U.S. Markets closed

Edited Transcript of AW.UN.TO earnings conference call or presentation 16-Oct-19 8:00pm GMT

Q3 2019 A and W Revenue Royalties Income Fund Earnings Call

North Vancouver Oct 21, 2019 (Thomson StreetEvents) -- Edited Transcript of A and W Revenue Royalties Income Fund earnings conference call or presentation Wednesday, October 16, 2019 at 8:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Donald T. Leslie

A&W Revenue Royalties Income Fund - CFO

* Susan D. Senecal

A&W Revenue Royalties Income Fund - President & CEO

================================================================================

Conference Call Participants

================================================================================

* Elizabeth Johnston

Laurentian Bank Securities, Inc., Research Division - Analyst

* Tom Burke

Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, everyone, and welcome to the A&W Revenue Royalties Income Fund Q3 2019 Results Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Susan Senecal. Please go ahead.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [2]

--------------------------------------------------------------------------------

Thanks, Lynette. Good afternoon, everyone, and thanks for taking the time to attend our call today. I'm Susan Senecal, President and CEO of A&W Food Services of Canada, Inc. and CEO of the A&W Revenue Royalties Income Fund. With me on the call today is Don Leslie, who's the Chief Financial Officer of A&W Food Services and the Fund; [Jenna Judith,] Controller of A&W Food Services; and Lisa Marzocco, the Director of Finance of A&W Food Services.

The results we're presenting today are for A&W Revenue Royalties Income Fund for the third quarter ended September 8, 2019. We're pleased to report that A&W restaurants achieved another quarter of positive sales performance with same-store sales growth of 1.2%. This result is achieved after a record performance of 13% same-store sales growth in the third quarter of 2018, bringing the 2-year stat same-store sales growth to 14.2%. Year-to-date 2019 same-store sales growth is now at 6.9%.

I will review our sales performance and strategic initiatives in more detail at the end of our call, but now I'll turn things over to Don, who will review the Fund structure and go through the financial results for the quarter. Don?

--------------------------------------------------------------------------------

Donald T. Leslie, A&W Revenue Royalties Income Fund - CFO [3]

--------------------------------------------------------------------------------

Great. Well, thank you, Susan. So before we can tell you much more about our results, I just need to read the following comment on forward-looking information. Certain statements in this presentation may be forward-looking in nature. These include references to liquidity, earnings and anticipated earnings from growth in same-store sales and new restaurant openings.

Actual results may differ from those expressed or implied in these forward-looking statements. The forward-looking statements contained in this presentation are subject to a number of risk factors, including the ability of A&W Food Services of Canada to implement its strategies regarding the marketing of the A&W system and the opening of new A&W restaurants, general economic and business conditions, financial and political instability and other factors disclosed previously and from time-to-time in the Fund's public filings. So any forward-looking statements in this presentation really should be evaluated in light of these important factors. With that, I'll now just spend a few moments reviewing the Fund structure and then go through the financial results for the quarter and year-to-date. After that, Susan will review our sales performance, strategies and outlook. We'll be happy to answer your questions at the end of our call.

So for those of you who might not be familiar with the Fund structure, I'll just quickly review the highlights. The Fund currently owns 80.4% of A&W Trade Marks Inc., which through its interest in A&W Trade Marks Limited Partnership, owns the A&W trademarks used in Canada. These trademarks include some of the best-known names in the Canadian foodservice industry, including A&W Root Beer, The Burger Family and Chubby Chicken. The Fund earns income through its ownership interest in A&W trademarks, who through the partnership, licenses the A&W trademarks to A&W Food Services. In return for the use of the trademarks, Food Services pays A&W Trade Marks a royalty of 3% on the sales of their restaurants -- of the A&W restaurants in the Royalty Pool. Royalties lost due to the permanent closure of restaurants are replaced with royalties from new restaurants at the time of the next expansion of the Royalty Pool. Until then, Food Services continues to pay the royalty as if the restaurant had not closed.

