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Home , Tim Horton, Tim Hortons

: ALWAYS FRESH

A Case Study 1964-2010

Authored By: Tanya Anselm, James Black, Ryan Nicholas, Kayla Quinn & Matthew Senger March 25th, 2013 TABLE OF CONTENTS

Humble Beginnings 3

The Birth of a Giant 4

The Coffee Market 6

A Brand with the Community in Mind 8

Franchise System & Vertical Integration 11

Partnerships 15

Sport: Ingrained into Culture 16

Converting a Canadian Brand 17

References 19

Appendices 21

Tim Hortons: Always Fresh 2 TIM HORTONS A Canadian National Treasure

Nipigon is a small town off the Trans-Canada Highway in Northern , Canada. With a population of about 1600, one could pass by on the Highway and not even know it was there if not for the signs. Recently, however, one particular sign has already greatly increased traffic in this little hamlet: Tim Hortons, Always Fresh.

Tim Hortons is one of, if not the most iconic Canadian brand in existence. The serve restaurant chain is known for its legendary coffee brew and its delectable pastries and donuts, and with all locations being opened 24 hours, you can enjoy a cup of signature joe at any time. Today, it’s almost impossible to walk through almost any Canadian neighborhood without being able to stumble upon one of these franchises. A morning ritual for many individuals on their way to work, and a meeting place for both young and old, Tim’s has become synonymous with Canadian culture.

When the Township of Nipigon was first approached by Tim Hortons, heavy interest was expressed by the local community from both a political and economical standpoint. Lindsay Mannila, CAO of the Township of Nipigon, stated that the Township devoted extra time and attention to help expedite the real estate acquisition and construction of the building. They understood that the iconic brand could help the development of the economy. Since its 2010 opening, it has accomplished just that, just as many other towns and neighborhoods had experienced before them.

The following is the story of how this Canadian colossus came into existence, how it operates, and how it has expanded. Tim Hortons is forever ingrained into Canadian culture, but where is the sky for this java centered empire?

**Throughout the contents of this case, Tim Hortons may be referred to as Tim Hortons, TH, the TDL Group, the parent company and/or the anchisor, yet is a referencing the same Tim Hortons entity

Humble Beginnings , who played 26 seasons in the from 1949, founded the coffee and chain in 1964 with partner Jim Charade. It all started with a single outlet in Hamilton, Ontario (store #1) and a dream. Horton and Charade both shared a dedication to hustle to find avenues of opportunity. Charade had been searching for an identity for his own doughnut shop since 1963. Horton loved and had his interest in fast food for a long time. He was searching for something to save him from the

Tim Hortons: Always Fresh 3 uncertainty of his hockey career. They decided to try their luck in the coffee and donut business.

Soon after, they met , a former Hamilton police constable who bought the first franchise in Hamilton on February 21, 1965. In 1967, with three restaurants in operation, Tim became full partners with Ron Joyce, who ran two of the three stores (Jim Charade left the company in 1966).

The 1960s saw a radical change in the food industry. Cars were now affordable and essential. People spent more time in cars which meant less time for meal preparation. The food industry was poised to go in 2 directions. The first was toward self serve seating areas and the second was to a drive through window. The common denominator was the automobile but more importantly convenience. TH followed a fairly conservative approach to growth. It stuck to what it knew; sweet baked goods and a great cup of coffee, and avoided head on competition from McDonalds and other quick serve restaurants (Tim Horton feared and avoided it as a place of doing business). In the 1970s the chain opened 1 to 4 new stores a year.

Sadly, Tim Horton himself did not live to see the chain's growing success. He was traveling back to Buffalo from a game at Maple Leaf Gardens when he was killed in an automobile accident on February 21, 1974. The Buffalo Sabres retired his Number 2 sweater as a tribute to his memory. Upon Horton's death, Joyce bought out the Horton family's shares for $1 million and took over as the sole owner of the existing chain of 40 stores. Led by Joyce, the restaurant chain grew in popularity because of its system, which was ultimately about delivering quality product, consistently and affordably.

The Birth of a Giant Under Joyce, TH continued to grow, opening new locations across Canada every year until 1984, when the first US store was opened in Tonawanda, N.Y. This milestone was joined by another a year later, as TH’s analysis of the market showed huge potential. Although TH had a firm grasp on the coffee market, since roughly 70% of coffee was consumed in the morning, there was a largely untapped lunch, supper and evening market where they had very little exposure. 1985 changed that, as for the first time, TH offered full meals, consisting mainly of and soups.

The additional menu continued to progress TH further, opening new locations at an ever increasing rate, now in two countries. In the early 1990s, Tim Donut Ltd., the official name of the parent company, became the TDL Group, as the company had evolved to much more than just donut offerings. This became even more apparent as Danny Murphy got involved.

Tim Hortons: Always Fresh 4 Murphy was a franchise owner in of both Tim Hortons and Wendy’s, an American burger franchise. In 1992, he opened a ‘combo’ store of the two chains, to which Ron Joyce and Wendy’s CEO, Dave Thomas were both invited to. They met and their relationship developed, eventually resulting in the two companies merging in 1995. TH saw this as a way to expand into the US, as well as gain a greater share of the lunch and dinner crowds. Wendy’s anticipated better exposure in Canada and a portion of the morning crowd.

Thomas’ death in 2002 jump started the eventual breakup of the two companies. For TH, the expected expansion and exposure in the US was not coming to fruition, and Wendy’s saw TH’s meal offerings competing with their own menu choices. In late 2005, Wendy’s had started selling off shares of the TDL Group, and by the end of 2006, the companies were completely separate entities. Figure 1 - Tim Hortons North American Locations

During the Wendy’s partnership, TH’s arguably experienced its greatest milestone to date, where in 2002, it surpassed McDonalds for most sales in Canada among QSR restaurants. In 2009, TH became a publicly traded company, appearing on both the TSX and NYSE.

Hortons also continued to expand the type of locations it offered. Where the original concept was to open dine-in locations, including many with drive-thru lanes, TH started to experiment with the actual location options. TH outlets are now found in many forms, including drive-thru and/or takeout only options, malls, post-secondary institutions, kiosks and even self-serve branded locations. This last option created an avenue for TH to expand internationally, where they partnered with , a convenience store chain in and the UK, who were able to offer Tim Hortons brand coffee and a selection of donuts.

