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Good morning. My name is Denise, and I will be your conference operator today. At this time, I would like to welcome everyone to the Conference Call for Recipe Unlimited Corporation 2021 First Quarter Results. [Operator Instructions]Today's conference is being recorded. If you have any objections, you may disconnect at this time.Before turning the meeting over to management, please be advised that this call contains certain forward-looking statements that are based on current expectations and are subject to a number of uncertainties, risks and other factors, which may cause the actual results, performance or achievements of Recipe to be materially different. Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS measures referred to in this call can be found in the company's management discussion and analysis and annual information form available on SEDAR.I will now turn the meeting over to Frank Hennessey, Chief Executive Officer of Recipe Unlimited Corporation. Mr. Hennessey, you may begin your conference.
Thank you, Denise, and good morning, everyone. Thank you for joining today's conference call. On the call with me again today is Ken Grondin, our Chief Financial Officer. We are once again presenting via webcast. So if you're following along, Ken and I will try to call out the slide numbers as we go.So starting on Slide #3, the ongoing gyrations of government mandated shutdowns really continues across the country and I couldn't start this off by not first giving credit to our amazing shared service and brand teams as well as all of our franchise partners and corporate operations teams. I mean, their ability to stay up-to-date with the constant changes to the rules and their agility in adapting their business has been one of the most impressive aspects of this entire affair. We're showing this map on Slide 3 to demonstrate 2 things; first off, the vast distribution of Recipe locations across Canada, and secondly to highlight the concentration we have in Ontario. Apart from what is tragically going on in Alberta this week, it has been Ontario and Quebec that have had the strictest public health measures.Slide #4 shows that during Q1 of 2021, 89% of the company's operating weeks were negatively impacted by restaurant dining room closures and restrictions due to COVID. Breaking this down a bit more, the combination of full closures and dining room only closures accounted for 62% of those weeks, but in addition, another 9% of our operating weeks was negatively impacted by the 10-person rule. This is the logical rule that Ontario had in place, limiting any establishment to 10 persons only, regardless if it was 100 square feet or a 10,000 square feet location.Turning to Slide #5, the number of operating weeks negatively impacted by COVID increased significantly in Q1 versus Q4 fiscal 2020. Full closures and dining room closures accounted for 62% of all operating weeks in the quarter, a significant increase from 43% in Q4. And while we don't normally provide outlook, we thought we needed to give better guidance on how all of these restrictions impact Recipe from quarter-to-quarter. Essentially restrictions have been steadily increasing since Q3 of fiscal 2020. To-date in Q2, 78% of our operating weeks have had full or dining room only closures. This is our most restrictive times since the first few weeks of this crisis back in March of last year. While we do not expect to see some easing of restrictions in some provinces in June, we are of the belief that we will see no easing of restrictions in Ontario until potentially the beginning of June. And even at that point, it is unlikely that all regions will simply open back up. We are anticipating that by July, we will be back to similar operating conditions as we had in Q3 of last year.Notwithstanding the operating restrictions, total system sales in the first quarter were $537.6 million compared to $747.2 million in 2020, representing a year-over-year decrease of 28%. You will note that we are also showing 2019 as a comparable. As a reminder, in Q1 of last year, we did not begin to feel the impact of COVID until the second week of March, with full shutdown happening on March 17. Our EBITDA for the quarter increased 17% to $24 million, which is a demonstration of the company's ability to responsibly manage our costs as well as the diversity of our portfolio.On the restaurant side, Harvey's and Burger's Priest showed strong comps versus 2020 and 2019. There are encouraging signs in markets that have opened up. We are paying particular attention to the full service restaurants in the United States. Most chains are reporting higher sales versus 2019, a combination of more traffic, but also higher check averages. And while we are paying close attention to any signs of food inflation, we are also reminded by data from SAS Can, that indicates that Canadians have an estimated $175 billion in excess savings sitting liquid in household savings accounts. All in all, encouraging once we reopen.Slide 7 demonstrates the continued strength of our grocery retail business. Sales continued to be strong, led by our rib program under the brands Swiss Chalet, St. Hubert and Montana's. Rib sales in Q1 were up 48% versus last