A Closer Look At RBI’s Growth Strategy For Its Tim Hortons Segment
Tim Hortons is the most valuable segment for Restaurant Brands International (NYSE: QSR), and according to our estimates, company owned and franchised restaurants of this segment together account for more than 60% of the company’s valuation. In 2017, we expect nearly 60% of the full company’s revenues to come from its Tim Hortons company owned restaurants and another 18% from the franchised restaurants of the same brand. The company is focused on growing this segment in both existing and prospective new markets.
Expansion of this brand in the U.S. and other international markets resulted in a more than 3% year on year increase in system-wide sales for the company in Q1 2017. However, in this quarter, Tim Hortons did not perform as per expectations. Overall comparable sales for this segment were flat and comparable sales were negative 0.2% in Canada – the brand’s biggest market. RBI is confident about growing sales for this brand in the future and its two key initiatives for this segment are likely to drive sales.
Launch of espresso based beverages
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Last month, RBI installed new espresso machines in most of its Tim Hortons restaurants in Canada before formally launching its national espresso campaign. The company promoted its espresso latte anonymously in a pop-up store and when the brand was revealed, it received an overwhelming response. RBI’s goal with its espresso based beverages is to provide high quality products to its consumers at a value price. These beverages made from freshly ground beans and steamed milk are aimed towards developing a competitive edge as customers shift preferences towards higher-end coffee. According to Technomic sales of specialty hot coffee in Canadian restaurants are growing at twice the pace of that of regular brewed coffee. This new launch will allow Tim Hortons to exploit the growing market for specialty coffee and drive sales for this brand.
Roll-Out of the Digital App
Tim Hortons, is likely to roll out a mobile order and pay app in the next few months. While the company faced some push back from its franchisees during the testing phase, delaying the spring launch of this app, it is confident that the roll out will happen soon. Several restaurants are using technology to make it easier and faster for consumers to get their orders. Starbucks which pioneered the mobile order and pay system now sees more than 20% of its orders coming from this platform. The benefits of a digital system go far beyond customer convenience. Data collected through a digital ordering platform can be used to generate insights on customer behavior, preferences, and help in providing customized service. Further, companies have linked their digital apps to their reward programs, delivering superior customer experiences. A better service through the digital app can drive sales for Tim Hortons.
Q1 2017 was disappointing for Tim Hortons. However, with two key launches on the anvil we expect positive comparable sales going forward.
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