Tim Hortons: Always Fresh 5 From one store in Hamilton, Ontario, the coffee based corporate leviathan has now expanded to well over 4000 international locations, and is the 4th largest publicly traded quick serve restaurant (QSR) in North America.

The Coffee Market Although TH has expanded their menus to include many other offerings, coffee will always be its primary focus, and the lifeblood behind its growth and success. Coffee has become such a routine for North American mornings, that many people can’t start their day without the fresh aroma of brew stimulating their noses. Many people’s first stop on their way to work involves a detour through a coffee shop drive-through, and by the time the day is up, many North Americans have consumed several cups of this delicious beverage.

Canadians an average of 3.2 cups per day, while Americans consume slightly more at 3.5 cups. Interestingly enough, as of 2008, Canada barely cracks the top ten (9th) in top coffee drinkers per capita worldwide, while Americans come in at 24th. Scandinavia dominates this category, with 5 of the top 6 coffee drinkers worldwide (Finland leads the way, followed by Norway, Iceland, Denmark, the Netherlands and Sweden, respectively). The majority of the remaining top 25 comprise mostly of European countries, save for Brazil, who doubles as a major world exporter. Overall, however, of the 1.4 billion cups of coffee consumed everyday, 400 million of them are consumed in the United States (approx. 45%).

Coffee as a commodity has a massive influence on global markets. After crude oil, coffee is the number 2 most sought after commodity, worth $100 billion dollars worldwide. For the most part, coffee beans are grown in developing countries and primarily consumed by 1st world countries. 125 million people across more than 60 countries in South and Central America, Asia, Africa and the Caribbean depend on coffee as their livelihood, with 67% coming from the Americas alone.

North American’s popularity of coffee is shown in its development, as coffee distributors (Tim Hortons being among them) having become the number one growing niche in the restaurant business. This growth is also apparent in traditional tea drinking countries, such as India, and Japan, among many other Asian countries, where coffee is becoming more and more popular, although tea is still the number two most consumed beverage worldwide (after water).

Nevertheless, this global increase in popularity has also helped to positively reshape the market. In the late 1990s and early 2000s, the supply of coffee typically outweighed the demand for it. Coffee prices sunk internationally, causing many producers to lose their businesses. The situation turned even bleaker in the late 1990s when Vietnam, a major

Tim Hortons: Always Fresh 6 coffee producer before the Vietnam War, aggressively re-entered the market. This addition to the already substantial surplus led to prices dropping even further.

Fortunately, for all coffee producers, the International Coffee Organization (ICO) stepped in. This organization formed in 1963, and was created to help regulate the coffee market internationally, with a focus on protecting suppliers and providing great quality to consumers. The ICO added/modified the international agreements in 1968, 1976, 1983, and 1994, updating goals to focus on key issues. The 2001 agreement may have saved the coffee market from collapsing. This agreement focused on sustainable coffee production (including fair-trade), promoting coffee consumption and top quality, as well as providing forums and resources for the private sector. Additionally, the ICO helped to develop, analyze and advise on global projects that would help to benefit the world coffee economy.

By the time the 2007 agreement was released, the focus had shifted to improving food safety procedures, assisting local communities and small-scale farmers to thrive and to facilitate the availability of information on financial tools and services. The ICO continues to advocate for all coffee stakeholders, ensuring the coffee economy is healthy and growing, and that consumers are always able to enjoy top quality coffee flavour.

In North America, there are several corporate giants, along with a plethora of small chains and local shops, fighting for java supremacy. In Canada, Tim Hortons faces competition primarily from and McDonalds, with their ever evolving coffee prowess. In the US, Dunkin Donuts joins in the war for market share. In Canada, TH owns 62% of the coffee market, but has yet to crack the top 5 in the US. Figure 2 - Starbucks and Tim Hortons Canadian Comparison

P ROFITABILITY S TARBUCKS T I M H ORTONS M E D I A N ( INDUSTRY ) Pretax Profit Margin 11.6% 18.6% 6.4% Net Profit Margin 7.2% 12.9% 4.9% Return on equity 26.1% 36% 9.4% Return on assets 14.2% 11.4% 1.6% Return on invested capital 19.6% 13.6% 4.3%

** Note the net profit margin in comparison with Starbucks.

Porter’s Five Forces model, illustrating TH’s position within the North American quick serve coffee market is strong. Although rivalry strength is high, and growing, and substitute

Tim Hortons: Always Fresh 7 products are many, potential new entrants (at least those on the scale of the giants) are very low, and the supplier strength is also very low due to the TH model (to be covered in a later section). The buyer strength is low, given the fact that they have little say over prices, especially with the trending desire for gourmet or specialty coffees. With coffee’s popularity and demand steadily increasing worldwide, there is potential for North American coffee giants to expand globally.

Appendix 4 illustrates the 2010 financials of the company. All of the number listed reflect a very healthy financial position for TH. With a lower average transaction cost than both Starbucks and McDonalds, and yet higher overall sales, this suggests a very large amount of traffic through TH locations.

A Brand with the Community in Mind

Tim Hortons has made its way into the hearts and homes of Canadians and has been tied into a daily (or more frequent) routine for their customers. TH is proactive, flexible and smart in their marketing. Even when they’ve faced criticism, they’ve respond quickly and effectively offering real solutions to properly address issues. Continued expansion centered around suiting their customer's needs, has ensured that they have remained competitive in the QSR industry.

In regards to their pricing strategy, TH remains competitive with their rivals in the QSR industry. A customer could spend anywhere from fifteen cents for a Timbit to over twenty- five dollars for a full meal for several individuals. Typically, customers walk through the doors expecting to spend between one and five dollars due to the fact that the majority of customers frequent primarily for their daily caffeine intake. The average transaction price for 2010 was $3.23, below that of both Starbucks and McDonalds.

Over the years, Tim Hortons has had many ways of promoting itself. They work closely with their community, utilizing various promotional mediums to consistently promote and develop their brand. In the early days, the company's slogan was “Your Friend Along The Way”, showing the closeness the brand had with their consumers. From there, they shifted to “You've Always Got Time for Tim Hortons”, which highlighted how quick the service was and how necessary in the consumer's eye the product was in their lives. Starting in the mid-2000's the slogan "Always Fresh. Always Tim Hortons." and simply “Always Fresh” became the new focus, and is still used today.

