Why Tim Hortons Struggles In The United States

Summary

Tim Hortons, a Canadian coffee chain deeply embedded in the country's culture, faces challenges in the U.S. market despite its popularity in Canada. The brand, part of Restaurant Brands International, has struggled with saturation and competition from established American coffee and fast-food chains. Efforts to expand beyond the Canadian border have been met with mixed results, and while strategies like offering plant-based options have been successful in Canada, the U.S. market remains a tough nut to crack. Analysts suggest that Tim Hortons should consider simultaneous product launches in both countries and possibly explore growth in markets where competition is less fierce.

Takeaways

• 🇨🇦 Tim Hortons is a quintessentially Canadian brand, deeply ingrained in Canadian culture, and is perceived as more Canadian than Coca-Cola is American.
• 📈 In 2018, Tim Hortons accounted for over 60% of the revenue for its parent company, Restaurant Brands International, which also owns Burger King and Popeye's.
• 📊 As of 2015, there was one Tim Hortons for every 9,800 Canadians, indicating a high saturation level within the country.
• 🗺️ The success of Tim Hortons in the United States is closely tied to its proximity to the Canadian border, with better performance in states closer to Canada.
• 🚫 Despite attempts, Tim Hortons has struggled to establish a strong presence in the U.S. market, facing challenges such as production issues and lack of brand awareness.
• 🏪 The U.S. expansion strategy has relied heavily on franchising, with 98% of U.S. locations concentrated in eight states.
• 🤔 Market saturation in the U.S. poses a significant challenge for Tim Hortons, as it competes against entrenched brands like Starbucks and Dunkin' Donuts.
• 📉 In 2010, Tim Hortons closed 36 locations in New England due to poor performance, resulting in a loss of $4.4 million that year.
• 💰 Burger King's acquisition of Tim Hortons for $11 billion in 2014 led to the establishment of Restaurant Brands International with headquarters in Toronto.
• 🌐 Despite commitments to expand in the U.S., RBI closed 234 U.S. locations in 2015, citing the need to build a foundation for future growth.
• 🚀 Analysts suggest that Tim Hortons could benefit from introducing premium coffee, plant-based options, and healthier breakfast items to the U.S. market.

Q & A

What is the significance of Tim Hortons in Canada?

Tim Hortons is deeply ingrained in Canadian culture, being as iconic as Coca-Cola is in America. It is a one-stop shop for coffee, breakfast, lunch, and doughnuts, and its brand DNA reflects Canadian stereotypes such as politeness and hockey.

How does Tim Hortons' revenue compare to its parent company's total revenue?

In 2018, Tim Hortons accounted for over 60 percent of the revenue of its parent company, Restaurant Brands International, which also owns Burger King and Popeye's.

What was the ratio of Tim Hortons locations to the Canadian population in 2015?

In 2015, there was one Tim Hortons location for every 9,800 Canadians, indicating a high saturation of the brand within the country.

Why has Tim Hortons struggled to succeed in the United States?

Tim Hortons has faced challenges in the U.S. due to market saturation, strong competition from established brands like Starbucks and Dunkin' Donuts, and a lack of brand awareness among Americans who are not close to the Canadian border.

What was the outcome of Tim Hortons' early attempts to expand in the U.S.?

Tim Hortons' initial expansion attempts in Florida in the 1980s struggled due to production issues and a lack of brand awareness among Floridians, leading to the closure of both locations in 1995.

How has Tim Hortons' geographical proximity to the Canadian border affected its success in the U.S.?

The closer an American city is to the Canadian border, the better Tim Hortons performs, as Canadians crossing the border for shopping are more likely to be familiar with the brand and support the business.

What was the strategy Tim Hortons used for its rapid expansion in the U.S. in the 1990s?

Tim Hortons used a franchise model for its rapid expansion in the U.S. during the 1990s, focusing on states close to the Canadian border.

What was the impact of Tim Hortons' market saturation in the U.S. on its growth?

Market saturation in the U.S. has been a significant problem for Tim Hortons, as being the 15th company to offer coffee and doughnuts in the market has made it difficult to gain mindshare among consumers.

Why did Tim Hortons close 36 locations in New England in 2010?

