Tim Hortons to battle Starbucks; price rises likely

TORONTO Thu Aug 14, 2014 7:28pm EDT

Tim Hortons employees prepare coffee before the company's annual general meeting in Toronto, in this file photo taken May 8, 2014. REUTERS/Peter Jones/Files

Tim Hortons employees prepare coffee before the company's annual general meeting in Toronto, in this file photo taken May 8, 2014.

Credit: Reuters/Peter Jones/Files

TORONTO (Reuters) - Canadian coffee and donut chain Tim Hortons, which has offered only one coffee blend in its 50-year history, hopes to lure new coffee drinkers and fend off rivals such as Starbucks Corp (SBUX.O) and McDonald's Corp (MCD.N) with the launch throughout North America of its new dark roast blend.

Tim Hortons, which announced the move on Thursday, may also increase prices to tackle rising costs and competition from U.S. rivals expanding in Canada.

"Looking at the coffee market, I would suggest that, given the degree of cost increases, that we are looking at prices going up sometime in 2015," Tim Hortons Inc (THI.TO) chief executive Marc Caira said on Thursday.

Tim Hortons, which says it serves nearly 8 out of every 10 cups of coffee sold in Canada, outlined a plan in February to kick-start growth and improve returns by fine-tuning its menu to encourage more spending, improving service and opening new restaurant formats.

Last week, the chain reported market-beating quarterly growth that showed its strategy, which includes higher priced and new menu items, is paying off. Still, traffic declined for the ninth consecutive quarter in Canada and is flat in the United States.

Caira expects the new dark brew, which will also be available for home brewing in formats such as Keurig Mountain Inc's single serve pod, to contribute to results, but he declined to give details.

The alternative brew was first sold late last fall in Columbus, Ohio and London, Ontario, and then in the province of Quebec in June. It will be offered at all 4,496 restaurants across Canada and the United States starting Friday.

"There's about 38 to 40 percent of coffee drinkers that are looking for a darker roast," said Caira. "Those are very intriguing numbers for us ... If we weren't pleased with the (initial) numbers, we wouldn't be launching it."

INFLATION PRESSURE

Caira, a former top Nestle SA executive who took over at the Canadian chain a little more than a year ago, plans to tackle inflationary pressure from higher coffee bean prices and labor costs by cutting waste and improving efficiencies.

"The last thing that we want to do is arbitrarily increase prices," said Caira, but he conceded the chain will likely raise prices in 2015. He could not say what products might be affected.

Caira said the company was also working with Ottawa to address labor shortages in some parts of Canada following tighter rules on hiring temporary foreign workers in the restaurant industry.

"There must be flexibility in the system to address labor issues in certain parts of the country," Caira said.

He added that in some markets there are not enough people to work in the company's restaurants.

"That is a fact proven out by number," he said. "In those cases, there's a need for this program."

(Additional reporting by Euan Rocha. Editing by Andre Grenon)