year. We also announced a partnership with Hop City of our signature beer, North of 41, that can now be found in 150 LCBO locations and over 250 beer stores here in Ontario.The retail team was busy in Q1 launching over 18 new products into grocery stores. I want to give special mention to our sales team at Recipe, who is probably not well known that one of the aspects that sets us apart on retail from anyone else in the restaurant space is, that we have our own national sales team of over 70 teammates. We do not use brokers. This enables us not simply list products with grocery stores, but to actually follow-up to ensure that they get on grocers' shelves. These sales teams work with local grocery store managers to help merchandise the products in stores to maximize sales. In 2020, our e-commerce sales surpassed $0.5 billion. In Q1, e-commerce was up 75% versus last year.While we are encouraged by this and some of its natural as we did not shut down until March of last year, but we really want to highlight here is the growth of pickup, and this is not simply an accident. The company has been strategically focused on encouraging more of our off-premise business to pick up, in particular, curbside. The best example of that today is Swiss Chalet. After only recently launching curbside, the brand is now reporting that over 60% of all its mobile pre-order business is being fulfilled from curbside. Our guest satisfaction tracker for curbside continues to improve as our digital and operations team has make further enhancements to the program. And while we receive a lot of questions about whether off-premise will stick once dining rooms are allowed to open, we believe this channel will.Sn slide 10, our third Ultimate Kitchen opened in Montreal in Q1, under the name Malgam. The brands being serviced out of this location is St. Hubert, Harvey's, New York Fries and soon Sushi Taxi, a well-known Montreal sushi restaurant chain. This month, we will open our fourth Ultimate Kitchen in Hamilton. For the first time, we will be offering Burger's Priest in and Ultimate Kitchen format. This will also be the first introduction for both Burger's Priest and Fresh into the Hamilton market. Each Ultimate Kitchen is an evolution of the previous location. The differentiation we are building to this space is that we are building out a fully integrated, multi-brand smart kitchen operating system, it combines an integrated operational flow with the technology to make us a more efficient and simpler operation to manage. We continue to be excited about the future potential for this concept.And with, that I'm going to turn it over to Ken for a review of our financial results.
Thank you, Frank, and good morning, everyone. For the first part of the financial review, I will focus on Recipe's 2021 first quarter consolidated results, and I will finish with a summary of our segmented business performance as reported last night and posted on SEDAR.If we turn to Slide 12, total gross revenue for the first quarter of 2021 decreased to $194.1 million from $269.9 million in the first quarter of 2020, and $304.6 million in the first quarter of 2019. The decreases in gross revenue were primarily related to the government-mandated restaurant closures and restrictions, which impacted 89% of the company's operating weeks in the quarter. The decreases were partially offset by increases in the retail and catering segment and the growth of e-commerce sales across most Recipe brands.Operating EBITDA for the first quarter of 2021 was $24 million compared to $20.5 million in Q1 2020 and $50.1 million in 2019. The increase of $3.5 million in operating EBITDA compared to 2020 reflects the benefits from government wage and rent subsidies and various cost-saving measures that were implemented by the company. Adjusted net earnings was $3.2 million in the quarter compared to $7.3 million in the prior year and $18.3 million in 2019. The decrease of $4 million in adjusted net earnings compared to 2020 was driven by the increase in the fair value of the Keg exchangeable partnership units partially offset by an increase in operating EBITDA, and a decrease in impairment charges.Adjusted diluted earnings per share decreased to $0.06 in the first quarter compared to $0.13 in 2020 and $0.29 in 2019.Turning to segmented results for the quarter on Slide 13. Total system sales for our restaurant segments continue to be impacted by government-mandated restaurant closures and restrictions as a result of the COVID-19 pandemic. As a result, system sales for the corporate restaurant segment declined from $197 million in Q1 2019 to $162.7 million in Q1 2020, and further declined to $83 million in the first quarter of 2021. The decreases were partially offset by sales increases from off-premise, takeout and delivery sales in many of our brands.Total contribution from corporate restaurants was $3.9 million in the first quarter of 2021 compared to a loss of $400,000 in 2020, and a contribution of $18.5 million in 2019. The increase of $4.3 million in corporate restaurant contribution compared to 2020 reflects cost saving measures that were implemented by the company and the receipt of federal wage and rent subsidies and provincial tax and utility subsidies. Total system sales from