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From the Survey: Tim Hortons
Tim Hortons (THI), founded by the ex-NHL player, Tim Horton, opened its first restaurant in Ontario, Canada in 1964. The restaurant chain focuses on “top quality, always fresh products, value, exceptional service, and community leadership” and specializes in “always fresh coffee, baked goods, and homestyle lunches.” Since its opening, this company has grown into the fourth largest publicly traded restaurant chain in North America. Tim Hortons mainly competes with Dunkin Donuts (DNKN), Starbucks (SBUX), and less directly with McDonald’s (MCD - Free McDonald's Stock Report), which has put additional effort into marketing its coffee. In Canada, data shows the company accounts for roughly 42% of all quick-serve restaurant traffic (the next closest is McDonald’s with 15%). Due to the already broad scope of its Canadian locations, the United States is seen as the next key driver of earnings. However, in the U.S., it is more of a regional brand, found mostly in several northeastern states. How does Tims, as it is affectionately known in Canada, hope to translate its success into the American market?
Tim Hortons first extended into the United States as a result of natural expansion near Canadian border areas and its first U.S. restaurant opened in 1985 in Amherst, NY, less than 20 miles from the Canadian-U.S. border. Starting in the 1990s, THI continued growing in America by acquiring former locations from fast food chains and, in 1995, the company merged with Wendy’s International Inc. (now known as The Wendy’s Company - WEN), giving it new focus and momentum to expand in the United States. Later, in 2006, Tim Hortons was spun off from Wendy’s and completed an initial public offering. Shares trade on both the New York Stock Exchange and the Toronto Stock Exchange under the same ticker.
As of January 2, 2012, there are 714 Tim Hortons restaurants in the U.S. (there are 3,295 in Canada) and can be found in nine states, including Indiana, Kentucky (including the army facility, Fort Knox), Maine, Michigan, New York, Ohio, Pennsylvania, Virginia, and West Virginia, with New York containing the most locations (more than 200). Its U.S. headquarters is in Dublin, OH and its largest coffee bean roasting plant is based in Rochester, NY.
In Canada, the restaurant chain can get away with simply putting “Tim Hortons” on a building and customers will respond. However, this strategy will not work as well in the United States, thus consumers must be drawn in. Tim Hortons restaurants generally come in two formats: a standard and non-standard format. Standard restaurant locations are 1,400-3,090 square feet and include a dining room, drive-thru window, and typically a kitchen capable of supplying fresh baked goods throughout the day. In an attempt to attract customers, THI partnered with Kahala Corp., the private owners of Cold Stone Creamery, to co-brand up to 100 combined locations in the United States. The reasoning behind this decision was that Tim Hortons typically brings in the morning and afternoon crowds, while Cold Stone Creamery brings in a night crowd. As a result of the constant traffic, hopes were that both companies would benefit from cross-selling. As of October 2, 2011, there were 90 co-branded restaurants in the United States (125 in Canada).
The non-standard format includes small, full-service restaurants and/or self-serve kiosks. This format is intended to complement the standard restaurants and extend the company reach in offices, hospitals, universities and colleges, airports, grocery stores, gas and convenience locations, and other non-traditional sites on smaller pieces of property. The primary format for the self-serve kiosks is the self-pour brewed coffee model. In the U.S., the majority of these kiosks can be found in Tops Friendly Markets (a grocery chain located mostly in northern PA and western NY). This complementary strategy fits into the company’s “we fit anywhere” philosophy and capability. Currently, there are 164 U.S. self-serve kiosks versus only 119 in Canada, indicating the “small-steps” approach necessary in the United States. In addition to complementing the growth strategy in America, it is meant to increase the brand presence and create another outlet to drive convenience.
In 2010, the company announced a plan to open 300 or more restaurants in the U.S. between 2010 and 2013, and in doing so, would invest heavily in advertising and marketing to create awareness for the brand. In America, Tim Hortons is focused on becoming famous as a café and bake shop destination, where it plans to significantly differentiate the brand through a new concept restaurant design. This new design features a dramatic reimaging to more sharply define its café and bake shop positioning, including enhanced finishes, fixtures, and seating areas as well as experiential changes. Additionally, the company will continue to test new product offerings and adopt innovative new marketing and branding initiatives aligned to its positioning.
So, how is the United States expansion coming along? There have been some bumps along the way. Most notably, in the fourth quarter of 2010, the company closed 36 restaurants and 18 self-serve kiosks, mostly in the New England region, where the Dunkin’ Donuts chain is firmly entrenched. However, in 2011 114 new U.S. locations were opened (30 full-serve, 42 full-serve non-standard locations, and 42 self-serve kiosks) and Tim Hortons is on pace to surpass its goal of 300 new restaurants by 2013. Additionally, American sales were over $156 million, up 27% from the year-ago period, with same-store sales growth of 6.3%, ahead of its target of 3%-5%. In 2012, the company looks to open 80-100 full-serve restaurants in the Unites States and have same-store sales growth of 4%-6%.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.