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Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the conference call for Recipe United Corporation (sic) [ Recipe Unlimited Corporation ] 2018 Second Quarter Results. [Operator Instructions] Today's conference call 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 (analysts) sic [ 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, Krista. Good morning, everyone. Thank you for joining today's conference call. On the call with me today is Ken Grondin, our Chief Financial Officer; and Bill Gregson, our Executive Chairman.Before I review our results for Q2, I'd like to start by thanking the franchisees, the brand teams and all of the associates of Recipe for a good second quarter.Also, I want to thank them for welcoming me to the company and allowing me to tour many restaurants these past few months. And this is also our first full quarter under our new name of Recipe. So for any of you traveling up the 400, you'll see a new name on the building. I think it looks great, and I also want to thank our internal creative team that helped make that happen.Our second quarter and year-to-date results continue to deliver year-over-year growth in both top line sales and EBITDA. Total System Sales were $874.2 million and $1.6 billion for the 13 weeks and 26 weeks ended July 1, 2018 compared to $660.8 million and $1.3 billion in 2017, representing an increase of $213.4 million or 32.3% for the quarter and $310.2 million or 23.5% year-to-date.The increase in System Sales was the result of Same Restaurant Sales increases, plus the additions of Burger's Priest in June 2017, Pickle Barrel in December 2017, and The Keg in February 2018.Same Restaurant Sales growth for the 13 weeks and 26 weeks ending July 1, 2018, was 1.9% compared to the same 13 weeks and 26 weeks in 2017. Growing profitable Same Restaurant Sales is our primary focus at Recipe. To do this, our operational concentration will center on 4 pillars of our business that matter most to our guests, namely quality of food, quality of service, the value for the experience and ambience. And to support our operations teams, to ensure that we can deliver on these fundamentals profitably, our head office teams will continue to use our scale to secure the best goods and services at the lowest possible cost for our guests, our franchise partners and our shareholders.Our operating EBITDA was $55.2 million and $102.6 million for the 13 weeks and 26 weeks ended July 1, 2018 compared to $41.6 million and $84.5 million in 2017, representing an improvement of $13.6 million or 32.7% for the quarter and $18.1 million or 21.4% year-to-date.The increases have been driven by the Same Restaurant Sales increases, improved contribution from the corporate and franchise segments, improved contribution from Original Joe's and the addition of The Keg in February 2018, partially offset by The Keg royalty expense paid to The Keg royalty income fund. Operating EBITDA margin on System Sales was 6.3% for the second quarter as compared to 6.3% in 2017. Year-to-date, operating EBITDA margin on System Sales was 6.3% compared to 6.4% in 2017. The decrease is related to The Keg royalty expense.Operating EBITDA margin on System Sales before The Keg royalty was 6.7% for the second quarter compared to 6.3% in 2017. Year-to-date, operating EBITDA margin on System Sales before The Keg royalty was 6.6% compared to 6.4% in 2017. While The Keg will add EBITDA dollars, because of higher Keg net central overhead costs and royalty payments for The Keg royalty income fund in the medium term, The Keg merger will reduce Recipe's operating EBITDA margin rate on System Sales below the target 7% to 8% range. Our focus will continue to be on improving the earnings and efficiencies of our assets and our increased sales base to grow operating EBITDA as a percentage of System Sales back to within our 7% to 8% target range by 2020 to 2022.At this time, I'll turn it over to Ken for a review of our financial results.