Tim Hortons closed 36 locations in New England due to poor performance, which cost the business $4.4 million that year, indicating a lack of success in those markets.

What was the significance of Burger King's acquisition of Tim Hortons in 2014?

Burger King's acquisition of Tim Hortons for $11 billion in 2014 led to the establishment of the combined company, Restaurant Brands International, with its headquarters in Toronto, and a commitment to continue expanding Tim Hortons in the U.S.

What strategies have been suggested for Tim Hortons to improve its performance in the U.S.?

Strategies suggested for Tim Hortons include offering premium coffee, healthier breakfast options, and keeping up with trends such as plant-based meals, which have been successful in Canada and could potentially be introduced in the U.S.

Why might Tim Hortons consider expanding beyond the U.S.?

Tim Hortons might consider expanding beyond the U.S. due to the highly competitive nature of the American market and the potential for growth in areas where Starbucks and Dunkin' have not yet dominated, such as Mexico and the Philippines.

Outlines

00:00

🇨🇦 Tim Hortons: A Canadian Icon Struggling in the U.S.

This paragraph introduces Tim Hortons, a Canadian coffee chain that is deeply ingrained in Canadian culture, with a presence so pervasive it rivals that of Starbucks in the U.S. The brand's identity is synonymous with Canadian stereotypes such as politeness and hockey. Despite its popularity in Canada, where it accounted for over 60% of its parent company's revenue in 2018, the company has faced challenges in the U.S. market. The script discusses the saturation of Tim Hortons in Canada and the need for expansion into the U.S., where it has historically struggled due to competition and lack of brand awareness, especially when compared to established American brands like Starbucks and Dunkin' Donuts.

05:02

📉 Challenges and Strategies for Tim Hortons in the U.S.

The second paragraph delves into the difficulties Tim Hortons has encountered in the U.S. market, including market saturation and intense competition from well-established brands. It highlights the company's efforts to expand beyond the Canadian border, with a focus on states close to Canada where brand recognition is higher. The paragraph also mentions the closure of numerous locations in the U.S. and the potential strategies Tim Hortons could employ to improve its standing, such as offering premium coffee, healthier options, and leveraging the plant-based food trend. Additionally, it raises the question of whether the company should consider expanding to markets where competition is less fierce, such as Mexico and the Philippines, rather than solely focusing on the highly competitive U.S. market.

Keywords

💡Tim Hortons

Tim Hortons is a Canadian multinational fast food restaurant chain, known for its coffee and doughnuts. It is deeply ingrained in Canadian culture, as illustrated by the script's reference to its widespread presence in Canada and its role as a 'one-stop shop' for various food items. The brand's identity is so intertwined with Canada that it is used to exemplify Canadian stereotypes, such as politeness and hockey.

💡Restaurant Brands International

Restaurant Brands International (RBI) is a quick-service restaurant company that owns several well-known brands, including Tim Hortons, Burger King, and Popeyes. The script mentions that Tim Hortons was a significant revenue generator for RBI in 2018, highlighting the company's importance within the conglomerate.

💡Market Saturation

Market saturation refers to a state where a product or service has reached its maximum potential in a given market. In the context of the video, Tim Hortons has reached market saturation in Canada, necessitating expansion into other markets, such as the United States, to continue growing.

💡Franchise Model

A franchise model is a business arrangement where a company (the franchisor) licenses its business system to another party (the franchisee). The script discusses Tim Hortons' use of this model for rapid expansion in the U.S. during the 1990s, which allowed for the opening of numerous stores across the country.

💡Brand Awareness

Brand awareness is the extent to which consumers are familiar with a brand. The script points out that Tim Hortons struggled in Florida due to a lack of brand awareness among Floridians, indicating the importance of brand recognition for business success in new markets.

💡Geographical Proximity

Geographical proximity refers to how close a location is to another. The script suggests that the closer an American city is to the Canadian border, the better Tim Hortons performs, implying that familiarity with the brand increases with proximity to its home market.

💡Competition

Competition in this context refers to the rivalry between businesses for market share. The script highlights the intense competition Tim Hortons faces in the U.S. from established brands like Starbucks and Dunkin' Donuts, as well as numerous other coffee and snack shops.