franchise restaurants declined from $581.3 million in Q1 2019 to $508.6 million in Q1 2020, and further declined to $367 million in Q1 2021. Similar to the corporate restaurant segment, our franchise restaurants also experienced year-over-year decreases because of government-mandated restaurant closures and restrictions. The overall decrease was partially offset by sales increases in off-premise, takeout and delivery channels.Total contribution from franchise restaurants was directly impacted by sales decreases caused by the COVID 19 pandemic. Contribution from franchise restaurants decreased from $25.5 million in Q1 2019 to $21.9 million in Q1 2020, and further declined to $16 million in Q1 2021. Contribution from franchise restaurants as a percentage of franchise system sales was 4.4% in Q1 2021 compared to 4.3% in Q1 2020 and 4.4% in Q1 2019. The increase in franchise contribution rate from Q1 2020 reflects the Recipe COVID-19 Royalty Subsidy Program, which came into effect on March 15, 2020, and ended on December 27, 2020.Turning to the retail and catering segment in Slide 14. Retail sales reported within the retail and catering segment, relate to the manufacture and distribution of fresh, frozen and non-perishable branded and private label food products. Catering sales relate to the food and beverage sales from rest of these catering divisions operating under the Pickle Barrel, Rose Reisman Catering and Marigolds & Onions banners. System sales, retail and catering division in Q1 was $87.6 million compared to $75.9 million in Q1 2020 to $72.5 million in Q1 2019, representing an increase of $11.7 million or 15.4% compared to Q1 2020, and an increase of $15.1 million or 28 -- 20.8% compared to Q1 2019.The year-over-year of sales in sales growth demonstrates the strong customer demand for Recipe branded retail offerings, sold in grocery stores, partially offset by declines in the catering segment due to COVID-19 restrictions. Contribution from the retail and catering division in Q1 '21 -- Q1 2021 was $8 million compared to $7.6 million in Q1 2020, representing an increase of $400,000. The increase reflects sales growth in the retail grocery channels partially offset by higher food input cost and lower margin product sales mix compared to 2020. Contribution from the retail and catering division declined slightly by $200,000 compared to Q1 2019. The decrease was primarily driven by higher food input costs, which began at the start of 2021, while the corresponding price increases to be charged in our retail channels only began in mid-March 2021. The decrease was partially offset by the growth in retail grocery sales.Turning to the central operation segment. Central operation segment sales consist of sales generated by Recipe's off-premise call center business representing fees charged from delivery call ahead, web and mobile based meal orders. Central operations segment EBITDA consists of franchise fees, property and equipment rent and vendor volume rebates reduced by net central overhead cost after federal wage subsidies and after royalties paid to the Keg Royalty Income Fund.Central segment contribution before the net royalty expense was a loss of $3.1 million in the first quarter of 2021 compared to a loss of $5.7 million in 2020, and a contribution of $1.8 million in 2019 under pre-COVID conditions. Compared to 2020, Q1 central segment contribution improved by $2.6 million. The improvement reflects higher revenues generated from off-premise call center fees, federal wage subsidies, offset by lower franchise fees and lower vendor rebates due to less system sales.Turning to Slide 15, during the 13 weeks ended March 20 -- March 28, 2021, management successfully opened 5 new restaurants and closed and exited 16 locations. The company ended the quarter with 1,330 locations compared to 1,341 restaurants at the end of 2020. Unlike others within the restaurant industry, Recipe's restaurant closures were part of a pre-COVID long-term strategic plan, where management identified locations that no longer fit the long-term plan for the company or restaurants that are currently underperforming.The corporate restaurant locations that no longer fit the long-term strategic plan of the company, management is taking steps to exit these sites. Franchise locations that are underperforming, the company will work with franchisees to help them achieve sustainable success, which may include the company providing financial support in the form of royalty relief or other financial assistance.Turning to total net debt on Slide 16. Through prudent cash management in Q1 2021, Recipe generated $8.8 million of free cash flow before growth CapEx and maintained a stable net debt position while providing economic and cash flow support to our franchisees throughout the pandemic. The company will continue to prudently manage its cash flows and liquidity to protect short-term and long-term health of Recipe, its brands and its franchisees.On February 18, 2021, Recipe successfully amended its lending covenants with its banking syndicate and private noteholders, which will provide additional covenant flexibility through to the end of Q1 2022.This concludes the financial commentary of the call. I'll now turn the discussion back to Frank.