Thank you, Frank, and good morning, everyone. My overview will refer to our second quarter financial statements and MD&A issued last night, both of which are available on SEDAR. In the first part of the financial highlights, I will review -- I will focus on Recipe's consolidated results and will finish with a summary of our segmented business performance. Total gross revenue was $312.3 million and $558.9 million for the 13 weeks and 26 weeks ended July 1, 2018 compared to $194.4 million and $392.9 million in 2017, representing an increase of $117.9 million or 60.6% for the quarter and $166 million or 42.2% year-to-date. The increase in gross revenues was primarily the result of positive SRS, the Pickle Barrel acquisition in December 2017 and the addition of The Keg in February 2018. Operating income was $34.2 million and $65 million for the 13 weeks and 26 weeks ended July 1, 2018 compared to $23.9 million and $54.6 million, representing an increase of $10.3 million or 43.1% for the quarter and $10.4 million and 19% year-to-date.The increases were driven by SRS increases; improved contribution in the corporate and franchise segments; higher Q2 contribution from food processing and distribution, including Keg retail sales; improved contribution from Original Joe's; and the addition of The Keg corporate and franchise operations, starting February 2018, partially offset by The Keg royalty expense paid to The Keg royalty income fund and higher Keg central costs and depreciation on Keg corporate restaurants.Net interest expense and other financing charges were $3 million and $6.3 million for the 13 weeks and 26 weeks ended July 1, 2018 compared to $2.7 million and $5.8 million in 2017, an increase of $300,000 and $500,000, respectively. The increases are due to the additional borrowings made for the Pickle Barrel and Keg transactions, net of interest income received on the Keg partnership units that we hold. Earnings before income taxes have increased to $28.5 million in the second quarter of 2018 compared to $21.6 million in the second quarter of 2017. The significant increase is the result of improvements in all of our business segments, as described above, partially offset by increased financing costs related to higher borrowings on the company's credit facilities and higher depreciation from the addition of Pickle Barrel and The Keg.Adjusted net earnings for the 13 weeks and 26 weeks ended July 1, 2018, was $30.5 million and $56.4 million compared to $26.4 million and $52.1 million in 2017, an increase of $4.1 million and $4.3 million, respectively. The increases were driven by the positive SRS; improved contribution from the corporate and franchise segments; improved contribution from Original Joe's and the addition of The Keg in February 2018, partially offset by The Keg royalty expense paid to The Keg royalty income fund; an increase in interest on long-term debt related to the acquisitions; an increased depreciation expense from the addition of corporate restaurants, primarily related to the addition of Pickle Barrel and The Keg. Adjusted diluted earnings per share for the 13 weeks and 26 weeks ended July 1, 2018, increased by $0.05 per share to $0.47 per share in the second quarter and $0.89 year-to-date compared to 42% -- $0.42 and $0.84 in 2017, respectively. The increases are related to improvement in adjusted net earnings, offset by the impact from the higher number of subordinated voting shares outstanding, as a result of shares issued on The Keg transaction, reduced by over 1.5 million shares purchased and canceled under our NCIB program since the third quarter of 2017 through the second quarter of 2018.Turning now to segmented results for the quarter and year-to-date. Total contribution from corporate restaurants was $24.3 million and $34.7 million for the 13 weeks and 26 weeks ended July 1, 2018 compared to $10.4 million and $18.4 million in 2017, an improvement of $13.9 million or 133.7% for the quarter and $19 million or 103.3% year-to-date. The increases are primarily driven by SRS increases and the increase in the number of corporate restaurants, including the additions of The Keg, Burger's Priest and Pickle Barrel. For the 13 weeks and 26 weeks ended July 1, 2018, total contribution from corporate restaurants as a percentage of corporate sales was 12% and 10.7% compared to 10.1% and 9.1% in 2017.The increases were primarily driven by SRS increases; the addition of The Keg, which operates corporate restaurants within our target range; partially offset by lower contribution rates from Pickle Barrel corporate restaurants that currently operate at lower contribution levels.Total contribution from franchise restaurants was $24.7 million and $47.1 million for the 13 weeks and 26 weeks ended July 1, 2018 compared to $19.9 million and $40.3 million in 2017, an increase of $4.8 million or 24.1% for the quarter and $6.8 million or 