May 13, 2011 / 7:53 PM / in 8 years

Tim Hortons sees U.S. as prime growth opportunity

TORONTO (Reuters) - Tim Hortons Inc THI.TO THI.N isn’t content to be Canada’s largest restaurant chain, not when the biggest consumer market in the world lies at its doorstep.

Tim Hortons Inc. President and CEO Donald Schroeder speaks during the annual general meeting of shareholders in Toronto May 13, 2011. REUTERS/ Mike Cassese

Even though Canada’s coffee-and-donuts king has stumbled in the past in trying to replicate its success in the United States, it sees its latest marketing drive south of the border leading to strong sales momentum.

Indeed, the United States could eventually become Tim Hortons’ largest market, says Chief Executive Donald Schroeder.

“The United States is a developing market for the company,” he said.

The company, which has plans to open 300 more restaurants south of the border between 2010 and 2013, is investing heavily in advertising and marketing there to create awareness.

“People are getting to know Tim Hortons,” Schroeder said. He said brand awareness is likely to snowball into strong growth in the U.S. markets it has targeted.

“When the lights go on, and people become aware of what Tim Hortons is and what it stands for, you will see positive same-store sales growth for an extended period of time,” Schroeder told Reuters in an interview on Friday.

Tim Hortons is primarily focused on nine U.S. states, including New York, Michigan and Pennsylvania, with a combined population of 70 million people, twice the size of Canada’s.

The company has more than 3000 restaurants in Canada and more than 600 in the United States.


The challenge for Tims, as the chain is affectionately known in Canada, is how to translate its runaway appeal so that Americans will respond.

The brand - named after a legendary Toronto Maple Leaf player who founded the chain in the 1960’s - is nearly synonymous with coffee in Canada. Across the country, its coffee shops are ubiquitous local landmarks.

But Tims is also a victim of its own success. Having nearly saturated its home country with shops, it is looking south for the expansion it needs to keep growing.

The road to expansion in the United States has not been without bumps. Late last year, the company closed 36 restaurants there, mostly in the New England region, where the Dunkin’ Donuts chain is firmly entrenched. The company has shuttered U.S. restaurants in the past as well.

Tim Hortons, the fourth-largest publicly traded restaurant chain in North America, also competes with Starbucks (SBUX.O), and less directly with McDonald’s Corp (MCD.N), which has put more marketing muscle behind its coffee.

It is investing savings from the closures in the nine U.S. target markets, where it will locate most of the store openings, Schroeder said.

Tim Hortons also sees collaboration with more established brands as part of its U.S. strategy. It already has deals in place to make its products available at Cold Stone Creamery’s ice cream shops and Tops Markets LLC grocery stores. The company will look at more strategic partnerships and alliances, Schroeder said.

The company has some reasons to be optimistic. U.S. same-store sales growth, a key measure for retailers, topped the rate for Canada for the last two quarters, demonstrating the potential of expansion there.

Oakville, Ontario-based Tim Hortons has set itself a higher U.S. same-store sales growth target this year, while the Canadian outlook is the same as last year’s.

Same-store sales in Canada rose 2 percent in the first quarter, falling below its target range for the year and causing a 4 percent drop in the stock price on Thursday.”

Reporting by S. John Tilak; Editing by Frank McGurty

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