Can Tim Hortons Challenge Starbucks’ And Dunkin’ Brands’ Duopoly In The U.S.?

Owned by Restaurant Brands International (NYSE: QSR), Tim Hortons is a Canada-based coffee and doughnut maker. For a layman, it is the Canadian version of Starbucks. Tim Hortons had seen spectacular growth for decades, before hitting the wall in Canada. Its same-store sales-growth had started sagging, due to tough new competition from McDonald’s new McCafe, a saturating Canadian market, and the company’s failed attempts at expansion in the U.S. Its time-tested growth strategy wasn’t working.

Source: canadianbusiness.com

In order to bolster its sales and expand out of its home market, Tim Hortons decided to merge with Burger King in 2014.  While the merger helped Burger King reduce its tax bill by over 13 percentage points by relocating its head quarters to Canada and bolstering its position in the breakfast market, Tim Hortons benefited from Burger King’s worldwide footprint and experience in global development.

Learning from Burger King, Tim Hortons (TH) announced its own expansion strategy. Since the merger, the company has signed a number of new contracts to further its expansion plans in the U.S, while closing 27 of its non-profitable outlets in New York and Maine. These contracts will help TH add approximately 650  outlets in Indiana, Cincinnati, and Columbus. The latest agreement the company signed includes development plans in Minneapolis over the next 14 years. In terms of international expansion, Tim Hortons signed a master franchise joint venture to expand into the Philippines in Southeast Asia, targeting the country’s 100 million population. It hopes that this agreement would be its gateway to the very fast growing Asian market.

However, expansion in the U.S. is no easy feat for the Canadian coffee maker. The U.S. market is ruled by giants like Starbucks and Dunkin’ Donuts, who have a loyal customer base owing to its reward programs and product innovation.

In a recent report, Bloomberg Intelligence analyst Michael Halen said, “Coffee and fast casual – those are the two areas of the restaurant industry that are growing the fastest.” The statement reinforces the fact that not only is the U.S. the biggest consumer of coffee, but that the U.S. coffee market is nowhere near its saturation point. If Tim Hortons plays its cards right, it may be able to attract a significant amount of traffic. To this end, it has launched a multitude of new products, such as Mocha and Oreo Iced Capp, Croissant Breakfast Sandwiches, Nutella-filled butter croissants, and a cookie filled with Nutella topped with crushed hazelnuts.

Have more questions on Restaurant Brands International (NYSE: QSR)? See the links below:

• Restaurant Brands International Stays Confident Amid Tepid Q2’16 Sales And Fears Of Restaurant Industry Slump
• Restaurant Brands International Q2 FY’16 Earnings Preview: Emphasis On Expansion To Be The Growth Strategy
• Franchised Restaurants To Contribute More Revenues Than That Of Company-Operated Restaurants For Restaurant Brands International By The Next 3 Years
• How Has Restaurant Brands International’s Revenue And EBITDA Composition Changed Over 2011-2015?
• By What Percentage Have Restaurant Brands International’s Revenues And EBITDA Grown Over The Last Five Years?
• Where Will Restaurant Brands International’s Revenue And EBITDA Growth Come From Over The Next Three Years?
• Restaurant Brands International Q1 FY’16 Earnings Preview: Breakfast Market To Drive Comp Sales
• What Is Restaurant Brands International’s Revenue & EBITDA Breakdown? (Updated After Q1 2016)
• What’s Restaurant Brands International’s Fundamental Value Based On Expected 2016 Results?

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