16.9% year-to-date. The increase is related to the increased royalty income as a result of the franchise sales increases and the addition of The Keg.The effective net royalty rate for the 13 weeks ended July 1, 2018, was 4.1% compared to 3.9% in 2017. For the 26 weeks ended July 1, 2018, the effective net royalty rate was 4.1% compared to 4.0% in 2017. Recipe's standard royalty rate is 5%. There are brands acquired since 2014 which charge different standard royalty rates; in particular, St-Hubert charges 4% as its standard royalty and The Keg which charges over 5% when considering its total franchise portfolio. As of July 1, 2018, a total of 139 restaurants were paying Recipe a royalty below the standard rate as compared to 138 restaurants at December 31, 2017. 56 out of the 139 restaurants paying below the standard royalty are related to previously-agreed upon conversion agreements, an improvement of 3 restaurants compared to 59 as at December 31, 2017. 83 out of the 139 restaurants paying less than the standard royalty were related to temporary assistance provided to certain other restaurants, a change of 4 restaurants compared to 79 as at December 31, 2017.The Central operations segment consists of processing fee revenues from Recipe and St-Hubert off-premise business, franchise fees, property and equipment rent, Food Processing and Distribution sales, catering sales and vendor volume rebates, reduced by Central overhead costs and Keg royalties paid to The Keg royalty income fund. Central segment contribution before the net royalty expense for the 13 weeks and 26 weeks ended July 1, 2018, was $9.7 million and $23 million compared to $11.3 million and $25.8 million in 2017, representing a decrease of $1.6 million or 14.2% for the quarter and $2.8 million or 10.9% year-to-date. Total Central segment contribution before the net royalty expense as a percentage of total System Sales for the 13 weeks and 26 weeks ended July 1, 2018, was 1.1% and 1.4% compared to 1.7% and 2.0% in 2017, a decrease in 0.6 percentage points for the quarter and a decrease in 0.6 percentage points year-to-date. The decrease is primarily related to the addition of The Keg, which operates with higher net overhead cost compared to other Recipe brands.In Q2 2018, Recipe repurchased and canceled a total of 11,100 shares at an average price of $26.94, representing approximately $300,000 in aggregate cost. Year-to-date, 27,700 shares have been purchased and canceled at a total cost of $746,000 under our NCIB program. Lastly, yesterday evening, we announced that for the 13 weeks ended July 1, 2018, the company declared a dividend of $0.1068 per share for subordinated and multiple voting common shares outstanding.The dividend will be paid on September 14, 2018, to shareholders of record at the close of business on August 31, 2018.This concludes the financial commentary of the call. I'll now turn the discussion back to Frank.
Thanks, Ken. In the second quarter year-to-date, total System Sales grew to $1.6 billion and operating EBITDA grew to $102.6 million. When considering the expected full year contribution from The Keg, both System Sales and operating EBITDA are on track to be within our revised target ranges for 2020 to 2022, up $2.9 billion to $3.7 billion for System Sales and $203 million to $296 million for operating EBITDA.At the end of the quarter, Recipe's debt-to-EBITDA ratio was 2.05x. With our strong balance sheet and growing cash flows, we are well positioned to pursue additional acquisitions. And at the same time, explore alternatives to return more capital to our shareholders, including continuation of our NCIB and increases to our dividend rate. Same Restaurant Sales grew 1.9% compared to the same 13 weeks and 26-week period in 2017, representing our fourth consecutive positive Same Restaurant Sales quarter. While Q2 has the Easter benefit included, that benefit was essentially nullified by the ice storm that occurred in that week. As I've previously mentioned, while we're pleased with the positive trend on Same Restaurant Sales, we will continue to focus on long-term profitable SRS growth with both short and long-term strategies to improve Same Restaurant Sales focused on 4 pillars: quality of food, quality of service, value for the experience and ambience.For the first half of 2018, we've had 24 gross new restaurant openings, and obviously, with the addition of The Keg, we added another 105 restaurants. We anticipate having a busy second half of the year on both new store openings and renovations. Since joining Recipe, I have been impressed with the internal talent we have in many areas of the company, including our IT department.In Q2, we launched an all-new East Side Mario's ordering website and native mobile apps. We launched Google-assisted voice ordering for Swiss Chalet, and shortly, we'll be testing A new Harvey's mobile order ahead and pay. We now have the top 4 