Thanks, Ken. Our priorities from the beginning of this pandemic have not changed, and they remain the same today. Health and safety have always been our top priority. Supporting our partners and properly utilizing our diverse portfolio and just seeing immense investments to the appropriate divisions or brands, so that we can maximize profitability while still being incredibly constrained by mandated restrictions.But as Slide 19 shows, there really are 2 other filters that have served as our company through up for that. Is our policy, both the right thing to do and is it the smart thing to do. I just want to take a moment to demonstrate 2 examples of this. For well over 8 months, we have been actively pursuing approval from Health Canada and the Ministry of Health in Ontario, to do rapid testing for our teammates. We believe that this is consistent with our desire to ensure the health and safety of our teammates and our guests. This week, we have finally been able to begin that testing program here in Ontario, and are actively working to get approval from other provinces.We are the first and only restaurant Group in Canada doing this program. This is both the right and smart thing to do. It provides peace of mind to our frontline teammates and managers, while also working to prevent any type of localized outbreaks, that may end up closing the restaurant down for an extended period of time. It also gives our customers confidence that they can safely socialize and inside of our restaurants. The rapid testing program using the Abbott and Biotest is another tool in our overall Social Safely program.On Slide 21, the second example is our support of our partners. Most of you are aware of the support we have provided for our franchise partners. Programs such as our Recipe Rent Certainty Program, gave our partners confidence that they can survive this crisis. It was both the right thing to do. Partners help partners. But it was also the smart thing to do. As it is, now all of our interests that our franchisees make it to the other side of this event.We have been closely monitoring franchisee financial statements and we are very pleased with what we are seeing and have high confidence that the overwhelming majority of our franchise partners are in good financial health and we'll continue to operate for years to come. But we could not forget about our frontline teammates. This is one of the groups of people who have been the most economically impacted by the continued shutdowns of our industry.After the latest round of closures in Ontario, we set up $500,000 support package for our frontline teammates. We do not believe that anyone that works for full-time for us as a cook, a dishwasher, a bar tender, a prep person should worry about feeding their families or paying their rent. It is the right thing to do, but it is also the smart thing to do. When we do reopen, we believe we are going to be very busy, and we want fully trained staffed, ready and willing to serve our guests and to give them a great experience.On Slide 22, we are very excited to announce that this week, that we have completed the purchase to gain a 100% ownership and control of the Burger's Priest. Burger's Priest is a fantastic brand that has grown steadily over the past few years. We believe that with singular ownership, we can move to quickly accelerate the growth of the brand, both domestically and potentially in markets outside of Canada. Like to thank our former partners, the Crave It, as we work together to successfully transition the business and welcome the Burger's Priest team fully into Recipe.And I'm also excited to announce that Ryan Bullock, currently Chief Marketing Officer for the Keg, will assume the role of President for Burger's Priest, and so we congratulate Ryan on his new role. And finally as a reminder, this Sunday is Mother's Day. I would encourage you all to support restaurants this weekend and if you need any prompting, then please download the Swiss Chalet app or any of our restaurant apps. At Swiss, you can always choose the Give the Gift option to send a great meal to whoever is important in your life.And with that, I will turn the -- back to the operator for any questions if you may have.
