Competition | January 2015 | By Sherri Daye Scott

Tim Hortons’ Must-Win Battle

Now that it’s merged with Burger King, the question is more important than ever: Can the Canadian favorite finally find true success south of the border?
Bakery cafe quick service restaurant concept Tim Hortons hopes to leverage Burger King resources.
Tim Hortons was recently acquired by Burger King, making the joint company, Restaurant Brands International, the third-largest fast-food company in the world. istockphoto/shaunl

Tim Hortons has devoted fans in the U.S. One need only to read the Twitter and Facebook feed on the brand’s U.S. website to see the passion. “Can you please open a Tim Hortons in Cincinnati???” writes Kevin Ryne Laile. “I just had the best/fastest/nicest @TimHortonsUS service!! The new one at 5 mile & Newburgh is awesome,” tweets @lemonyellowsun.

Yet the dedication of a few has not translated into the type of market domination the brand has seen in Canada, where Tim Hortons accounts for 42 percent of all quick-service transactions and 75 percent of quick-service caffeinated beverage sales.

Thirty years after opening its first store in the U.S., Tim Hortons’ share of fast-food bakery sales is less than 2 percent, according to Euromonitor. Size plays a role; competitors McDonald’s, Starbucks, and Dunkin’ Donuts operate 10 times the number of stores. But other factors are at play, such as low brand awareness and consumer loyalty to established American brands. Krispy Kreme, for example, operates fewer than 300 stores, compared with Tim Hortons’ 860-plus U.S. units, and enjoys more market share.

“Tim Hortons saw 3 percent sales growth in 2013, which is not bad,” says Elizabeth Friend, senior consumer foodservice analyst at Euromonitor. “But Dunkin’ saw 6 percent growth, while Krispy Kreme saw 7 percent.”

Still, Tim Hortons is determined to become a major player in the U.S. Its most recent annual report called the U.S. a “must-win” market and outlined a top-line, five-year growth strategy that focused on extending dayparts, increasing check averages, expanding the rollout of its bakery-café model, and seeding new markets. And that was before the brand was purchased by Burger King, which moved its headquarters to Canada, christened the new company Restaurant Brands International, and promised to invest in Tim Hortons to set it up for U.S.—and worldwide—success.

“When I look at the U.S. market, I see the world’s largest economic market,” Tim Hortons then-CEO Marc Caira told the Wall Street Journal in May 2014. “I see the world’s largest foodservice market. I see a food market that continues to grow. I see a population that continues to grow. I see a country [that’s similar]. … When you look at all these things and you have a brand like Tim Hortons, why would you not go into that market? To me, it’s not a question of not being there, but what are you going to do that’s different for you to succeed?”

Past performance

The U.S.’s first Tim Hortons opened near the Canadian border in Tonawanda, New York, in 1984. Wendy’s International Inc. purchased Tim Hortons parent company TDL Group Ltd. for $425 million in 1995. The goal was to leverage Tim Hortons’ coffee and baked goods to drive guests into cobranded Wendy’s/Tim Hortons units on both sides of the border during the breakfast daypart.

There were early signs that the partnership might falter. Tim Hortons cofounder Ron Joyce sold his stock in Wendy’s International in 2002 after losing confidence in senior management decisions, such as switching from locally baked goods to frozen par-baked product shipped from a central warehouse. And U.S. stores continually missed sales goals despite significant marketing investment.

“American consumers were confused. They didn’t understand how the two brands worked together, so the partnership just didn’t work,” says Darren Tristano, a restaurant industry consultant for Technomic.

Still, Canadian Tim Hortons stores performed well, accounting for one-quarter to one-third of parent company Wendy’s earnings in 2004. On the strength of those stores, investors began pressuring Wendy’s to spin off Tim Hortons to increase shareholder value. In 2005, Wendy’s announced plans to roll out its own breakfast menu by 2007. The next year, it listed Tim Hortons on the New York Stock Exchange and earned more than $670 million on the first day of trading. And in August 2006, Wendy’s told The Street is would sell its $4.17 billion worth of Tim Hortons stock.

Tim Hortons corporate ownership moved back to Canada in 2009, while U.S. operations remained in Dublin, Ohio. Cobranded units with Wendy’s remain in operation, though the two brands are no longer tied at the corporate level.

Since that time, the Tim Hortons standalone growth strategy in the U.S. has come under scrutiny from stockholders and industry-watchers alike. Thirty-six stores in the Northeast closed in 2010. U.S. same-store sales dipped 0.5 percent in the first quarter of 2013, inciting pressure from hedge fund investors Scout Capital Management LLC and Highfields Capital to curb U.S. expansion efforts in favor of buying back shares.

Now with the merger with Burger King, it remains to be seen how the “Must-Win” plan outlined by Caira, who is now vice chairman of Restaurant Brands International, will be adjusted, if at all.

The current state

With systemwide sales of $589.5 million in 2013 and more than 850 units operating, Tim Hortons ranks 41st among U.S. quick-service brands, according to the 2014 QSR 50. The chain operates in 10 U.S. states—Michigan, Maine, Connecticut, Ohio, West Virginia, Kentucky, Pennsylvania, Rhode Island, Massachusetts, and New York—with the largest concentration of stores in the Midwest and Northeast.

Last year saw the chain extend its breakfast menu until 5 p.m., expand its cold specialty beverage line to include Frozen Green Tea and Frozen Hot Chocolate, and test on-the-go offerings such as Spinach and Egg and Chorizo hand-held pies and a Meatball Panini, all in an attempt to reach a broader American audience and drive up average unit volumes in existing stores.

“Tim Hortons has a much bigger presence in the U.S. than people know,” Friend says. “They are definitely a player.”

A player in a field of tough competitors all vying for a share of U.S. breakfast, lunch, and beverage dollars. Along with Tim Hortons, Euromonitor places 24 other brands in the U.S. bakery fast-food category, including fast-casual concepts such as Panera Bread, Au Bon Pain, and Corner Bakery. Factor in convenience-store chains like 7-Eleven, Wawa, and Sheetz, and you have a market saturated with choice.



Tim Horton's coffee is pretty good. Their donuts and Tim Bits are just okay. The rest of their menu is like eating at a school cafeteria. They know this - I talked to one of their executives about it but he says they are too stubborn to change their menu to be more compatible with US tastes.

Tim Horton's is Everything to Everyone. I visit Canada on average twice a year and Tim Horton is always my choice for quick yet relaxing comfort food and much more. I do miss not having Tim Horton's in Los Angeles and hope that the merger with Burger King will help spread that good brand through the US, although selfishly I would like Tim Horton's to start growing in California first.

I agree with everything you said except I think the merger with BK is a wrong move: TH is the best and BK the worst fastfood eatery anywhere.

I enjoy Tim Horton. The store in my area is co branded with a cold stone creamery. This unit has been open about three years and if fairly busy. I feel that most people in the area still has no idea what the brand is about and I don't see brand advertising trying to explain it. I only see billboards with the Horton logo. Every now and the it may show a cup of coffee.


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