rankings for restaurant ordering apps from the Apple App Store and are ranked #2, 3, 5 and 6 in the overall food category.On my first call with you and my second day on the job, I indicated that I'd be looking at the business through 3 strategic lenses. The first was the consumer proposition; the second was both teammate and franchisee engagement; and the third was talent acquisition and development as defined by our culture. While the logic of the first lens on being strong on the consumer proposition linking to higher sales and profits is probably well understood, many may not intuitively clearly see the link of the other 2 lenses, engagement and culture, to sales and earnings, especially in a business that is largely franchised.In the restaurant business, people are a critical financial formula component to both sales and earnings. How we select, train and retain great people, both corporate associates and franchisees, not only generates higher guest satisfaction, and thereby sales, but their effective management of the business and controlling costs is fundamental to delivering profitable results for both our franchisees and shareholders. Profitable franchisees is a fundamental goal of our company. Franchisees that are profitable, reinvest back into their business, and some will seek to expand and open more locations.In today's restaurant industry, there's as much a competition for great people, both teammates and franchisees, as there is for actual customers. For teammates, Recipe offers a unique ability for someone to spend their entire career with us and continually advance in a manner that is challenging, engaging and rewarding. For franchisees, our multiple brands allow them to select from a menu of brands that closely align with their financial capability, their personality and their community.To attract and to retain great people, we must have a culture that keeps people engaged and inspires people to higher levels of performance. A culture of curiosity, maintaining agility and putting team before self are vital to success. At Recipe we do not have to look far to see shining examples of how investing in people and partners delivers superior results. Two of our more recent acquisitions, The Keg and St-Hubert, have for decades dedicated themselves to building a strong positive culture and investing in their people. Simply put, just as in any other asset that we expect a return on, we must always ensure that we invest in our most important asset as a company, our people.And on that note, I'd like to turn back to Krista and open it up for some questions.
[Operator Instructions] Your first question comes from the line of George Doumet from Scotiabank.
Frank, I'd like to focus a little bit on the sustainability of the corporate margins. Obviously, a significant amount of your year-over-year expansion there. You guys called out The Keg and Original Joe's, is it just operating leverage at Original Joe's and solid execution of The Keg in Ontario? Or is there -- is it more -- anything you can share there.
Well, I think it's a bunch of it. I think there is some of that, and there's certainly some synergies and scale that we get. But I also think just about inside the stores and the margin levels, that they've done a pretty good job on improvement with that. Some of that's helpful from the scale that we get from the overall size of our business. But I think there's been a continuing focus on labor and effective management of that labor. And I think it's showing up in the results.
Okay. Can you remind us, is Q2 seasonally -- typically the weakest quarter for The Keg?
I don't know really have that, George.
Okay. That's fine. And just kind of shifting over to the SRS growth. Can you -- maybe a 2-part question there. Can you give us some qualitative comments by geography? And we are looking -- we're expecting to see or hoping to see some sequential improvement in the SRS number, given the Easter shift in Q1. Can you maybe comment on traffic or volume response in Ontario as it relates to the higher pricing there?
Well, I mean, it relates to the Easter, as I mentioned in my comments, I mean, some of that was -- a lot of that was nullified because there was -- I wasn't here in the country, but there was a -- as I understand, there was an ice storm in that week, particularly here in Ontario. So that kind of nullified the benefit of having Easter in the quarter. I think Alberta had a pretty good month, had decent results, but it was kind of spread out across, but Alberta probably had the -- probably saw that from a regional point of view, had the best [ investment ].
Your next question comes from the line of Peter Sklar from BMO Capital markets.
This is Jennifer Panes filling in for Peter. Frank, this is a question for you. So now that you've been CEO for a while now, how do you think the key banners are performing, specifically Swiss Chalet and Harvey's?