[Operator Instructions] Your first question comes from George Doumet with Scotiabank.
Frank, there has been a number that's been floated around saying that there is anywhere between 10% to 15% reduction in seats due to the pandemic. Is that a range that you agree with? And to what extent will that eventually help our 4-wall economics once things eventually open up?
George, yes, I mean, it's been a little difficult to try to ascertain exactly what's going on out there. Restaurants Canada has reported, there's about 10,000 restaurants that are permanently closed. Although we've heard other reports coming from the broad line foodservice distributors that say that they're seeing that number could be over 20,000. Further, the challenge is, some restaurants have just shut their doors and are staying close until the -- everything reopened, so we don't know what's going to permanently stick. But clearly, there is going to be and we just see it even when I drive around our little neighborhood here alone by our office, the number of restaurants that you could tell are permanently gone. So it's not the way you want to gain business, but it is an important fact that when the restart happens, if you think about this as a race, when the restart happens, we want to be full -- on the gas pedal at full speed ahead and be ready to go. Even in Toronto and when they -- that kind of crazy time when they reopen the patios in Gabe like less than 24 hours' notice, we were -- our restaurants had patios, we were up and running as soon as we could long before most others. So we're ready to go. Again, it's another important reason to make sure that we keep our frontline staff engaged and ready to go, so that we can take advantage as quickly as possible.
And Ken, I think you were talking about the retail and catering, it's obviously we don't -- we haven't seen the strong year-over-year growth that we usually do with there and you called out mix and food costs, and you also mentioned price increases. So putting it altogether here, should we expect to get closer to that $10 million to $12 million per quarter contribution there as we go through Q2, Q3 and Q4?
George, it's hard to predict volumes. We have, even when after restaurant came back open, last year, the retail and catering grocery sales stayed strong, so there's obviously traction in that segment and our brands are getting a lot of, you know customer loyalty and attention. But -- so the sales line is -- has been positive and we are continued to produce for those levels of volumes. In the contribution line, as you said, we're managing input costs, product mix has a big impact on contribution because certain products have just higher margin. So it's a complex formula with over 200 SKUs that we're selling in the grocery. And -- but as I say, we were able to increase some prices at the end of March, and hopefully, we see the benefit of that in Q2.
Yes, I just -- I would just add on to that, George, I mean, again, we're also, as I said, we're also launching new products into the market, so they put 18 in and new SKUs in Q1, it's going to take some time for that to fully flow through the system. But again that pipeline is going to continue to produce new products out there as well.
And Frank, there has been some talk about increasing, the potential for increasing labor shortages for restaurants, when they eventually reopen, given that some folks have retrained and gone away to different industries. I think we see that in Quebec and Ontario. I'm just wondering your assessment, in terms of access to labor when things fully reopen.
Well, again, it's one of the reasons why we took the actions we did to try to support our frontline teammates. So we've certainly encouraged our franchisees to do the same thing. In the States, it's a very real issue, a little bit maybe different there, I mean the economy is red hot. Some people did leave to get some certainty around your paycheck. But also there is a lot of subsidy money down the States right now and people are taking advantage of that. So here we expect it to be -- we expect it will be a bit of a challenge, but again, we think we're -- because of the actions we've taken, we think we're in probably in better shape than most.
And just one last one from me for Ken. Are we looking for similar level of government aid in Q2 versus Q1?
I think for the most part, George, the answer is, we expect so. The provincial subsidies for property tax and utilities, that tends to be a month-by-month type of extension, so it hasn't been announced for longer-term but wage and federal rent subsidies have been. The rent subsidy program is pretty complex because most of those federal rent subsidies for us come when we are mandated to be fully closed. If we're not mandated to be fully closed, we don't get as much of those benefits.