💡Plant-Based Trend

The plant-based trend refers to the growing consumer interest in food products derived from plants rather than animals. The script mentions RBI's adoption of this trend by introducing plant-based options like the Impossible burger and Beyond Meat sausages, reflecting Tim Hortons' attempt to align with current consumer preferences.

💡Expansion Strategy

An expansion strategy outlines how a company plans to grow its business. The script discusses Tim Hortons' challenges with its U.S. expansion strategy and suggests potential strategies such as introducing premium coffee options or healthier breakfast sandwiches to improve its market position.

💡Consumer Habits

Consumer habits are the regular patterns of behavior displayed by consumers when making purchasing decisions. The script notes that Americans' familiarity with brands like Starbucks and Dunkin' Donuts influences their choice over Tim Hortons, demonstrating the impact of consumer habits on market acceptance.

💡International Brand

An international brand is a brand that operates in multiple countries and has a global presence. The script contemplates whether Tim Hortons should look beyond the U.S. for growth, suggesting that other markets where major competitors like Starbucks and Dunkin' are not dominant could be more suitable for the brand's expansion.

Highlights

Tim Hortons is a Canadian coffee chain that offers coffee, breakfast, lunch, and doughnuts.

In 2018, Tim Hortons accounted for over 60% of the revenue for Restaurant Brands International, which also owns Burger King and Popeye's.

Tim Hortons is deeply ingrained in Canadian culture, being as iconic as Coca-Cola is in America.

As of 2015, there was one Tim Hortons location for every 9,800 Canadians, indicating market saturation.

Tim Hortons has struggled to expand in the U.S. despite being a Canadian favorite.

The first U.S. Tim Hortons location opened across the Canadian border, leveraging proximity to Canadian consumers.

Tim Hortons' early U.S. expansion focused on states close to the Canadian border due to higher brand awareness.

98% of Tim Hortons locations in the U.S. are concentrated in just eight states, mostly near the Canadian border.

Tim Hortons faces significant competition in the U.S. from established brands like Starbucks and Dunkin' Donuts.

Americans have a wide array of options for coffee and snacks, making it difficult for Tim Hortons to stand out.

In 2010, Tim Hortons closed 36 locations in New England due to poor performance.

Burger King's acquisition of Tim Hortons in 2014 for $11 billion included a commitment to U.S. expansion.

In 2015, Restaurant Brands International closed 234 U.S. locations as part of a strategy for future growth.

Tim Hortons has introduced plant-based options and is testing plant-based eggs in Canada.

Analysts suggest that Tim Hortons should launch successful Canadian products in the U.S. simultaneously.

There is speculation that Tim Hortons should consider expanding beyond the U.S. to less saturated markets.

Tim Hortons is exploring growth opportunities in international markets such as Mexico and the Philippines.

The U.S. market is highly competitive, posing a significant challenge for Tim Hortons' expansion efforts.

Transcripts

You know that old joke that there's a Starbucks on every corner in the United States.

In that Dunkin' Donuts slogan, America runs on Dunkin'.

Well, there's a Canadian coffee chain that makes those look like quaint

little neighborhood cafes.

Meet Tim Hortons, Canada's one stop shop for coffee, breakfast, lunch and doughnuts.

In 2018, it supplied over 60 percent of the revenue of its parent company,

Restaurant Brands International; which also owns Burger King Popeye's.

More importantly, it's been a company darling among Canadians.

The DNA of the brand is Canadian.

It's hockey. It's "oh, we're polite."

It's all the stereotypes that Canadians, you know, love that they have.

It's every bit as Canadian and even more so than Coca-Cola is American.

In 2015, the last year that Tim Hortons made its store count publicly

available, there was one Tim Hortons location for every nine thousand

eight hundred Canadians.

These are the same figures for Dunkin' in Starbucks in the United States.

But this success is quickly becoming a problem.

They have probably definitely reached a saturation point with in Canada.

The company needs to expand elsewhere.

And the U.S. has long been a target, but they've struggled here for decades.

Which raises the question, why can't this Canadian icon win over its southern neighbors?

The first ever Tim Hortons opened in 1964 right here.

And the first successful location in the U.S.

opened just across this border 20 years later.

A few years earlier, Tim Hortons opened two locations in these two Florida

beach towns, hoping that vacationing Canadians would both support the

business and bring in Americans.