Well, yes, while I think it's sort of 3 months, it's been interesting going around and touring around. But it never happened in the past and I probably don't plan to start now, on commenting on individual brands. First off, if I was to do that, this would be about a 10-hour conference call. I would say, overall, though, in my tours, I'll just comment on that, what I've been happy to see and have the opportunity to probably spend at least 1 day with each of the banners in going around, is that from a relationship point of view with franchisees, it seems very positive. They appreciate the communication and kind of the open dialogue that brands have with the teams. But just when you have this many brands, and I'm getting used to this, it's going to take me a while. But when you have these many brands, at different times, they're going to be in their different evolutionary cycles. And even within the quarter, you're going to have some that are performing better than others, and that can be a timing thing. It can be a part of where they're at in their evolutionary spot. Our goal -- I think this is a universal thing across all our banners, is we want growth. We want profitable Same Restaurant Sales growth. And some are well on their way. And others, we're going to continue to work at and improve.
Okay. My next question. So now that you have been operating The Keg since February, obviously that's a really strong performing banner. I was wondering if you've gotten any sort of key learnings out of that. And what those might be, and how you've applied them to your other banners?
Well, it's David Aisenstat, obviously, with The Keg. And as Bill mentioned previously, David is overseeing a few of our other banners. And I've just started to get the -- to actually get to know David. And I can tell you that it's very refreshing kind of listening to him and talk about the restaurant business or culture, and what they've done at The Keg. There's a lot of great people at The Keg, and we certainly had our leadership teams intermingle and get best practices and learnings. But I think there's learning that can go both ways, by the way. But so far, I think he's -- David is kind of rolling up the sleeves and he's getting involved in Bier Markt and Landing and Milestones. And I still think there's a lot of good things to come, and we'll continue to learn from each other.
Okay. And then just last one, do you have plans to integrate The Keg's head office into yours, for any synergies or...?
No. Well, synergies, yes. But not from a office point of view.
Your next question comes from the line of Sabahat Khan from RBC Capital Markets.
Just a couple of follow-ups on the Corporate segment there. The sales there were obviously stronger than we had expected. Can you perhaps maybe break out how much the acquisitions that weren't there in the prior year may have contributed to that number?
I don't particularly have that at my fingertips, and I don't think we would break that out.
Okay. And then in terms of the margins in that segment, you said there were some improvements in the business. Can we then perhaps assume that this would be a good run rate to assume kind of going forward for this segment? Or is there any puts and takes for kind of H2 '18 or going forward that you would call out?
Sorry, can you repeat the question?
The contribution, the EBITDA margin -- the EBITDA margin for the Corporate segment, would this -- the rate that you had in Q2, would that be a good run rate we can assume going forward? It did seem elevated. Is there anything maybe in the next half of the year or into 2019 that you'd call out as a potential headwind against this?
Well, first off, I would start off by saying I don't want to give guidance but I think what you're seeing is, you're seeing the impact of The Keg and improvements at [ little kids ]. So if you wanted to take that and that's probably as much guidance as I can give you. But it's really The Keg.
All right. And then you called out in the press release some investing in potential growth opportunities. Can you maybe detail what some of those might be? Or is that largely just referring to potential acquisition opportunities looking, I guess, 12 months, 24 months out?
Well, I mean, I think we're always -- on that piece, I think we're always looking and we'll talk to anyone on the -- from the acquisition side. I think it has to be the right fit for us, particularly on the management side. We typically like to -- I think if you look at the track record here that Bill and Ken have done, is that they've bought businesses, but mainly, it's good management teams of leaving them in place to do their thing and getting the help of the overall size and scale of the business to improve the margin. So if those opportunities are out there and they come up, we'll certainly entertain them.
Okay. And then just on the corporate segment. I mean, if you just look at the cost of sale, the cost of inventory, there was quite a bit of improvement year-over-year. Would that just be a mix benefit? Or did you guys take any steps to drive that lower? It seemed quite a bit lower versus prior year.
I think, again, I think that's the impact of The Keg that you're seeing on that mix.
Okay. And then just last one. You called out also bringing kind of the corporate margin even on a net basis back up to within your range or just improving going forward. Can you maybe identify some of the bigger buckets that you are looking at to reduce costs going forward?
Yes. I think it's spread out over so many different areas. I mean, I think we're already -- some areas are easier to get the benefits right away. I think we're seeing some stuff on the IT side, continue to work on the purchasing side. But it's all on the -- again, effectively leveraging the overall scale. And doing that in a way of saying, it's got to work for the brand, right. I mean, it's trying to find the right product for the right fit for that particular brand. So I think you're just going to see, as we go forward, we're constantly going to get a little better at that.