Your next question comes from Peter Sklar with RBC Capital Markets, sorry, BMO Capital Markets.
Ken, on your SG&A expense where you give the breakdown in the notes to the financial statement, there is a line called, Other, which has an expense of $8,598,000 million, can you explain what that is?
Peter, that's a combination of a variety of things, which includes our net central overhead expenses offset by rebates. And also, there is some federal wage subsidies that go through that line as well, which is why it's down from last year. So again, it's a combination of braiding other costs. We've always had that line item. And you might recall in years past, it was even a positive, not a positive contribution minus debt of an expense.
Yes, that's why I was just wondering why it's so volatile.
Well rebates are big driver in that line, Peter, and when our sales -- system sales are down the way they are, there is a direct relationship in -- with rebates and what we collected on cart.
On government subsidies that, all the government programs where Recipe itself, not the franchisees, would have benefited during the quarter. Sorry, I haven't had a chance to read the MD&A yet, have you quantified what the dollar amount of those benefits were in the quarter?
Peter, yes, we have, it's actually detailed in the first note to the financial statements. We've outlined what we got under the wage subsidy program, the federal rent subsidy program and the provincial property tax and utilities programs.
And what was the amount, the total?
Yes, the total is about $27 million, it's spelled out in the financial statement.
Then during the quarter, did you have any programs, COVID-related programs where you're subsidizing franchisees? I like I know you -- the royalty break ended so there was no benefit there, but were there any other subsidies you were providing to your franchisees above and beyond the normal?
I guess, Peter. We extended our rent support program through to the end of March of 2021. It was restructured from what it was last year. But -- so the -- an effective way protecting our franchisees on the rent program. That was coordinated with our franchisees' ability to claim federal rent subsidies, but we did provide support there. We also provided cash flow support to our franchisees, so we did not require that they paid full quarter rent, while their restaurants were forced to be closed. So we're collecting that later over Q2 and Q3.
So how do you account for that? Is that on a cash -- like do you accrue or, I'm just wondering what -- I guess what I'm really after, Ken is, what was the negative impact on your results from these programs, you're providing to franchisees in terms of dollar amount that you would have booked in the quarter?
Yes, it was mostly cash flow in the quarter, Peter. The expected cost of supporting the franchisees was accrued last year. As soon as we knew, we are extending the program in 2020, we accrued the expected costs and the cash flow impact did flow through our working capital in Q1.
So what you're saying is the rent support program that went to March 21 was accrued last year?
Yes.
And then just lastly, Ken, there is -- like when you describe the $3.1 million loss in Central, which was an improvement, there were so many puts and takes and you went so quickly. Do you mind going through that again?
Over last year, it really would have related to some of the subsidies we collected in Q1 this year that were not there last year.
Your next question comes from Sabahat Khan with RBC Capital Markets.
Can you maybe give us some context, and I know you mentioned, you are spending some capital to try to support your frontline employees, but there is likely going to be a ramp up period in bringing some of the employees back. Maybe can you share some context around across your network, how many people you would need to hire to sort of be back at full capacity? And are you taking steps to sort of plan for that or prepared to try to track some of those folks, as some industries are finding it hard to bring back people.
Yes, I mean, first off, for us it's our -- for our corporate restaurants and we are, again we were taking care of our full-time hourly staff and our managers are keeping in touch with them, so we expect a very high percentage of that group to return. And we're also hearing similar things coming from our franchisees. So again, I think, because we've been very focusing on this and focusing on staying in touch with our teammates throughout this whole process, and letting them know what's going on, and then doing things like the financial support and other things that we're doing to help them, we feel good about where we sit from the employment aspect. Again, I think what you're seeing in the States is, that you have chains that did not type of approach similar to what we have, are saying that they're doing fine, they are not experiencing some of the issues that others who weren't able to do it are. But you know the -- again, the economy is very hot in the U.S., we expect it's going to get hot here and we're going to have to be staffed up and ready for that, but we've got -- our people team is doing an exceptional job and so, we're fairly confident that we can meet the need.