In 1986, Tim Hortons launched their wildly successful 'Roll up the Rim' campaign which continues to be successful to this day. It was a fun competition that encouraged mass

Tim Hortons: Always Fresh 8 purchasing of hot beverages for the chance to win everything from a coffee or other Tim’s product, cash prizes, appliances, or even a new vehicle. The campaign runs for 6 weeks, starting in mid-February, and was originally implemented to help combat a typically slow season. This campaign has been mirrored by several other coffee companies due to its proven success year after year.

Throughout its lifetime, the Tim Hortons brand became one of Canada's most trusted. However, the brand is closely linked to community culture, both in their marketing and public relations commonly presented in commercials, their donations and other forms of community support.

In 1975, the Tim Horton's Children's Foundation was started, shortly after the death of Tim Horton himself. It's one of the most notable campaigns that the company is behind, especially with the foundation's highest-profile fundraiser being Camp Day, which is held annually on the Wednesday of the first full week in June. All proceeds from coffee sales at most TH locations, as well as proceeds from related activities held that day, are donated to the foundation. The foundation sends thousands of underprivileged kids to camp annually and uses the proceeds to fund those activities.

The Timbits Minor Sports Program is a community-oriented sponsorship program for children four to eight years old who participate in local recreational sports teams. Every year, over 200,000 children are benefitted by this program, whose philosophy is not based on winning or losing - but on learning a new sport, making new friends, and just taking time out to be a kid. Some other community outreach activities that Tim Hortons are a part include:

March Break Free Swim, March Break Free Skate, Earn-a-bike Program, Food Drives, Remembrance Day, Buy a Smile - Make a Difference and the Litter Awareness Project.

Additionally, franchisees are supported to get involved in their community in a way they see fit to compliment the philosophy of Tim Hortons goodwill. John and Peggy Saville, owners of two franchises in Kenora, Ontario, said the following regarding their community outreach:

“[We] decided to begin to work with Triple Play in Kenora. We wanted to do something more for our community and the kids in our area so when we learned about Triple Play and their approach to assist

Tim Hortons: Always Fresh 9 kids who otherwise might not be able to afford to participate in events, sports and activities, we decided Triple Play was a good fit...For the first few years, we donated one days coffee sales to Triple Play in Kenora and in subsequent years we have developed a Smile Cookie program along with Tim Hortons corporate, where we buy special om Tim Hortons, bake them and se them for about one week and donate the proceeds to Triple Play. This helps to underscore our role in the community and that we want to give back to Kenora and area.”

TH sponsors both local and national programs , favouring minor sports teams, charitable events and local community programming/events by donating gift cards, products and auction/raffle items. This ensures that their product is positively exposed and promoted, and assists in the community to continue to build strong community relations.

In order to respond to the social trend and importance of ethical buying of coffee, Tim Hortons created their coffee partnership, committed to “making a true difference in the communities we serve, and take the same approach with communities who produce our coffee … we focus on improving economic, social and environment factors”. This shows the company's dedication to sustainability and responsibility. They also include animal welfare programs and ensure that they have their commitments clearly labeled on their website, assuring those who would be concerned that they have stringent guidelines and expectations about how their products are handled quoting a quality assurance auditing program.

At one time, they were criticized for having one of the most recognizable pieces of litter on Canadian soil, due to their popularity and how easily identifiable their cups were. In response, they ramped up their recycling procedures and now sponsor many sustainability projects including sponsoring annual clean ups, eco-festivals, participating in global earth- hours or celebrating Earth Day. They even held the 2010 Envirothon at Tim Horton Onondaga Farms.

In response to criticism about Aboriginal hiring practices, Tim Hortons responded quickly with some very visionary programs that focus on education, youth empowerment, economic development and employment. They call the program 'Horizons' and started in 2008.

Obviously there was a reason magazine named Tim Hortons the best- manged brand in Canada in both 2004 and 2005. They stay true to their values, continue to build upon success and know how to capture the heart of their market. The brand has stayed flexible, the company listens to criticism and responds accordingly while avoiding stagnation.

Tim Hortons: Always Fresh 10 Franchise System & Vertical Integration

T H E F R A N C H I S E S YSTEM Tim Hortons understood early on that a great product, and strong branding wouldn’t be enough to develop a long-lasting, profit maximizing business, and that execution would be key. TH saw a tremendous opportunity with their franchise system, which has evolved mightily since their early Hamilton operations. This unique franchise setup and vertically integrated system have allowed TH to expand rapidly, but keeping that growth manageable and successful.

Tim Hortons’ franchise rates are extremely impressive when compared with other franchise operations. The failure rate is very low, around 1%, while other QSRs have a failure rate of up to 77%. The strong control system allows TH to ensure that all locations are essentially mirror images of each other, and TH customers will have the same great experience no matter which location they choose to visit. For example, the ’20 minute pot’ rule is enforced upon every franchisee, where if a pot of coffee is a minute older than 20 minutes, it must be discarded, with no exceptions.

This controlled system has also proven beneficial for franchisees, as they can follow a proven plan, and reap the benefits of the iconic brand. Due to this level of proven success, there is a long wait list of potential franchisees. TH is especially unique in that everyone with enough capital to open a location isn’t necessarily permitted to, but each applicant is thoroughly inspected and interviewed, therefore allowing TH to only offer franchises to carefully screened individuals. This process obviously is beneficial to TH, but also to the franchisees, as before they start running their franchise, they have an accumulated knowledge of the business and fine-tuned system.

John and Peggy Saville, the Kenora franchise owners, recalled their first experience with the TH’s franchise system.

“In speaking to other business people in Kenora, [we] learned that Tim Hortons was interested in placing a store [there] but could not find a anchisee...This was 1995. I contacted the anchise recruiting people at the TH office and spoke to them and fied out the paperwork. About 4 months later, [we] flew to Toronto and worked in the TH training center for three days to see if this was for us. We decided it was a good fit so we pursued the anchise.

The process of further interviews and TH looking for the right location took another 2 years but finay, in early 1998 they found a site... In the summer of 1998, we went to Toronto for 8

Tim Hortons: Always Fresh 11 weeks of training at the TH training center. We learned every facet of the business and this helped prepare us for running our own store. We opened in November of 1998.