Your next question comes from the line of John Zamparo from CIBC.
Really strong performance in your corporate restaurants this quarter. I think the comment on the last call was that Ontario and B.C. were the strongest provinces. Was that still the case in Q2? Is there anything you can say even directionally on SRS at corporate versus franchise stores.
Well, again, I think when you see that the corporate, it's kind of repeating this. It's more of The Keg in many regards. I think Alberta, again, was strong in the quarter. But again, with costs -- Ontario was good as well. But Alberta was [ away ]. And I'm sorry, I didn't catch the last part of your question.
Is there any -- I know you don't split out the number, but is there any commentary you can provide directionally on SRS at corporate restaurants versus franchise restaurants?
Yes. No, we don't really break that out. But I would say, hazard a guess, it'd be about the same in both.
Okay, understood. I appreciate the commentary on franchisees earlier and your discussions with them. Maybe you can elaborate a bit on that. How would you characterize their sentiment at the moment? And is it fair to say that one of the goals on the franchise side is to get them to increase the pace of renovations or net unit openings?
I don't get that sense. I mean, I -- without getting down a rabbit hole on renovations, I think one of the reasons I was calling out the people side of things is that when we talk about ambience and everything else, some of that is as much related to getting the right people and having the right kind of energy inside of a restaurant, and that can have much more effect in many cases than renovations. We want to have fresh-looking spots for people to visit. But sometimes I just think renovations get overplayed. I think we're going to have a busy half -- back half on renovations and new store openings. But when you come to this, I mean, when you're going to renovate a restaurant, there's a lot of things that have to come into play. You need terms, you need a franchise agreement that has term, you need a lease that has term. And sometimes that takes time or dates can slip. It's not an excuse, it's just a reality. But I don't -- I haven't got any sense that there's people that are unwilling to reinvest back into the business. It's a pretty aggressive schedule and we're working through it.
Okay. That's helpful. You mentioned ambience in the 4-pillar strategy. So that's helpful. What are some examples of the initiatives you're working on? And what are some things we might see as consumers of those restaurants?
Well, I think there's -- on each of those pillars, they are -- depending on the brand, there's going to be numerous different things that will fall under it. It's just -- the whole point of that pillar system is that we can't lose sight of the fundamentals of what drives the customer experience. So depending on the banner, they may be doing very well on a few of those pillars or all of those pillars. Others might need more help. But I mean, if you went to -- if you went up to Swiss Chalet in Barrie, you're going to see a very different-looking Swiss Chalet. And you'll -- and you can see what that looks like. If you go to new Kelsey's in Aurora, you're going to see a beautiful brand-new-looking restaurant. So I think when you're using Kelsey's as an example, and I won't be getting into talking about brands, but in this case, I'll talk about this particular example. I think that brand had lot of things that they worked on prior to really rolling out aggressively on the renovation. I think they got the menu strategy right, and they got the people strategy right, and they've got a very engaged franchisee base, combined with an exciting kind of new look and that works. So again, each banner is going to have its place in the evolutionary curve, and we'll continue to work with them.
Okay, great. And a couple of modeling questions maybe for Ken. Can you remind us of what synergies still remain from the St-Hubert, Original Joe's and Keg deals? And then I know you're not guiding on CapEx next year, but is there any commentary you can provide us with to help us forecast that?
Yes, John, the synergies on St-Hubert and Original Joe's, we projected about 3 years. We have not -- we're not tracking and reporting how we're doing other than to say we're on track, and we're confident that they'll be delivered. So I think that's kind of -- as far as we go; we don't break out brand-specific financial results. But those synergies are coming together. CapEx, we're not ready to guide on 2019 yet. But our 2018 plan kind of resembles 2017, where we're seeing CapEx coming in between $45 million and $50 million -- net after dispositions because we're still selling off some corporate restaurants and franchise banners.
Your next question comes from the line of Elizabeth Johnston of -- from Laurentian Bank Securities.