And then, and it would be Ultimate Kitchens, as we start to sort of roll those out [Audio Gap] based on the first couple. And then also in a post-COVID world at and the restaurant count and you mentioned earlier and the seats decrease. Should we expect that this, obviously expect the e-commerce and take that to become marginal, is it possible it becomes a very large part of your business, 35 years out?
It could have a significant impact for our business, that's obviously the intention. I mean I think, there's lots of lessons we've learned. There is -- first lesson we learned on the technology, the fact that there is no kind of 1 basic operating system out there that you can take that plugs everything, in from customer order all the way through inventory, and stuff that our teams are working on and building out. So we think we have to actually have something customary there.One of the big lessons we learned is that the very first one we did here was, a delivery-only kitchen. And I think I said it on the last call, we wouldn't -- probably we wouldn't build that again. We believe the right mix is having healthy delivering with hiccup. So to the Carlisle location, which was the second location had that component put into it and it certainly helped get margins better to where we wanted them to be. Hamilton will be another evolution on that and also, we're also mixing up the portfolio of brands. So one of the, I think, great things about U.K. is that, if there is concepts that we want to explore, want to test to see how they do, it's a great avenue to put them and plug them into these Ultimate Kitchens, and see how well they do. And if they don't perform, then we can take them out and it can tell us a lot about new markets before we go to the full expense of building a brick and mortar location.
And then just thinking about the mix at corporate restaurants, around the time of the IPO of the Landing and the Bier Markt have very significant contributors. And I guess coming out of COVID and as you think about your banner make, how are you thinking about those 2 banners? Do you think you can maybe develop a new sort of patio type concept at some point? I just want to understand your thoughts on your mix of corporate banners at this point.
Well Bier Markt, we don't have very many locations and the locations that they -- that we do have, have been in severe lockdown. It is one of the things that we, I know we just need to pause for a second and there is a difference between, is there a systematic problem with the brands that we have or is it an industry thing that we're being shut down because of the pandemic, and even goes back to the subsidies. If the subsidies didn't exist and we have a systematic problem at Recipe, we would take a very, very different actions. But everything that we're doing is to with bridge a crisis, and that we believe that, restaurants, that we're great restaurants and operated really well prior to COVID. We fully expect that when COVID ends and we can reopen our restaurants, that they'll return to those kinds of great numbers and hopefully better. In fact, in the brief periods of time where we have seen kind of more openings like Q3 of last year, we saw people flocked back into our restaurants. So we don't want to over correct here and panic and do something that is not going to be in our best interest in the long-term. We are playing the long game here and so brands like, Landing and Bier Markt, although small in our portfolio, some of those locations generate a lot of cash, when they are able to operate. And so we feel confident that they will be fine.
Your next question comes from John Zamparo with CIBC.
I wanted to start with slide from the investor deck, I think you said 11% of sites are operating with only modest restriction. Can you say what system sales trends are on these sites versus your rest of the network? And really what I'm trying to get at is, have you seen some signs of the strong comeback that we've seen in other countries that are in better shape on dealing with COVID?
Yes, some of those operating weeks, John, are in the U.S., some of our restaurants, we have some cakes down there, some open their castles. We're certainly seeing -- we're seeing comparable positive sales to fiscal year '19, so similar to what other chains are reporting down there, which gives us a lot of confidence. One thing that's really kind of changed, I'm going to get my quarters mix up, it may have been a blend in Q1 and definitely in Q2 was B.C. B.C before for the most part, dining room stayed open, and it was really only recently with the third wave that dining room shut down in B.C., so that was something that was new for us. The other thing that we're anniversarying right now is, obviously here in Ontario is, patio is being closed in May. Last year, we had patios opened for -- in some regions in Ontario. So it is kind of a blend and -- but again, what we're seeing in the U.S., what we're seeing in the U.K., what we're seeing in markets like Israel that are basically where cases have dropped off to nothing is, in our industry it is coming roaring back and there is nothing here that suggests that we will operate any differently than those markets are. People are absolutely dying to get out and to sit on a patio and we think that as vaccination rates increase, confidence will continue to increase for people going into dining rooms. We saw that in Q3 last year, people didn't seem to be hesitant to go into dining rooms. And again, we think all the other aspects that we're doing around Social Safely and how we're advertising and these rapid testing for our employees, yes,, we think we're in good shape.
