Should Tim Hortons brace for job cuts?

The mood among thousands of employees at Tim Hortons Inc this week has more than likely undergone a stark transformation, company watchers say, from optimism to uneasiness.

News that Burger King is merging with Canada’s biggest and most iconic coffee chain is being hailed by big business and politicians as a win for the company and country. But for many Tim Hortons employees at regional offices, distribution centres and manufacturing facilities, the blockbuster deal could see them out of a job.

3G Capital, the big investment fund that owns Burger King and will become the majority owner of a joint Tim Hortons/Burger King company (see chart), has made a “commitment to Canada” as part of the bid. It includes a pledge of “no changes to restaurant-level employment” among other promises.

“There may not be cuts at the store level, but are there going to be cuts at virtually every other level? Yes,” said an investment expert close to Tim Hortons who is well aware of the new corporate overlords taking the helm at Tims.

Earlier this week, 3G execs who will become the new bosses of Tims were purposely vague about their plans, experts say, deflecting questions about “synergies” that could be realized by combining Tims with Burger King then cutting away pieces deemed a drag on profits.

“Synergies are difficult to talk about because they mean nasty things like job losses,” CIBC World Markets analyst Perry Caicco said in a note to clients. “But the new company’s own presentation mentions an opportunity for significant synergies.”

Reputation precedes it

3G comes with a reputation for slashing budgets and head count at companies it gains control of. About 450 middle managers and higher-ups were fired from Burger King when it was acquired by 3G in 2010.

More recently, Heinz has dumped 3,400 positions across the food processing company since being acquired by the New York and Rio-based investment fund in February 2013.

A cold rationality at 3G driven by a thirst for bigger profits fed into a decision to close Heinz’s longstanding Leamington, Ont. ketchup factory in June.

The anchor of Canada’s anointed tomato capital in southwestern Ontario, the 105-year-old facility provided stable, well-paying jobs to generations of Canadians.

MORE: In Canada’s tomato capital, there’s life after ketchup

Cut where?

Tim Hortons doesn’t directly employ the tens of thousands of full- and part-time staffs at the 3,600 or so franchisee-owned locations in Canada. But it does directly employ 2,150 people spread across its headquarters in Oakville, Ont., five distribution centres throughout Canada and 12 regional offices.

Tims distribution centres are located in Guelph, Ont., Kingston, Ont., Langley, B.C., Calgary and Debert, Nova Scotia. Another facility is owned in Vaudreuil Dorion, Que., according to regulatory filings.

There are three manufacturing facilities as well, based in Hamilton, Oakville and Rochester, New York, while 500 workers staff 14 company-owned Tims locations.

Experts say 3G will be looking closely at those behind-the-scenes operations to see where it can gain efficiencies between Tims and Burger King’s own delivery systems.

CIBC’s Caicco and others warn that if 3G slices too deeply into Tim Hortons, it risks damaging the company’s culture and reputation, which could see employees – and customers – turn their back on it.

“They will need to be careful about the culture and the workforce,” Caicco said.

Still, experts suggest Tims already runs a cost-effective business, and 3G won’t have much if any trimming to do.

“There’s little chance Burger King can bring better management to Tim Hortons’ cost structure or productivity in the first couple years,” Caicco said. “If there are costs to cut at Tims, management either would have, or will, cut them shortly.”

Analysts expect Burger King to take Tims over formally before the end of the year.

“If you had a business that wasn’t performing as well as Tim Hortons is, you’d see the worst of 3G come out,” Prof. Wong added. “But it isn’t broke, don’t try and fix it.”

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