I want to emphasize that the distributable cash available to make distributions to unitholders is based on the sales of the restaurants in the Royalty Pool with only minimal operating expenses associated with operating the Fund. This is a top line fund, meaning it is not subject to variability of earnings or expenses associated with an operating business. An important aspect of the Fund is that Food Services owns the equivalent of 19.6% of the units of the Fund through its ownership of common shares of the A&W Trade Marks. As a result, interest of Food Services are, therefore, closely aligned with the interest of unitholders. Growth in the Fund is achieved in 2 ways: first, and most importantly, by increasing the same-store sales of the restaurants in the Royalty Pool; and secondly, by adding new restaurants to the pool each year. On the second point, the Royalty Pool is expanded at the beginning of each year by adding new A&W restaurants opened in the past year, less any restaurants, which are permanently closed. On January 5, 2019, the Royalty Pool was increased from 896 to 934 restaurants.

Now I'll go through our financial results for the third quarter of 2019 as compared to the third quarter of 2018. The news release issued earlier today outlines most of the financial results of the Fund while the interim financial statements and MD&A will be released early next week. Sales reported by restaurants in the Royalty Pool increased by 5.8% to $370 million in the third quarter of 2019 and by 11.7% year-to-date to $1.03 billion. Royalty income for the quarter was $11.1 million, an increase of $605,000 from the same quarter of 2018. Year-to-date royalty income was $30.9 million. This is an increase of $3.2 million from 2018 year-to-date. The increase in sales and corresponding increase in royalty income was driven by the 6.9% year-to-date same-store sales growth and the additional sales from the net 38 restaurants, which were added to the Royalty Pool on January 5, 2019. Of significant interest to unitholders is the amount of distributable cash being generated and the payout ratio.

Total distributable cash generated in the quarter was $8.4 million or $0.474 per equivalent unit as compared to $8.3 million or $0.496 per unit in the same quarter of 2018. The $53,000 increase in distributable cash was due to a $605,000 increase in royalty income and a $50,000 decrease in G&A expenses and interest expense versus $600,000 increase in the current income tax expense. At the end of the quarter, the cumulative surplus of distributable cash on hand was $8.1 million. This is compared to $7.7 million at the beginning of the year.

Surplus distributable cash historically decreases in the first half of the year due to the seasonality of sales in A&W restaurants and the Fund maintaining a consistent payout ratio throughout the year. On a trailing 4-quarter basis, the payout ratio now stands at 93.5% compared to 93.2% at the end of Q3 last year. The payout ratio for the quarter is 89.9% compared to 79.3% for Q3 last year. The quarterly payout ratio historically increases in the first half of the year due to the seasonality of sales on A&W restaurants.

Monthly distributions declared payable to unitholders in the quarter totaled $0.472 per unit. This compares to $0.42 per unit last year. Dividends to Food Services were declared at the same rate as distributions to unitholders. The Fund will continue to periodically review distribution levels and distribute available cash in order to maximize returns to unitholders and maintain uniformity of distributions. So with that, I'll turn things back over to Susan to discuss our progress on our strategic initiatives.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [4]

--------------------------------------------------------------------------------

Thanks, Don. And we're pleased by the positive sales performance in the third quarter with same-store sales growth of 1.2% as compared to the same quarter of 2018. Our same-store sales growth continues to be led by strong growth in BC, Québec and Ontario. Strategic initiatives, including repositioning and differentiating the A&W brand through innovation with high-quality ingredients, continued rapid new restaurant growth and delivering an industry-leading guest experiences are all key to delivering strong results and improved market share in the quick service restaurant burger market.

As we've discussed in previous calls, one of the drivers behind our sales growth is our innovation with high-quality ingredients that guests can feel good about. A&W continues to redefine what Canadians can expect from a quick service restaurant by giving them great tasting food, made with care from quality ingredients. We have led the industry in sourcing better ingredients since 2013 when Food Services became the first national quick service restaurant in Canada to use only beef raised without the use of hormones and steroids, free of additives, fillers or preservatives.