The one thing that impressed [us] was the fact that almost everyone we met at TH corporate was very concerned that we knew what we were getting ourselves in for by running a 24 hour business and a the issues that come along with that. They were not trying to "se" us on opening a TH, in fact they were making sure we did want to open one by pointing out a the potential problems and issues that can and do arise when running your own business. This impressed us in that they wanted us to enter into an agreement with our heads up and didn't just want to se us a anchise and make a anchise fee.”

Mentioned above is also TH’s approach to real estate. While the majority of franchise systems place the responsibility of finding a location, and erecting and/or renovating the building on the franchisees, TH takes this work into their own hands. TH’s corporate office has an entire department dedicated to real estate, constantly searching out the best locations for new franchise locations. This eliminates the need for real estate expertise from franchisees, while also allows for constant expansion, even if TH hasn’t yet decided on a suitable franchisee for a particular location. All properties and buildings are either owned or leased by TH, where franchisees pay rent.

Franchises do require a large capital investment from the outset, with franchises typically costing between $450,000 and $510,000 to start up. This capital also has to meet a certain debt to equity ratio provided by the franchisee. This initial cost includes the following (directly from the TH franchisee website):

• All equipment, furniture, display equipment and signage

• Seven (7) week training program in Oakville, Ontario, at Tim Hortons University

• A restaurant opening crew to assist the opening of the Tim Hortons restaurant (for a maximum period of 2 weeks)

• The use of all Tim Hortons Manuals

• Right to use trademarks and trade names

• Support from head office personnel who have vast knowledge in the food service business

A lack of capital, however, may not be a complete detriment to hardworking, dedicated potential franchisees if TH believes they have the required qualities to succeed in the

Tim Hortons: Always Fresh 12 franchisee system. TH doesn’t want to pass on very good management strictly because of capital issues, which is why they feature two unique franchise options.

The first group of franchisees are the ‘owner’ group, similar to the Savilles listed above. Owners are said to “own” their outlet although they don’t actually own the physical restaurant. They own the sole rights to the restaurant and incur its costs as well as the higher profits that are associated with ownership. The franchisee will pay the aforementioned rent/mortgage, franchise fee and royalties to TH’s.

The second group are referred to as the ‘operators’. Operators don’t pay the up-front franchise fees, license fee, or ongoing rental fee. They are known as 80/20’s because operators pay 20% royalty fees on all gross receipts along with advertising and the initial damage deposit. This system is used to expand and introduce new stores to new locations and owners. Also, it allows those with less available capital to start a franchise.

Nearly every TH location is ‘owned’ by franchisees, with 99.7% in Canada, and 98.9% in the US. The remaining 0.3% and 1.1% in each market, respectively, is owned by the TH parent company itself. The parent owned locations are either used for training purposes of have been re-purchased from franchisees and are being converted back to franchisable outlets as soon as possible.

Franchisees have responded very well to the system, with 97% claiming to be proud TH franchise owners. Additionally, 95% said that if they were given the choice to do it all over again, they would. This is a big part of the reason that the number of franchises has increased 100 fold, from 40 stores at the time of Tim Horton’s death in 1974, to the present day, where more than 4000 locations now exist.

Franchisees are unfortunately unable to accumulate equity within their franchise. Stated right in the franchisee agreement, TH retains all rights of the company equity itself. What this means is that a franchisee has no re-sale value of their operation. 100% of a franchisees income will come from profits, and not from the increase of equity and capital gains. They cannot ‘buy’ a franchise for $500,000 and then sell it ten years later for the same amount. A TH franchise is strictly a cash stream.

This leads to the primary issue of the TH franchise system. Due to the fact that the initial investment is essentially a down payment on a cash stream, and will never result as an equity building security, TH can cannibalize its franchisees against each other if those owners are in an area where they are competing. The over-saturation of the market in many parts of Canada and the US, has developed a real issue.

Tim Hortons: Always Fresh 13 For example, say a market in Southern Ontario has one TH location that generates $500,000 in sales annually, and is owned by Mr X. TH decides to open another location in the same market, as they view the expansion as growth environment. Mr Y is awarded the second franchise. Mr Y’s sales become $400,000 annually, while Mr X’s sales drop to $400,000 annually. Although the market as a whole is now making $800,000 in sales as opposed to $500,000, which is obviously beneficial to the parent company, Mr X’s sales have decreased due to inter-market competition with another TH franchise, and in this particular case, loses out on profits on $100,000 of sales.

In many cases, TH will try to ensure that within certain markets, a collection of franchises are all owned by a single owner, such is the case with the Savilles in Kenora. Unfortunately, with the rapid expansions in many areas, it isn’t feasible to open more than a single location for franchisees, especially if it is their first one. This is a substantial challenge moving forward.

V E R T I C A L I NTEGRATION TH’s control not only applies to setting up new franchise locations, but also is paramount to the structure of their business. This heavy vertical integration allows TH to maintain consistency and firm grasp on all of their locations. When franchises first set up locations, all materials and equipment are purchased directly from the TH. This allows the parent company to gain mass volume discounts on equipment, and ensures that all locations are using the same technology. This universal kitchen therefore streamlines training and quality. This also keeps cash flow within the company, as opposed to outside sources.

Everyday materials such as all food products, toiletries and single serving packets are also purchased directly from TH. This again, streamlines quality and cash flow internally, while creating similar bulk discounts and supply chain control for TH. This relationship creates higher profit margins and ratios for franchisees while ensuring the growth of the parent company. Even in small kiosks or self-serve locations carrying TH products, the parent company generates consistent income.

This system allows TH to not be dependent on royalties, and therefore, franchisees are not under overwhelming pressure to generate additional sales. Through careful selection of franchisees and a proven restaurant system, both franchisor and franchisee can truly work together to generate economic growth and profit. Franchisees are therefore expected to succeed because they are hard working individuals and want to succeed as opposed to having their hands held to arrive on profitable shores.

This vertical, internal cash flow also creates higher internal capital, allowing TH to lower franchise fees, have more leverage within their supply chain and position themself to

Tim Hortons: Always Fresh 14 consistently develop their real estate ventures. Unfortunately, this extremely structured and controlled system can lead to franchisee hostility, where they may feel they are being taken advantage of and aren’t reaping the same rewards as the parent company. This has lead to lawsuits and legal struggles between franchisees and the franchisor in the past.

