Executive Insights | November 2010 | By Robin Van Tan

The Upsides of Competition

Rival franchises and price increases won’t deter a loyal customer, says Kevin West, director of coffee operations for Tim Hortons. But it’s up to the company to brand that loyalty.

Kevin West, Tim Hortons' director of coffee operations
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Kevin West will tell you he’s been working in the coffee industry since he was 10 years old, when he would spend free time at a coffee roasting plant with his father, watching, learning, and tasting. Now, as director of coffee operations for Tim Hortons, West tastes more than 300 cups a day to ensure the concept serves consistently high-quality brews. Here, he discusses the increasingly competitive nature of the coffee game—and how spikes in coffee bean prices will affect all its players.

Why have big “coffee wars” developed between quick-serve chains recently?

What we’re seeing as a market trend in the past few years is a shift from in-home consumption to out-of-home consumption. Because of that, you’re seeing a lot of coffee shops and cafés—both big-branded organizations like Tim Hortons, as well as small mom-and-pop shops—where it really becomes about the experience and convenience. We all have busy lifestyles, and good-to-go coffee is something that I think you can count on every day in today’s market place.

Who does Tim Hortons consider its biggest competitors right now?

In Canada, Tim Hortons is the No. 1 market placer. We have seven out of 10 cups of coffee in the marketplace. Our competition at times is really ourselves. We’ve got to be able to maintain that consumer promise, deliver on execution, and offer quality value. Certainly you’re seeing other players coming to the Canadian market, and we have to defend against that. The U.S. is a completely different marketplace where it’s very regionalized. You have different consumer preferences, and I would say that anybody that sells coffee is really a competitor in the U.S. marketplace.

What does Tim Hortons do that’s different from other coffee quick serves?

In the Canadian marketplace, we’re looking to enhance that customer experience all the time. We’ve got the digital menuboards, we’ve got a lot of great regional marketing, and that community work is allowing us to keep our Canadian roots. And, of course, it really is about the coffee that our customers can count on. 

“We have seven out of 10 cups of coffee in the marketplace. Our competition at times is really ourselves.”

In the U.S. marketplace, we’re looking to evolve the business and adapt a little more. We just opened up a few concept stores in the U.S. that have a broader offering of products the consumer is looking for. I like the fact that our business is very diverse. We’ve got coffee, we’ve got baked goods, and we’ve got a lunch program.

Tim Hortons has to compete with other quick serves for coffee beans as well, correct?

We’re seeing a very tight supply of high-quality coffees. When you look at what we’re purchasing within our blend, the premium coffee or the specialty coffee that we have is what you call a strictly hard bean coffee; it’s the highest altitude that you can buy in any region. Although we offer a great price value, we are competing against the likes of Starbucks for this style of coffee, so it’s highly competitive in the marketplace, particularly now that we’ve got a shortage or supply issue in high-quality coffees.

How does Tim Hortons stay competitive on that front?

It’s really about relationships. We’re not an opportunistic buyer; we like to build relationships with vendors that are really an extension of our business, down to the farmer and back up. What we like to call it is linkages along the supply chain. 

Why are wholesale coffee prices going up so much?

There’s no question about it—we’ve had a supply shortage in high-quality coffees, and that’s played into the price. But we’re hopeful that that’s just a hiccup and that, now that we have the high prices and it’s very profitable for the producer, we can get more supply back into the marketplace into the short term and we can get back to normal business operations.

How will that affect coffee prices at Tim Hortons?

We’re a quality value company. We’ve been known in the past to hold price internally so we don’t have to raise our menu price to consumers. We’ve got a great relationship with our storeowners through our national advisory group. Between our storeowners and our national team, we make the decision collectively how we’re going to deal with the price.