Paul Bagnell

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Canadians got some sobering insight on how the country’s fast-food sector is faring amid the COVID-19 crisis, when the two companies behind A&W burger restaurants issued a statement on Sunday.

Those two companies are A&W Food Services of Canada – a privately-held company that owns or franchises the country’s 925 A&W outlets –  and A&W Revenue Royalties Income Fund. The latter is publicly traded, and collects a three-per-cent royalty on revenue from Food Services and passes that royalty on to unitholders in cash distributions.

Sales at A&W restaurants have plunged by 50 per cent since March 13, the companies said Sunday. This includes the effect of the closure of 220 restaurants. (The companies say the restaurant sector as a whole in Canada has experienced a 60-per-cent drop).

The companies did not offer an estimate on when the fast-food sector will recover from losses like that, suggesting it could take up to two years for normal sales levels to resume.

Unitholders will feel some of the pain.  Their distributions have already been suspended, and there may lie ahead a lengthy period of time before distributions resume and recover their pre-crisis levels.

The operating company has already delayed one quarterly royalty payment to the fund, and may do so again.  Those payments could be delayed until late December of 2021. And, of course, lower burger sales mean lower royalty payments. And, as the fund told its unitholders, lower royalty payments will mean a corresponding decline in “funds available to distribute to unitholders of the fund.”