Nevertheless, the relationship between the two parties has proven to be generally very positive. In addition to high profit margins available to franchisees, they also have the security of a reliable supplier, and product shipments, lower franchise fees and in most cases, happier owners and employees. This counteracts the loss of not being able to source their own potentially cheaper suppliers, and the general loss of control.

Partnerships In addition to the previously mentioned Wendy’s and Spar partnerships, TH has also reached agreements with , an American Parlor, and ESSO gas stations.

Kahala Corp, the parent company of Cold Stone Creamery, reached an agreement with TH in early 2009 to launch co-branded stores in the US, and after proving successful in test markets, the decision was made to expand into additional locations in both Canada and the US. The Cold Stone method creates custom ice creams, where the customer chooses a base flavor, (or two) and can then mix in a variety of ‘toppings’. The custom concoction is all blended on a large frozen granite block.

Tim Hortons’ CEO, Don Schroeder, stated that "Continued development and awareness of the Tim Hortons brand beyond our base of 500 restaurants in the United States is a key element of our overall approach to U.S. growth". With Cold Stone Creamery being a recognizable American brand, the idea for TH moving forward is to help connect with the American market. Kahala Corp CEO Kevin Blackwell echoed these sentiments in saying “The addition of Tim Hortons allows us to offer our customers even more fresh and delicious options morning, noon and night”. Kahala Corp clearly believes in the power of TH, as they converted their flagship Cold Stone Creamery location in City to a co-branded outlet.

Another unique partnership came with Imperial Oil (ESSO). In October of 2010, the two companies announced a partnership that would place 175 Tim Hortons locations into ESSO

Tim Hortons: Always Fresh 15 gas station and convenience stores. This partnership was described to bring value ‘on the go’ to Canadians. "Esso is Tim Hortons' largest non-traditional association and we couldn't be happier to announce this renewed agreement," said Roland Walton, Chief Operations Officer, Tim Hortons. "This speaks to the successful relationship we've shared over the years and the synergies between the two brands. We both offer value, convenience, quick service and more options for busy Canadians."

This announcement continues an increasingly successful trend in alternative stores for TH. With the first ESSO-Tim Hortons outlet opening in 1994, there are now more than 350 co- branded locations across the country, called ‘On the Run’ locations. This genius collaboration brings excellent value to consumers, where within the span a few just a few minutes, they can fuel up their vehicles, grab their morning coffee and pick up some lunch for later in the day.

Sport: Ingrained into Culture Along with more traditional business partnerships, Tim Hortons has taken to sport an ideal match for a continual development of consumer connection. Sports figures are now as ingrained into popular culture as Prime Ministers and Presidents of countries. It may seem to be a natural progression for TH to adopt this avenue, given the origin of the company. However, the marriage of the TH brand and its professional athlete alignment was quickly discarded by Ron Joyce after the first few stores had opened in the 1960s. Nevertheless, collaborating and associating with popular sport inevitably became a key strategy for the company.

Hockey is as embedded into Canadian culture as Tim Hortons is, and a strong partnership with the National Hockey League and its affiliates was easily imaginable. Today, TH has partnerships with 11 of the 30 NHL franchises (, Toronto, , Winnipeg, Edmonton, Vancouver, Ottawa, Buffalo, , Columbus and ), including an endorsement deal with , an easily recognizable figure in Canada and parts of the US, and arguably the most popular current hockey player worldwide. Crosby was a perfect representative, as he was Canadian icon, a polarizing sports figure, and as a small child, a one time Timbit player himself.

Some of these partnerships fall in line with their community endeavors, such as providing some of Timbits Minor Hockey players with a "once in a lifetime" opportunity to play hockey during the intermissions of selected NHL regular and playoff games.Tim Hortons also teams up with a number of NHL teams to provide a Coaches Clinic for volunteer coaches at all levels of minor hockey across Canada and the US. Community-based

Tim Hortons: Always Fresh 16 programs, such as Hockey in the Neighbourhood for inner-city boys and girls and NHL outdoor practices, are also included.

Curling, another popular national sport, has also been connected deeply with TH. Tim Hortons is a proud sponsor of the Canadian Curling Association (CCA). The CCA is recognized as the national administrative body for curling by Sport Canada, the Canadian Olympic Committee and the World Curling Federation. Curling began to draw recognition as an organized sport back in 1927 when the first Macdonald Brier event was played at the Granite Curling Club in Toronto. Today, Tim Hortons is the proud title sponsor of the annual Brier, Canada’s largest curling event.

The Canadian Football League, although not as popular as American football, has been sponsored by TH for more than a decade. In addition to sponsoring the league as a whole, TH also sponsors each of the 8 teams regionally. The title sponsorship of the 2011 league playoffs and championship game, The Grey Cup, also belong to the company.

This interest in Canadian football may have expanded the corporate vision on positioning in the US market. Dunkin Donuts has used images of football, basketball and baseball for many years in their marketing through the US, as these are the three most popular sports throughout the country. In 2007, Tim Hortons became a part of State University football, opening kiosks in the stadium and sponsorship the annual homecoming game.

"Ever since we sampled our first cup of coffee, we knew that to be a part of Spartan Athletics was to be a part of the fabric of Lansing," said Mike Meilleur, Tim Hortons Senior Vice President of U.S. Operations. "We introduced our brand here, opened our first restaurant later that year and now operate more than 10 restaurants in the Greater Lansing area, plus our new locations throughout Michigan State athletic venues.”

This integration into NCAA college athletics continued, with the TH brand appearing at the University of Michigan, State University, Bowling Green State University, among several others, and thereby becoming intertwined into mass market athletics (College sports are significantly bigger businesses than all major leagues in the US). This approach falls nicely in line with the community building goals of TH, and has helped to convert the brand into brand loyalty. It seems we can expect Tim Hortons to continue to show up on more and more American campuses.

Converting a Canadian Brand Since the first TH restaurant opened in the US in 1984, the famous brand can now be found in 11 different US states. Although there are now more than 500 locations across the border, with plans to continue growing, US locations have not provided the same levels of

Tim Hortons: Always Fresh 17 profitability as their Canadian counterparts. An unbelievably small franchise failure rate in Canada is also higher in the US.