But these struggled because of production issues and because Floridians

lacked the brand awareness that Americans closer to the Canadian border have.

Bottom line is this the closer the geographical proximity of an American

city to the Canadian border, the better off Tim Hortons does.

Both of the Florida Tim's close in 1995 and the brand has stuck close to

the border ever since.

The company expanded rapidly across these states using a franchise model

in the 1990s and listed on the U.S.

stock market in 2006.

Tim Horton's kind of just jumped into the franchise, opened up a couple

hundred stores in the U.S.

fairly quickly.

Using data from their subsequent public filings, we can see that 98

percent of Tim's locations in the U.S.

were in just these eight states.

Why did both recognition and recall.

The closer you are to the Canadian border, the theory would would say that

you are going to be more likely to cross the Canadian border for a weekend shopping.

There's a Tim Hortons on every on every block.

It's not bad stuff. They like it, you know, go back across the border and

if Tim Hortons is there, you know, the more likely be a consumer.

But even these border states couldn't cushion Tim Hortons against their

biggest problem in the U.S.

- market saturation.

If you're the 15th company that's entering an American market offering

coffee and doughnuts, you've you're so far back in terms of mindshare.

And Tim Hortons does not have huge dollars in comparison to some of the

other competitors or the entrenched regional players that maybe there or

national players like Starbucks, for example.

Anyone can name their near Starbucks or maybe their nearest Dunkin' Donuts.

So in the U.S.,

it's facing a lot of competition.

For Canadians, Tim Hortons is a go to spot for many food items, hot and

cold, coffee, drinks, breakfast sandwiches, lunch wraps and soups, fruit

smoothies and, of course, doughnuts.

But Americans have many other options.

Dunkin' and Starbucks, of course, but also Panera Bread, Jamba Juice,

McDonalds or one of the other estimated 58 thousand coffee and snack shops in the U.S..

And these all have far better brand recognition among Americans.

Humans are creatures of habit.

If you have an option between a Starbucks, Dunkin' Donuts and a Tim

Hortons, you're probably going to go to Dunkin' Donuts because you know that product.

You know what your order is; it's familiar.

In 2010, Tim Hortons closed 36 locations throughout New England after

their poor performance cost the business 4.4

million that year.

This included a complete retreat from Connecticut, Rhode Island, and Massachusetts.

Burger King bought Tim Hortons in 2014 for 11 billion dollars and the

combined company, Restaurant Brands International established its

headquarters in Toronto.

Analysts told CNBC as part of the agreement to locate the company Canada,

the Tim Hortons segment promised to continue expanding in the U.S.

They had to prove that they were going to expand internationally,

especially if the U.S.

and get their brand to grow further and not just be concentrated and

saturated within Canada.

But in 2015, the very next year, RBI closed 234 locations in the U.S.,

telling CNBC in an emailed statement that the closures were part of

building a foundation for future growth in the United States.

Starting in 2016, they've stopped breaking out the Tim Hortons growth,

specifically in the U.S.

as focused just because of the heat they've been getting in terms of

performance of Tim Hortons in the United States.

RBI did not respond to CNBC requests for comments or an interview.

So no word on exactly what their plan is.

But analysts point to a few trends or strategies the brand could use going forward.

Like premium coffee and dormant options or healthier breakfast sandwiches.

RBI has been at the forefront of the plant based meal trend, including

Impossible burgers at Burger King and Beyond Meat sausages at Tim Hortons

in 2019.

It also struck a deal in July 2019 to test just brand plant based eggs at

some Canadian Tim Hortons locations.

But some think RBI is waiting too long to launch these items in the U.S.

Something they should consider doing is launching the products that they

launch in Canada. At the same time in the U.S.,

because it's not like they don't have the infrastructure.

And some wonder whether RBI should look beyond the U.S. altogether.

Outside of the U.S.,

Tim Hortons is growing quite popular, right?

So they have introduced stores in Mexico.

The thing is, the Philippines, they just started launching in as well.

So anywhere where Starbucks and or Dunkin' hasn't completely taken over, I

think might actually be a better fit for them.

I know the U.S. is the big gym for any company that wants to create an

international brand or grow biggest consumer market in the world.

But it's also the most competitive and that's a very tough market.