Just going back to the corporate store segment, but put it in another way, I'm trying to get a sense of what other drivers might have contributed to either the same-store sales growth, which although you said was in minus franchised levels as well, but as well the corporate store margin, is there any contribution from a change in off-premise sales, delivery or takeout that you can speak to?
No. I mean, again, the jury is out. I think it's just [ like timed to ] The Keg. I mean, I think that's probably the vast majority of it.
Okay, great. And just in terms of the Central segments of the System Sales, which in part comes from, I believe, you called out the catering business, which was recently acquired as well as manufacturing from St-Hubert. That was a very strong $70 million contribution there. The underlying business, so excluding the catering, just the manufacturing portion from St-Hubert, can you give us any commentary on how that business itself is tracking? And any kind of metric with respect to organic growth, even if it's just directional or qualitative?
Elizabeth, it's Ken here. You're right. It was a strong sales quarter for Central. The manufacturing business, as you know, is softer in Q1 and there's been a recovery in Q2, which we said we expected through the balance of the year to recover on the Q1 shortfalls. So it's tracking as we expected, and you see the contribution from food processing up quite a bit from last year Q2. So it did have a stronger quarter, both organic sales and picking up on some of the Cara brands.
Okay, great. And then when it comes...
And that also includes sales of some of The Keg brands at retail. As you know, they have a retail grocery business as well.
Great. And so when it comes to separating out the St-Hubert manufacturing versus Keg or the catering, I'm trying to get a sense of the difference in contribution margin from each of these segments. Is there anything you can help us with [ that affect them all ] when you think about those things?
Yes, Elizabeth, we're not going to break that out. So it's -- can't help you.
Okay. And then on -- one final follow-on on this topic, though. In the past, you've indicated that the manufacturing is running somewhere in the 60% capacity range. Can you give us an update there?
It's -- we're continuing to add products and SKUs to the manufacturing. And there's still capacity to grow. We are adding a new pie line that will come online this fall. So to take in-house more of the pot pie and frozen pie production. So there still is capacity for more product and more shifts in the factories.
Okay, great. And just going back to a comment that was made earlier with respect to the profitability of franchisees. Would you expect that going forward to make any changes as it pertains to the vendor rebate program?
No.
Okay. And just one other question. Going back to my earlier mentioning of delivery and the path you see, you talked about the relationships that Recipe is pursuing with the third-party aggregators. Can you give us an update on the progress there?
Sorry, Elizabeth, can you repeat the question one more time for me?
Can you give us an update on partnerships and relationships that Recipe is pursuing with the third-party aggregators? So the UberEATS, foodoras.
Yes. So I mean, in many of our banners, we're in the delivery business, and we invest in the -- our own technology. Swiss Chalet has been doing it for a long time, along with St-Hubert. We're in the delivery business; in some cases, we use third parties to help us. I think in this space, yes, it is, it actually is growing. I think it's incumbent upon us, though, to make sure that we're always are mindful of who the customer is. And we want to make sure that we are taking care of that customer regardless of the vehicle that takes the product from our restaurants to the customer. So again, we do use aggregators. We'll continue to use them. And I think it's good that we have a few that we're going to continually use. But we will also offset that with also using our own delivery system in banners that are well established in that area.
Okay. And in terms -- on a consolidated basis, are you able to break -- give us a sense or break out the portion of System Sales that currently comes from delivery and take out business?
No, we don't -- again, I know I'm -- hear you, Elizabeth, but I'm not going to sort of give you -- breaking out that type of information. The bottom line is, I think that as -- because we have to be -- go back here for a second and say, food [ safety ] needs of today is changing. People want to have a lot more ways of having convenience, and they want that product well. So again, going back to those 4 pillars. Value, I would put convenience under the value bucket. And we're going to continue to try to do our best to serve people our products wherever and whenever they would like and to do that in a profitable way.
And we have no further questions in the queue at this time.
Okay. Well, thank you, everyone, for joining us today. We'll look forward to seeing you again at the end of Q3, and I wish everyone to have a great weekend. Thanks all.