In 2014, we began to serve chicken, which was raised without the use of antibiotics and fed of grain-based vegetarian diet as well as eggs from hens fed with full vegetarian diet without animal byproducts. Then in 2015, organic fair trade coffee was introduced, which was another first for national QSR in Canada.

In 2016, Food Services became the first national QSR in Canada to use bacon from pork that is raised without the use of antibiotics and also announced that A&W restaurants switched to French's ketchup and mustard made with 100% Canadian tomatoes and 100% Canadian mustard seeds.

In 2017, we launched all-day breakfast, our menu innovation, which was enthusiastically received by our guests. And then, we reached another important milestone with the launch of the new Root Beer Guarantee. A&W Root Beer served in our restaurants is now made from natural cane sugar and all natural flavors, another first for the QSR industry.

We continued this journey in 2018, further strengthening our positioning as a leader in food and innovation with the introduction of the Beyond Meat Burger. Food Services was very excited to be the first national burger chain in Canada to offer burger lovers across the country this burger patty made with 100% plant-based protein. The Beyond Meat Burger is great for anyone who wants more plant-based options in their diet.

And in Q4 of 2018, A&W took another big step with the move to using real cheese on all burgers and breakfast sandwiches. A&W's real cheeses include cheddar, mozzarella, jalapeno jack and cheddar cheese curds, all made in Canada. All processed cheese has been removed from our menu.

The strategy also includes the ongoing reimaging and modernizing of our existing restaurants and innovation in technology. Our new Good Food Makes Good Food design is now being introduced to restaurants to communicate Food Services ingredients guarantees to our guests. Costs of reimaging A&W restaurants are borne by the franchisees and there is no cost to the Fund.

We've also been focused on our commitment to be an industry leader in guest experience. As discussed previously, Food Services introduced changes in its satisfaction measurement and feedback systems, system-level processes, staffing, climate and restaurant equipment. Our new guest experience systems are popular with our franchisees and have rolled out rapidly, getting good traction in delivering a better guest experience.

A&W is also expanded upon its strategy to reach more consumers by joining forces with Uber Eats, SkipTheDishes, DoorDash and Foodora to make ordering and enjoying A&W's menu options more convenient and accessible in more parts of the country. For those looking for the convenience of delivery who don't have a chance to visit a restaurant, it's a new way to enjoy their A&W favorites from the comfort of home or wherever they may be.

And to update you on our progress in opening new restaurants, 10 new A&W restaurants were opened across the country in the third quarter of 2019, bringing the year-to-date total to 25. 18 of the 25 new restaurants were opened in key -- Ontario and Québec markets. Our pipeline of new restaurants under development remains very strong. We currently have 24 new restaurants under construction that are expected to open in the coming months with many more in varying stages of permitting.

I'd also like to mention another highlight of the third quarter, A&W's 11th Annual Burgers to Beat MS Day. On August 22, Food Services donated $2 from every Teen Burger sold to the MS Society of Canada as part of the campaign, which raised more than $2 million. In 11 years, the annual campaign has raised more than $15 million, which has been used to fund world-class MS research programs and services and advocacy efforts that aim to improve the quality of life for Canadians living with and affected by the disease.

Looking ahead to the fourth quarter of 2019, A&W plans to continue to focus on key strategies that accelerate trial and drive sales, which in combination with the work to improve the guest experience, aim to fuel additional visits and build loyalty. These initiatives are expected to build the competitiveness of the A&W brand and to enhance performance over the long term, which in turn will grow royalty income for the Fund.