The target Tim Hortons US area has a population of roughly 70 million people, twice the population of Canada. TH has branded themself as a coffee and bake shop while expanding on American soil. Because of the direct competition with Dunkin Donuts and Starbucks, this new line of branding differentiates from simply being a ‘Canadian Brand’. However, in addition to this change in attempted brand image, TH also had a slightly different approach to real estate.

The franchise system in Canada has been so successful partially because of the real estate department’s role in carefully analyzing the best locations, and swiftly acquiring them. As the Canadian company expanded into the US, they had early success following this same model. Small communities in upstate New York and Michigan embraced the company as its own. These locations were carefully screened before locations opened up.

As expansion in the US became more aggressive, so too did the real estate acquisition. TH started purchasing closed coffee shop locations such as Dunkin Donuts and Country Time, and renovating and converting them into Tim Hortons stores. While stores kept opening, many had to struggle for survival in competing with the more popular Dunkin Donuts and Starbucks locations. The New England area is a perfect example of being outmuscled by the local competiton, where in 2010, it was announced that 36 TH franchises would be closing. They could not compete with the hometown hero, Dunkin Donuts.

Nevertheless, Tim Hortons location continue to pop up in the US, sales and profit margins slowly rise, and the legendary coffee recipe has started to gain a following South of the border. The penetration into Europe has proven to be successful to date, and there is speculation that Tim Hortons will be planting roots on a third continent, in the , in the near future.

Tim Hortons and its essentially unbreakable loyalty with its Canadian customers now faces a new market. That loyalty, one so strong and personal that some individuals have used custom “Roll up the Rim” cups as marriage proposals, and with some Tim Hortons walls having witnessed in-house wedding ceremonies, will be tested to see if it can continue to grow. Although new Canadian locations will continue to appear, the national ceiling is very close to being realized.

Store number 1 in Hamilton, Ontario has a plaque on the wall. It speaks of a dream once shared by Tim Horton and Ron Joyce. Is that dream destined to be forever a Canadian Icon, or does it have bigger plans in mind?

Tim Hortons: Always Fresh 18 References Canadian Broadcast Company. (1995). Us burger giant buys tim hortons doughnut chain. Retrieved from http://www.cbc.ca/archives/categories/economy-business/consumer-goods/ tim-hortons-coffee--and-canadiana/us-burger-giant-buys-tim-hortons-doughnut- chain.html

Eaton, D. (2010, June 07). Tim hortons thriving aer split with wendy’s. Retrieved from http:// www.bizjournals.com/columbus/stories/2010/06/07/story2.html?page=all

Friend, D. (2009, June 29). Tim hortons canadian again. . Retrieved from http:// www.thestar.com/business/2009/06/29/tim_hortons_canadian_again.html

Goldschein, E. (2011, November 14). 11 incredible facts about the global coffee industry. Retrieved from http://www.businessinsider.com/facts-about-the-coffee-industry-2011-11?op=1

Hilmantel, Robin (9 February 2009). "Tim Hortons and Cold Stone Will Team Up in 100 Stores". QSR magazine

Hunter, D. (2012). Double double. (1st ed.). Toronto, Ontario: HarperCollins Publishers Ltd.

International Coffee Organization. (2013). Retrieved from http://www.ico.org/index.asp

Kirby, J. (2008, March 12). Tim's takes on america. Maclean's, March 2008, Retrieved from http://www.macleans.ca/business/companies/article.jsp? content=20080312_112770_112770&page=1

Lohja, G. (2011). Tim Hortons: the chaenge of expansion. Retrieved fromhttp:// www.slideshare.net/GuximLohja/tim-hortons-the-challenge-of-expansionTim’s US expansion article

Mannila, L. (2013, March). Interview by Anselm, Tanya [Personal Interview]. Untitled.

McDonalds Restaurant of Canada. (2010, November 15). Nearly nine out of 10 canadians drink at least one cup of coffee every day. Retrieved from http://www.marketwire.com/press-release/ nearly-nine-out-of-10-canadians-drink-at-least-one-cup-of-coffee-every-day-1353105.htm

Saville, J., & Saville, P. (2013, March). Interview by Anselm, Tanya [Personal Interview]. Untitled.

Tedesco, T. (2011, October 18). Why tim hortons needs an american at the helm. . Retrieved from http://business.financialpost.com/2011/10/18/why-tim-hortons-needs- an-american-at-the-helm/

Tim Hortons: Always Fresh 19 Tice, C. (2010, March 15). Tim Hortons aressive u.s. expansion fueled by cheap real estate. Retrieved from http://www.cbsnews.com/8301-505123_162-43940236/tim-hortons-aggressive- us-expansion-fueled-by-cheap-real-estate/Maclean’s Magazine timhortons.com. (n.d.). Welcome to Tim Hortons. Retrieved March 25, 2013, from http:// www.timhortons.com/us/en/about/4411.

Selection Process | Tim Hortons. (n.d.). Welcome to Tim Hortons. Retrieved March 25, 2013, from http://www.timhortons.com/ca/en/join/franchise-selection-ca.html

Tim Hortons - Local Programs. (n.d.). Welcome to Tim Hortons. Retrieved March 25, 2013, from http://www.timhortons.com/ca/en/difference/local-programs.html

Tim Hortons - National Sponsorships. (n.d.). Welcome to Tim Hortons. Retrieved March 25, 2013, from http://www.timhortons.com/ca/en/difference/sponserships

Tim Hortons 2010 Anual Report. (n.d.). timhortons.com. Retrieved March 24, 2013, from www.timhortons.com/ca/pdf/Tim_Hortons_Inc_2010_Annual_Report_on_Form_10-K(1).pdf

Tim Hortons (n.d.). Tim Hortons Cafe & Bake Shop Official Corporate Partner of the Mid- American Conference. PR Newswire: press release distribution, targeting, monitoring and marketing. Retrieved March 25, 2013, from http://www.prnewswire.com/news-releases/tim- hortons-cafe--bake-shop-official-corporate-partner-of-the-mid-american- conference-174360011.html

"Wendy's confirms Tim Hortons IPO by March". Ottawa Business Journal. 1 December 2005.

"Wendy's International, Inc. Announces Comprehensive Strategic Initiatives to Enhance Shareholder Value" (Press release). Tim Hortons. 29 July 2005. http://www.timhortons.com/ ca/en/about/news_archive_2005g.html.

