“It’s hard to distinguish between Tim Hortons and Starbucks and Dunkin’ Donuts,” Mr. Shibli said, making a comment that would probably come close to blasphemy, were he to utter it in Canada. “I feel like it’s maybe slightly cheaper and slightly worse.”
And yet, since the Canadian coffee and doughnut chain started opening locations in his city three years ago, Mr. Shibli tends to find himself at the order counter. If there’s nothing particularly memorable about it, there’s nothing wrong with it, either — plus, there’s a Tims at a convenient point where Mr. Shibli stops when he makes the drive between Abu Dhabi and Dubai. And, he said, “those little Timbits are always kind of nice.”
If shareholders and regulators approve the US$12.5-billion deal announced this week, Burger King Worldwide Inc. plans to buy Tim Hortons and use its existing international connections to take the beloved Canuck brand global. The chain is well known for its success in corporatizing Canadian nostalgia, linking its brand more directly with winter mornings and kids’ hockey games than any other. That’s its magic. Its food products are decent enough, but no one exactly raves about them.
But such things are scarcely exportable. And outside Canada, Tim Hortons will be starting from scratch with customers like Mr. Shibli. With no shortage of global chains offering coffee, sweet treats or a quick meal in cities around the world, Tims will have to figure out how to build a brand without the help of sentimentality.
Eighty percent of Tim Hortons’ 4,500 locations are here in Canada. About 1% are in the Middle East. The other 19% are in the U.S., where the company’s track record has been, at best, spotty.
Actually, Tim Hortons’ U.S. expansion is sometimes dismissed as an outright flop. The chain has closed underperforming stores, and last year, two hedge funds with stakes in Tim Hortons suggested it pull up its American stakes entirely.
According to the market research firm Technomic Inc., Tim Hortons’ 860 U.S. restaurants were responsible for just a small fraction of sales in what the firm calls the “coffee/café” segment. Stores in that category pulled in US$22-billion last year.
Starbucks Corp. and Dunkin’ Donuts dominate the sector, holding about 85% of the U.S. market share between them. Tim Hortons’ market share is a paltry 2.7%. And yet, something often overlooked is that in a market so otherwise fragmented, even that seemingly small share ranks Tims as the third-biggest coffee chain in America.
And Americans seem only to want more coffee, says Darren Tristano, executive vice president of Technomic: their demand for takeout brew seems to be insatiable. In major cities, every street corner seems to have been taken by one coffee retailer or another, yet the big players’ sales continue to grow at rates in the high single digits.
“What looks like a very mature segment still has room for growth,” Mr. Tristano said.
Just a few years after entering the U.S., Tim Hortons has already beat out chains like Caribou Coffee Co. Inc. that had been around for a lot longer. Mr. Tristano said he thinks it could do even better by appealing to the growing demographic of Hispanic customers and lower- to middle-income groups.
As if playing to stereotypical Canadian type, Tim Hortons’ international expansion to date has been quiet, polite and boring. There’s been little social media buzz and no overnight lineups like those seen at new locations of Buffalo Wild Wings Inc. or The Cheesecake Factory Inc.
Tim Hortons’ U.S. advertisements have been similarly bland, playing up the freshness of the coffee and food. That stands in stark contrast to its heartstring-tugging “True Stories” advertisements in Canada, in which Canadian backpackers, soldiers and immigrants bond over their love of double-doubles.
Rohit Deshpande, a marketing professor at Harvard Business School who has studied country-of-origin branding, said marketing a brand’s national roots is a good way to appeal to even foreign consumers looking for authenticity — think: Italian sports cars, or Swiss watches.
There may be nothing particularly Canadian about doughnuts and coffee, and Canada doesn’t exactly have cosmopolitan appeal. But Canada Goose (and to some degree, Roots clothing, before it) is a rare example of a brand that has found a global market by playing up its Canadian roots — knowing how to beat the cold with a parka is as authentically Canadian as it gets.
And like those geese, there really is, or was, a Tim Horton.
“There isn’t a Burger King, but there is a Tim Horton. He’s the original Leaf; he’s Tim Doughnut,” Mr. Deshpande said.
If Tims can repackage what sells at home as sentimentality and sell it as authenticity abroad, it may be the edge it needs to succeed where other Canadian coffee chains have faltered in attempting global reach.
The Second Cup Ltd., which has locations in the Middle East, Pakistan, the U.S. and elsewhere, has been cutting costs and reorganizing management to reverse falling profits. Timothy’s Coffees of the World Inc. has closed its U.S. retail locations, but continues to sell single-serve coffee pods there after selling its wholesale operations to Vermont-based Green Mountain Coffee Roasters Inc. in 2009.
That doesn’t mean that Tim Hortons shareholders aren’t still waiting for answers about the finer details of the new combined Burger King-Tim Hortons plan for world coffee and doughnut domination. Charles Nadim, a Canadian equity manager with Tim Hortons’ third-largest shareholder, Jarislowsky Fraser Ltd., said he’s confident Burger King CEO Daniel Schwartz and Brazil’s 3G Capital Inc., the burger chain’s controlling shareholder, can deliver on the promise of taking Tims global, fast. But he’s less confident about what that means for shareholders in the medium and long term.
The Brazilian private equity firm has made a name for itself as a forceful streamliner, both at H.J. Heinz Co., which it bought last year in partnership with Warren Buffett’s Berkshire Hathaway (there are stories of office supply allowances at Heinz headquarters, and bans on colour copying) and at Burger King. Mr. Schwartz has uprooted the chain model at Burger King, rapidly converting stores to franchises, offloading the local risk and raking in fees instead. The result: Burger King has held on to profitability despite years of falling revenue.
“Are they going to replicate the Burger King model in the mid-term to Tim Hortons, which would mean, for example, selling all the land, selling all the distribution assets, the roasting facilities, and outsourcing?” Mr. Nadim said. “If you start baking in those kinds of cost cut potentials, then this near term multiple becomes less interesting on a mid-term basis.”
Tims has already begun a campaign to soothe Canadians who may be anxious about the change in ownership, taking out double-page ads in some newspapers promising that everything will stay exactly the way we have come to expect at our local stores. But brand consultant Tony Chapman said anyone who believes nothing will change is in for a nasty surprise. Those Canadian fans who have been fretting about Tim Hortons’ new American-Brazilian owners globalizing the chain at the expense of local franchise quality? They might be onto something.
Canada may be an important market for Tims, but the entire rest of the planet offers an awful lot more growth. In Canada, we’re used to protecting our culture from the American global cultural juggernaut, but if Tim Horton is going to share the world stage with Ronald McDonald, it’s hard not to see how sacrificing a few local processes and tastes wouldn’t be worth the opportunity to create a global profit machine. After all, nobody in Abu Dhabi remembers the days when bakers made doughnuts fresh on the premises, and they’re unlikely to protest outsourced roasting if it makes the coffee a little cheaper.
“Consumers have got to wake up,” Mr. Chapman said. “You don’t put this kind of money in and not make massive changes to the organization.”
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