We're pleased to see the impact that our commitment to strategy has had. We continue to deliver strong results despite some ongoing challenges in the foodservice industry. Rapid growth of new locations and industry-leading innovation, in addition to the continued efforts to consistently deliver great food and a better guest experience, in combination with reimage progress is winning guest visits and building loyalty, enhancing performance over the long term. We look forward to continued success. Thank you for your attention. And we would now be happy to answer your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We'll hear first from Elizabeth Johnston from Laurentian Bank Securities.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [2]

--------------------------------------------------------------------------------

So my first question is just in terms of traffic-related tailwinds you've had from Beyond Meat. Obviously, it's been more than 1 year now since that product was first introduced. And I'm wondering if you've been able to collect any data in terms of the kind of consumer that you were seeing, either making the switch or coming in for their first time? And has there been any kind of step change with respect to the sales numbers for that product in particular?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [3]

--------------------------------------------------------------------------------

Certainly, we've seen very consistent sales and from a very broad range of guests. Though for some, it's the only burger they'll eat, and for others, it's one that they have occasionally from time-to-time. We still are getting trial of first-time tasters so that's a good news for us. I think it could continue to fuel that layer of our menu into the future.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [4]

--------------------------------------------------------------------------------

And again to put, to the second part of my question, I did notice, I believe, a promotion on this item more recently. Was that in part relating to continuing to promote this trial as you say? Any thoughts on that particular marketing campaign?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [5]

--------------------------------------------------------------------------------

Yes, exactly. You've got it -- certainly, I was really hoping to get people that haven't quite gotten around trying it yet, we hear from a lot of guests. I keep meaning to try it, haven't done that yet. So the way that the people that we're talking to are actually many people on the street that have that same impression and took advantage of the chance to try it. So I think that resonated with both people who already love the burger, but also people who haven't tried it yet.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [6]

--------------------------------------------------------------------------------

Okay. Great. And in terms of menu price increases, I would just say that so far this year or in the quarter, if you're willing to comment that specifically, would you say that you've done -- you've taken the similar amount of pricing as you've done historically?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [7]

--------------------------------------------------------------------------------

Yes. And so -- about similar to historical, correct.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [8]

--------------------------------------------------------------------------------

Okay. And just turning onto -- over to a different topic. Do you -- is there a daypart opportunity where you think you could grow faster than the rest of the group? You mentioned in your prepared remarks, the launch of all-day breakfast. Certainly, that was at one point, a strong opportunity. So if you can give any comment on any daypart where you're seeing extra opportunity for growth.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [9]

--------------------------------------------------------------------------------

We think we're really focused. Our business has become much less daypart-focused and much more people lifestyles have changed, and the lunchtime and the breakfast time and the dinnertime, peaks served are more spread out during the day. But I think that we certainly have our eye on all of the different parts of the day and we do have innovation in product at breakfast as well as lunch and dinner. So we're planning to spread it out throughout the year.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [10]

--------------------------------------------------------------------------------

And my understanding was historically breakfast would have represented roughly 15% of your overall sales. Is that still the case right now?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [11]

--------------------------------------------------------------------------------

I think a little bit higher than that right now, but it's in that general range.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [12]

--------------------------------------------------------------------------------

Okay. Great. And you've already alluded again in your prepared remarks to strengthen same-store sales in BC, Québec and Ontario. In terms of the order of which you would rank these, and have you seen any change in that? Or would you say that the strongest is still is the strongest?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [13]

--------------------------------------------------------------------------------

Yes. The strongest have remained the strongest. It's been quite consistent.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [14]

--------------------------------------------------------------------------------

And is that BC?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [15]

--------------------------------------------------------------------------------

For us, it's Ontario and Québec who are leading the pack. It's BC, right in -- right in the midst of it as well.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [16]

--------------------------------------------------------------------------------

Okay. And when it comes to Ontario specifically, as it's been a tough market, both in terms of competition and labor costs, which are for the underlying operating company, obviously, would you -- how has this traffic fared so far in 2019 compared to 2018 in that market specifically?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [17]

--------------------------------------------------------------------------------

We're continuing to see growth.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [18]