Tim Hortons: Always Fresh 20 Appendices

A P P E N D I X 1 - S A V I L L E I NTERVIEW Hello Tanya: Sorry I'm late with this. I hope this helps and is what you want...... Peggy and I had working lives in the United States. I was born in Toronto and played hockey then moved into business and has a successful business career. Peggy was a nurse pluse we raised three girls. In my late 40's, the company I ran for was sold and I had to look for another employment option. We had a cottage in Kenora so with our daughters raised, off to university and one of them married we decided we wanted to live in Kenora. The next step was to find something to earn a living at. After running a company, even though it wasn't mine, I thought a small business might be the answer. In speaking to other business people in Kenora, I learned that Tim Hortons was interested in placing a store in Kenora but could not find a franchisee in all of Canada who wanted to open a store in Kenora. This was 1995. I contacted the franchise recruiting people at Tim Hortons office and spoke to them and filled out the paperwork. About 4 months later, Peggy and I flew to Toronto and worked in the Tim Hortons training center for three days to see if this was for us. We decided it was a good fit so we persued the franchise. The process of further interviews and Tims looking for the right location took another 2 years but finally in early 1998 they found a site on the east highway in Kenora. We both left the jobs we had at the time and moved to Kenora in the summer of 1998 and then we went to Toronto for 8 weeks of training at the Tim Hortons training center. We learned every facet of the business and this helped prepare us for running our own store. We openned in November of 1998. The one thing that impressed Peggy and me was the fact that almost everyone we met at Tim Hortons corporate was very concerned that we knew what we were getting ourselves in for by running a 24 hours business and all the issues that come along with that. They were not trying to "sell" us on openning a Tim Hortons, in fact they were making sure we did want to open one by pointing out all the potential problems and issues that can and do arrise when running your own business. This impressed us in that they wanted us to enter into an agreement with our heads up and didn't just want to sell us a franchise and make a fanchise fee. The other thing that really impressed us was, and still is, that Tim Hortons has had the same management team in place since the mid 90's and they work well together. While there are contracts, many decisions are based on a handshake and people keeping their word. There is a great deal of trust in each other and that breeds loyalty. The first couple of years were tough financially but after that things worked out, our customers came and we had a successful store. Tim Hortons has a number of policies and guidelines that must be followed or else we might loose our franchise. For example, every 20 minutes if a pot of coffee has not sold, it must be thrown away and a new fresh pot brewed. No exceptions. When we bought our franchise, there was one store in and then 5 in Winnpeg. That's it. In a way, we got in on the ground floor for our area. This company is a very good partner, and that's how we look at them, as a partner. They sell us our food supplies, they arrange for favourable pricing for our equipment and they have a staff that works with us to fix any problems that come up whether they be mechanical or from a business or marketing standpoint. They have tried many things over the years so that when we want to do something, there is a good chance they have tried it sometime in the past and can advise us if it is a good idea or not. Also, they insist we follow their guidelines so that each time someone goes into Tim Hortons, they know what they can expect and things have to be done consistantly accross the chain. Tim Hortons was started in 1964 and since that time, they have grown and developed many marketing themes still in use today. The most famous is the "Rool up the Rim to Win" campaign. Today, we give away 40 cars, many monetary prizes, bikes, bar-b-ques, timcards and millions of food prizes. Many other companies have tried to copy this program but seem to fall a little short. The campaign starts in late February and runs for about 6 weeks. This is a slow time of year for our business so this promotion helps bring people into the store at a time when more traffic is desired. Also, back in 1974, after Tim Horton's death, his business partner Ron Joyce started a camp in Parry Sound for kids who could not afford a summer vacation. Ron did this because he felt it was a fitting tribute to Tim who loved kids. This camp and the Tim Hortons Childrens Foundation that helps support our camp program has grown exponentially to the point where today we have 6 camps accross Canada and the USA plus we are building a new camp in Manitoba. Each year thousands of deserving kids from arround the country go to camp and experience something that otherwise they would not. In addition, there is a leadership camp were campers are selected to come back for additonal years until they graduate highschool and get burseries for college and university. The Tim Horton owners donate all their coffee revenues from one day of coffee sales to the foundation and this event is called camp day. Camp day is held every year in June and provides out customers with the opportunity to learn

Tim Hortons: Always Fresh 21 about the Tim Hortons Childrens Foundation and all the camps and good work they do for deserving kids in Canada and the US. This message and this approach leaves a very positive image in the minds of our many many customers and while it is beneficial to thousands of kids, it sends the message that Tim Hortons is a part of every community where they operate and give back to that community. It was with this same approach in mind that Peggy and I decided to begin to work with Triple Play in Kenora. We wanted to do something more for our community and the kids in our area so when we learned about Triple Play and their approach to assist kids who otherwise might not be able to afford to participate in events, sports and activities, we decided Triple Play was a good fit. We got in on the ground floor withTriple Play many years ago. For the first few years, we donated one days coffee sales to Triple Play in Kenora and in subsequent years we have developed a Smile Cookie program along with Tim Hortons corporate, where we buy special cookies from Tim Hortons, bake them and sell them for about one week and donate the proceeds to Triple Play. This helps to underscore our role in the community and that we want to give back to Kenora and area. Finally, back in November of 2008, we added a second store to Kenora. We had been working with Tim Hortons for about 4 years to get the second store. This took time because we wanted to make sure that the second store would help the first store, not rob customers from it. There is natural caniballization of sales from the first to the second store but that is natural. In fact what happens is that there are more opportunities to reach customers with two stores and over time, while some customer move from the old store to the new store, generally we serve the market and penetrate the market more which resulting in overall growth in sales. You can go onto the tim hortons website and find the costs involve but they are substantial. One store to outfit it will cost about $450,000 and that is to just purchase the equipment to run the store. Also, after 10 years, we are obligated to renovate each store, and anti up another $400,000 to outfit the store for another 10 years. We pay rent, royalty and advertising fees to Tim Hortons. Tim Hortons has become an important player in the lives of many Canadians. This is something we work hard at every day to keep. While not always successful at this, we work hard to make sure we provide fresh products in a friendly environment at a fair price...... hope this helps, if you have any questions, let me know and I will try to elaborate on them. Thanks and sorry this is late. Also sorry about any spelling or grammatical errors. John

A P P E N D I X 2 - M A N I L L A I NTERVIEW Good Morning Tanya,

When the Township of Nipigon was first approached by Tim Hortons for development, interests was expressed as it was believed that this business would benefit the community from both a political and economical standpoint. The Township devoted extra time and attention to help expedite the construction process as it is believed that any development would be good for the economy. Since opening in 2010 the Tim Hortons Nipigon location has helped to further establish passenger and commercial highway traffic. People are more inclined to pull off the road for such a recognizable name. Some local residents daily coffee groups now gather at Tim Hortons, [and] no longer visit other local restaurants for morning or evening coffee.