Second question for Ken. How should we think about the relationship between lease payments made and lease payments collected from franchisees? In 2020 this was a net outflow of just about a $100 million. In 2019, I think it was closer to $55 million, the run rate in Q1, looks like it's $75 million or $80 million. So I'm trying to get a sense of what on a normalized number is for this metric?
Yes, I think, John, when we're in a normal operating conditions, we were going to pay the landlords on the franchise locations, pretty much matches what we collect from the franchisees. The difference, you might see is what we pay on our corporate restaurants, which is, rent we pay on our own, because it relates to our stores and they don't have an offsetting collection for third-party. Obviously 2020 was a year where we provided help and assistance to our franchisees, where we didn't -- we shouldered, as we announced over $30 million of rent to landlords that we didn't collect from franchisees. Some of that got subsidized with programs CECRA and CERS and other systems we have considered landlords. For 2020, there is nothing comparable there to anything. And I think best to look at 2019 and doesn't say any shortfall really relates to corporate restaurants.
And then my last question and apologies if I missed it earlier in the call, but in the press release, you referenced possibly rationalizing certain brands, is that referring just individual stores that you don't feel are often replaced or they don't have great leases or are you talking about entire brands? And then a follow-up to that. We've seen virtual brands do pretty well for a few American dining concepts, is that something you're thinking about testing as well?
Let me address the first part of that. I think we're -- with a portfolio the size that we have, we're constantly looking at our portfolio and making sure that the brands that we have, we want to make sure that they have the ability to win in their segment. And it's -- within those brands you might have sites that are better than others, so we constantly look at this. We have a very rigorous process for how we look at real estate and how we evaluate properties we have, as detailed reports and data as you can possibly imagine on all of these things. So we're constantly looking at that. And as I've said before about the history of this company, Recipe's at flash Cara, it has been a company that's grown through mergers and acquisitions, but it's also had divestitures. And in some cases brands, there could be better parent but -- so we're always looking at that. And just like we're looking at and taking advantage of opportunities to find young brands that we think can also really succeed and do well and that's what you saw with Burger's Priest. So we're constantly looking at that portfolio to make sure that we're putting the best lineup possible to drive sales of returns.
And virtual brands. Is that something that could potentially interest you to better leverage existing infrastructure?
Yes, virtual brands is one of the ones that I'm not sure. I think we have talked about it, I know you're talking about with some of the stuff that Brinker's done in the U.S. with the wing concept. I think a lot of that in the U.S. is taken place with, when they had empty kitchens and they have lot of capacity, but that's to me restaurants are overbuilt and the kitchens for capacity, so I'm not sure of the stickiness of that, because one thing we have learnt, even with Ultimate Kitchens is when we put a brand in, that doesn't have local bricks and mortar, you have to really make sure you're doing a lot of marketing to build awareness in that community about that brand. So just sticking a white label in there may sound good, but if you don't support it with healthy marketing, healthy marketing spend, you're just not going to generate the sales. So never say never, we continue to look at it, but right now our approach with this is through Ultimate Kitchens.
And there is no further questions queued up at this time. I'll turn the call back over to Frank Hennessey for closing remarks.
Okay, well thank you everybody. Happy Mother's Day to everyone out there, and for those of you joining our AGM, it's at 11:00 this morning and we'll see you then. So thank you.
This concludes today's conference call. You may now disconnect.