity to deliver on the four-pillar strategy of exceeding customer expectations for food quality, service, value and ambiance, while improving profitability flow through
- manage and improve the long-term health of its network and restaurant profitability by providing tools and guidance to government-assistance programs (in particular the CEWS program), providing rent assistance through the Recipe Rent Certainty Program, reducing and/or deferring non-essential restaurant costs, and working with our franchise lending partners to defer franchisee rent payments and to ensure our franchisees have full access to the emergency loan programs that the government has introduced in response to COVID-19
- actively negotiating early exit and permanent closure of under-performing restaurants
- continue to expand the company’s off-premise business for all brands with digital and mobile-order applications and brand-appropriate features, including curb-side pick-up, pre-order and pay, other payment convenience options and multi-brand offerings such as Ultimate Kitchens
- reduce and adjust overhead cost structure in response to slower growth and revenue reductions, including rent and overhead-cost reductions, and taking advantage of government initiatives such as the wage subsidies to help offset the reduction in revenues. The company expects it will continue to qualify for the government wage-subsidy program (CEWS) for the balance of 2020 and will report the recoveries earned in future quarters