Hope this helps,

Yours Truly Lindsay Mannila, CAO Township of Nipigon

A P P E N D I X 3 - F R A N C H I S E S Y S T E M R EQUIREMENTS

At least $153,000 of the franchise cost must be unencumbered (cash or liquid assets) in addition to the $50,000 working capital which must also be unencumbered. The remaining amount may

Tim Hortons: Always Fresh 22 be financed through various lending programs offered by the chartered banks, providing, of course, the candidate meets the normal borrowing requirements. The specific cost of a Tim Hortons license will depend upon the Tim Hortons building size and the required furnishings and equipment to be installed. The cost of a Tim Hortons license may exceed $510,000 in certain locations due to higher development costs. Included in the cost of a franchise is the following: • All equipment, furniture, display equipment and signage • Seven (7) week training program in the Oakville, ON, Tim Hortons University • A restaurant opening crew to assist the opening of the Tim Hortons restaurant (for a maximum period of 2 weeks) • The use of all Tim Hortons Manuals • Right to use trademarks and trade names • Support from head office personnel who have vast knowledge in the food service business Not included in the cost of the franchise: • The building (TDL Group's responsibility) • The property on which the restaurant is built (TDL Group's responsibility) • The term of the License agreement is usually 10 years and usually with options to renew for up to a further period of 10 years • The Real Estate and Development Department approves and secures all locations upon which Tim Hortons restaurants are built, whether they are leased or purchased. An applicant is not expected to bring forward a site and/or concern themselves with the development of such, nor is this an option. The selection of new Tim Hortons Restaurant Owners is an important decision involving an extensive interview/approval process. Not everyone who applies for a franchise meets the criteria to be a Tim Hortons licensee. For mutual success and satisfaction, we must ensure that each Restaurant Owner possesses the necessary entrepreneurial drive, management skills, financial means and dedication which are required in today's competitive market. At Tim Hortons, we are proud that our superior products, clean, well-located restaurants and reasonable prices have developed such a loyal clientele. This continuing success has allowed hundreds of individuals to realize their dream of owning and operating a successful business. This business requires a great amount of dedication, direct supervision, and long hours. In the Tim Hortons system, the selection of the best people followed by a comprehensive training program and ongoing operational and marketing support has allowed the chain to continue its expansion and remain as Canada's foremost coffee and baked goods chain. The acceptance of an application should not be construed as an approval or future guarantee of becoming a Tim Hortons Restaurant Owner. **retrieved from timhortons.com

Tim Hortons: Always Fresh 23 A P P E N D I X 4 - 2010 F INANCIALS

Total Sales $2 536 500 000 Current Ratio 2.1 Quick Ratio 1.5 Debt to Equity Ratio 30.3%

Earnings Per Share $3.58

Interpretation: The revenues are up $97 600 000 from 2009 which shows that the firm is growing even though it is a market leader and a well-established firm. This is important to maintain its market position and to support growth abroad. The current ratio suggests that Tim Hortons can easily and quickly pay off their short-term liabilities if it became necessary. The quick ratio supports this as it is above one, meaning that the firm can pay off its short-term liabilities even without liquidating its assets. A relatively low debt to equity ratio means that Tim Hortons only finances 30% of its growth with debt, which is a healthy amount. Additionally the high current and quick ratios suggest that the firm does not rely on debt. Lastly, the earnings per share further indicates a healthy growing firm.

A P P E N D I X 5 - T IMELINE 1964 - First Tim Hortons restaurant opens in Hamilton, Ontario, Canada 1967 - Ron Joyce and Tim Horton become full partners 1974 - In February, Tim Horton dies in tragic car crash 1975 - 1st Tim Horton Children's Foundation camp opens in Parry Sound, Ontario, Canada 1985 - 1st U.S. restaurant opens in Amherst, New York 1991 - 500th Canadian restaurant opens in Aylmer, 1995 - Tim Hortons is purchased by Wendy's International Inc. 1995 - 1000th Canadian restaurant opens in Ancaster, Ontario 1997 - 1500th restaurant in the chain opens in Pickerington, Ohio 1998 - 100th U.S. restaurant opens in Columbus, Ohio 2000 - 2000th restaurant in the chain opens in Toronto, Ontario 2001 - 1st U.S. Tim Horton Children's Foundation camp, Camp Kentahten, opens in Campbellsville, Kentucky 2004 - Tim Hortons celebrate its 40th anniversary

Tim Hortons: Always Fresh 24 2006 (March) - Tim Hortons completes an initial public offering and is fully spun off as a separate company as of September 29, 2006. Tim Hortons trades on the NYSE and TSX under the symbol THI. 2006 (December) - 3000th restaurant in the chain opens in Orchard Park, New York 2008 - 500th U.S. restaurant opens in Detroit, MI 2009 - Tim Hortons and Kahala Corp - parent company of Cold Stone Creamery - announced the co-branding of up to 100 combined restaurants in the U.S. 2009 - Tim Hortons Inc. announced on September 28, that it has completed the reorganization of its corporate structure to become a Canadian public company.

A P P E N D I X 6 - P R I M A R Y M E N U O PTIONS Tim Hortons Own Blend Of Premium Coffee Regular & Swiss Water Decaffeinated Coffee Flavored ; Café Mocha; Iced ; , mocha lattes and cappuccinos made with premium . in addition to...

I TEM V ARIETIES Donuts 63 Timbits (bite sized donuts) 35 Muffins 15 Danishes 5 Cookies 10 12 4 Real Fruit Smoothies 2 Oatmeal 2 Tea 4 Yogurt and Berries 2 Breakfast Sandwiches 4 Sandwiches Varies Grilled Paninis 5 Soups, Chilis Varies

Tim Hortons: Always Fresh 25