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 Ontario, 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 quick 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 Tim Horton, who played 26 seasons in the National Hockey League from 1949, founded the coffee and doughnut 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 doughnuts 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 Ron Joyce, 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 Toronto 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 sandwiches 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 Prince Edward Island 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 SPAR, a convenience store chain in Ireland 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 drink 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.