--------------------------------------------------------------------------------

Okay. And my final question here is on delivery. If you could just give us an update of how your partnerships are faring. And if you're able to assess if indeed, delivery sales are being -- are incremental sales to the stores in the regions that you operate those programs in.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [19]

--------------------------------------------------------------------------------

Yes. I mean, the success of the different platforms is quite regional in nature. I think it really depends on the delivery company, their ability to recruit drivers, and so on, and their ability to be fast and efficient. So they're all performing very well, but in some regions, there are some that have emerged as a bit of stronger players, but it's not the same one in all of the different regions. As far as incrementality, we see that these sales are largely incremental to our business.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

(Operator Instructions) We'll hear next from a private investor, [Brandon Bruce.]

--------------------------------------------------------------------------------

Unidentified Shareholder, [21]

--------------------------------------------------------------------------------

I was just wondering what's your target for store growth over the next 5 years.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [22]

--------------------------------------------------------------------------------

We're right now on a pace where we're opening -- we've been opening 30 to 40 odd restaurants every year, and we hope to continue that same pace over the next -- for a while.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

We'll go back to a follow-up from Elizabeth Johnston.

--------------------------------------------------------------------------------

Elizabeth Johnston, Laurentian Bank Securities, Inc., Research Division - Analyst [24]

--------------------------------------------------------------------------------

Sorry about that. I just wanted to check in with -- on store renovations. Pardon me, if you already said that, but how many were renovated in the quarter?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [25]

--------------------------------------------------------------------------------

I don't have the number for how -- right now, we've -- it was a good quarter for renovations. I don't remember the exact number.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

(Operator Instructions) We'll move next to Tom Burke from Canaccord Genuity.

--------------------------------------------------------------------------------

Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [27]

--------------------------------------------------------------------------------

I wanted to just bring our attention to an article that was published in the Globe and Mail about a little bit of pushback on the Saskatchewan advertising campaign. I guess, it was around the Saskatchewan Roughrider games. And have you noticed any kind of -- sort of impact from -- was there a pushback in sort of pushing Beyond Meat in a part of the country where people would be a little bit more sensitive to that kind of category promotion et cetera? And just getting your thoughts because there was also a mention of perhaps making a new product announcement that was going to make people from Western Canada pretty happy. So I just wanted you to comment on that.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [28]

--------------------------------------------------------------------------------

Sure. Yes. I think that really -- change is happening really fast in the world. And sometimes that can be a little bit confusing as to what those changes mean for different people, different lines of business, different industries. And I think Beyond Meat has come along and surprised a lot of people with -- that's more on reception it has received from what I think might have been considered people that were not really that interested in a plant-based product. So I think the taste and the texture and all of the attributes have really won over some consumers, but we don't see that as being a shift away from any -- from beef or anything. We really see that a lot of our guests, they have their occasional beyond Meat Burger, they come back for the Teen Burger the next day. And I think what you've probably been reading about in terms of the Saskatchewan Roughriders is that some of the fans were saying, "Gee, why are the Roughriders promoting this"? And so there was a bit of confusion over what was going on. But really, it was just our regular advertising where we go out onto the street and meet with as Canadians, wherever they happen to be. In this case, in the parking lot of the Mosaic Stadium and asked them about their -- what they -- have they tried Beyond Meat and whether they want us to try one out? I mean it was a very successful, I think, afternoon and people seem to love the burgers so we're happy. But I think that some people were afraid that maybe the Roughriders were moving away from beef or from the stock growers that were fans of the Roughriders and that's what caused the back and forth, but it sounds like everyone's had very productive and excellent dialogues. So I think that's all been straightened away.

