Food fight brewing at Tim Hortons

By the end of the expansion, Tim Hortons wants to have 3,000 locations. It currently has 2,048, more than half in Ontario.

The Toronto Star
July 2, 2002

Food fight brewing at Tim Hortons
Parent Wendy's takes aim at McDonald's
Katherine Harding

The tiny Timbit is taking aim at the mighty Big Mac.

Tim Hortons' owner, Wendy's International Inc., has announced a major expansion plan for the doughnut and coffee chain that's part of a strategy to push its Canadian sales beyond those of rival McDonald's Corp. Tim Hortons merged with Wendy's, the Ohio-based hamburger chain, in 1995.

"We see additional growth in Canada with new restaurants and sales," Paul House, Tim Hortons president and chief operating officer, told analysts yesterday. Last year, the company reported $1.5 billion (U.S.) in system-wide sales, and by the end of this year, House predicts, the company will have overtaken McDonald's.

He said Tim Hortons expects sales at Canadian restaurants open at least a year will rise 5 per cent to 6 per cent this year. Over the last 10 years, same-stores sales have increased 7.5 per cent.

Tim Hortons, which was founded in 1964 by former National Hockey League player Tim Horton and business partner Ron Joyce in Hamilton, wants to add about 170 to 180 locations per year in Canada for the "next several years."

Most of the new outlets will be opened in Western Canada and Quebec and large cities, including Toronto, Montreal and Vancouver. About 300 will be located in convenience stores run by Imperial Oil Ltd. and will offer a full menu.

By the end of the expansion, Tim Hortons wants to have 3,000 locations. It currently has 2,048, more than half in Ontario. The company also wants to raise its profile and sales south of the border by opening 25 to 30 Tim Hortons there next year. All of its current 145 U.S. shops are clustered in the northeast, including Michigan, Ohio and New York.

"Our U.S. sales growth has been exceptionally strong since 1999," said House. "Customers are embracing the Tim Hortons brand in the U.S."

Rochester, N.Y., is the company's first prime target. Four locations are expected to open there by this fall, said House.

Tim Hortons recently bought a new coffee-roasting business in Rochester to supply its U.S. outlets.

Analysts praised Wendy's decision to expand its Tim Hortons operations because it has turned out to be a star performer for the large hamburger chain. Last year, it produced one-third of Wendy's $8.3 billion (U.S.) sales.

"With the success they've had in Canada, they should expand," said Tim Ghriskey, founder of Ghriskey Capital Partners, a former holder of Wendy's shares. "It isn't a high risk venture at all."

Bill Chisholm, a food-industry analyst with Dundee Securities Corp., said there is room for growth in the two Canadian markets that Tim Hortons is targeting.

But he said the chain would have a hard time replicating its Canadian success story in the United States

"Starbucks appears to have the profile down there," he said.

Wendy's has 8,206 restaurants worldwide. Last year, it opened 334 Wendy's outlets and 201 Tim Hortons.

Wendy's shares fell 38 cents to $37.02 yesterday on the New York Stock Exchange.

With files from Bloomberg News

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