--------------------------------------------------------------------------------

Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [29]

--------------------------------------------------------------------------------

Okay. And they mentioned about new product introduction in that article, which sort of, it kind of jumped out at me. I found it quite interesting. Is that -- was that misleading? Or was -- are we to -- what are we to take from that comment?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [30]

--------------------------------------------------------------------------------

No. Well, I think one of our comments is A&W is the home of the burger family, and we're constantly looking at new ways, innovation that we can bring to the marketplace in terms of beef and beef burgers. And so the -- we launched the Bison Burger, which was a prairie-raised bison. And that was a burger that we had for Saskatchewan only. So that was, I think a one piece of exciting news for the marketplace, but certainly, we continue to look at all of our burgers and all of our burger family and find ways to bring great taste and great variety to Canadians.

--------------------------------------------------------------------------------

Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [31]

--------------------------------------------------------------------------------

Right. And so on that Bison Burger, so was that kind of like a trial? Or is that something that could potentially be a national rollout?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [32]

--------------------------------------------------------------------------------

I think anything can be a national rollout, but for right then, we'd previously introduced the Bison Burger in Manitoba. Now we've had it success in Saskatchewan as well. It might be the kind of thing that we bring in from time to time or it might be the kind of thing that we would bring in more permanently. It really depends on, I guess, how our supplier partners are doing and how we sort of work out what we want to do in terms of different options across the country in the years ahead, but no, it certainly is a -- it was a nice result.

--------------------------------------------------------------------------------

Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [33]

--------------------------------------------------------------------------------

Okay. And just on that...

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [34]

--------------------------------------------------------------------------------

If you go to Saskatchewan, you should taste it.

--------------------------------------------------------------------------------

Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [35]

--------------------------------------------------------------------------------

Well, no, it sounds right. Well, this is my point. I mean I live in Montreal, it sounds like what I'm trying to sort of goad you on is sort of, by all means, why not try a national rollout? So on that, I mean, you bring up a very good point. So some of these products, which can be extremely innovative, but I think we all appreciate that getting the supply chain really properly locked down and for a 1,000-plus restaurant chain is no easy feat. And is this -- is that sometimes the main sort of hesitation or the main obstacle in terms of a product rollout when you think, wow, it's a great burger. It sounds like a very interesting new and innovative product category. So of course, question is why not and is supply and supply chain a big challenge?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [36]

--------------------------------------------------------------------------------

We have a great relationship with our suppliers. I'd say there's never been a time that I can think of where we said we won't be able to do it, we won't be able to get the supply that we need. And sometimes things are better seasonally and so on. So it's probably the consideration. We always want to make sure that if we introduced something, we have a good supply of it, but I would say that the relationships that we have with some producers across the country enables us to be able to be quite flexible and quite ambitious in our plans.

--------------------------------------------------------------------------------

Tom Burke, Canaccord Genuity Group Inc. - Senior Investment Advisor of Montreal Retail Sales Team [37]

--------------------------------------------------------------------------------

Right. Is it a growth category that sort of alternative (inaudible), say for example, the bison side. Is it a growing -- is there a growing sort of supply in the country to eventually be able to accommodate a large, large supply initiative?

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [38]

--------------------------------------------------------------------------------

Yes. I think what's happening in Canada and has been for several years is that people are becoming much more experimental and wanting to try new things, where that was less the case in the past. And so I think what you're seeing is the idea that different new ideas can be brought to market and quite quickly gain popularity. So that's a good thing in terms of our business, but it's also, I think, a good thing for Canada because it means that lots of innovation can succeed and people can find buyers for what they’re doing.

--------------------------------------------------------------------------------

Operator [39]

--------------------------------------------------------------------------------

And at this time, we have no additional callers in the queue. I would like to turn the conference back over to your host for any additional or closing comments.

--------------------------------------------------------------------------------

Susan D. Senecal, A&W Revenue Royalties Income Fund - President & CEO [40]

--------------------------------------------------------------------------------

Thank you. Well, thanks to all of you for attending our call today. We do look forward to updating you on our results after the next quarter. In the meantime, if anyone has questions that were not answered on our call today or you think of something, please feel free to call either Don or myself at (604) 988-2141. Thank you.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

That does conclude today's teleconference. We thank you all for your participation.