Tim Hortons filling U.S. doughnut holes

Some day, Tim Hortons might well be everywhere from Alaska to Florida. But for now, the company is satisfied with steady, well-planned growth closer to its Ontario home.

The Globe and Mail
March 28, 2005

Tim Hortons filling U.S. doughnut holes
The Canadian icon is making big inroads by thinking small, BARRIE McKENNA reports
Barrie McKenna

COLUMBUS, OHIO — At a bustling Tim Hortons near downtown Columbus, Ohio, 18-year-old server Arrika McCotter is serving up coffee, doughnuts and a little trivia to motorists lined up outside her drive-through window.

"Do you know who Tim Horton is?" she asks several bemused customers.

Finally, a woman in her 30s offers an answer. "He's a hockey player, isn't he?"

"Was. He's dead now," Ms. McCotter politely corrects her.

Tim Horton the former Maple Leafs great, and Tim Hortons the fast-food chain may be icons in Canada. But not here in Columbus, nor any of the dozen or so markets that make up the Oakville, Ont.-based chain's beachhead in the United States.

And yet in spite of that challenge, and the grim legacy of Canadian retail misadventures south of the border, something about Tim Hortons is working here.

The chain, owned by Dublin, Ohio-based Wendy's International Inc. since 1995, now has more than 250 franchises spread across 10 U.S. Northeast and Midwest states.

And it's on an aggressive push to double that number to 500 by 2007.

This would make it one of the fastest-growing chains in the saturated and hotly contested North American fast-food market.

U.S. same-store sales — the litmus test of retail success — grew at an impressive 10 per cent a year in 2004. And the chain is on track to match that again this year.

Tim Hortons' U.S. formula seems stunningly simple: Go slowly, run the operation as if it was just another region of Canada, and don't forget your unpretentious, coffee shop roots.

"The secret to doing well in the United States is not to think of it as the United States," explains Christos Laganos, senior vice-president of U.S. operations for Tim Hortons. "We think of it as Buffalo or Rochester or Columbus. It's not like you're not a success unless you're coast-to-coast. It makes sense to keep clusters in a more limited geographic area."

Some day, Tim Hortons might well be everywhere from Alaska to Florida. But for now, the company is satisfied with steady, well-planned growth closer to its Ontario home.

So what if nobody's ever heard of Tim Hortons, Mr. Laganos argues. Neither had he until Wendy's plucked him out of Virginia eight years ago to help sell Tim Hortons franchises in the United States.

"Instantly, I knew this would work in the U.S.," he says. "No one was doing this: quality coffee, served friendly and fast."

There was a time in the 1960s when no one had ever heard of McDonald's either, Mr. Laganos points out. "Does it really matter?"

Founded in Hamilton in 1964, Tim Hortons has long been a Canadian institution. Now, it's a big part of Wendy's success, contributing more than a quarter of its $3.6-billion (U.S.) in sales last year and nearly half its profit. Its restaurants posted average sales of $1.7-million each. Not bad for a business where the average purchase is less than $3.

The chain boasts an enviable penetration in Canada, ranking first in fast-food market share (27 per cent), outpacing even McDonald's. There are now 2,472 Tim Hortons, or one for every 12,000 Canadians.

It's that kind of success that has Tim Hortons executives salivating about its potential in the United States.

"Every area of the United States is different in some way, and yet very similar to what we found in Canada," says Paul House, Tim Hortons' Canadian-based president and chief executive officer. "You just have to adapt to the market and be patient with it."

Take the cup sizes, for example. Early on, Tim Hortons officials couldn't figure out why U.S. customers kept coming back to the counter with their eight-once small cups in hand asking for refills, until they realized that Americans expected more. So now if you order a small coffee in the United States, it's the same as a medium in Canada (10 ounces).

There are similar cross-border quirks in doughnut choices. The raisin-filled "Dutchie" does very well in Canada, but is a dud in the United States. U.S. stores do relatively more business out of drive-through windows (up to 85 per cent at some restaurants).

"We have this big hang-up about Canadians going to the U.S.," says Mr. House, a 20-year Tim Hortons veteran.

"There shouldn't be. Yes, it's a tough market, but it's no tougher than any market in Canada. The same principles of success apply in both countries. At the end of the day, if a store delivers on its promise, you'll go back. If it doesn't, you won't."

Mr. House said there have been as many U.S. retail failures in Canada, particularly in food service, as the other way around. He singled out Burger King and Krispy Kreme as examples of U.S. chains that have faltered in Canada.

And yet one thing is clear about Tim Hortons. Even after a decade under Wendy's ownership, it has remained distinctly Canadian and autonomous. It's a subtle presence at the store level. But the company's top management, all of its advertising and even its baked goods (from a company-owned bakery in Brantford, Ont.) are all made in Canada. Even a third of its U.S. franchisees are Canadian, lured south because Tim Hortons franchises are easier to come by.

Nolan Wilcox, 54, a former stock broker from Nova Scotia, wanted to buy a Canadian franchise, but he couldn't get one. Now he has two, both located in the Columbus suburb of New Albany.

"In the U.S., it's still a frontier territory," said Mr. Wilcox, who came to the United States with his family on an E-2 independent investor visa two years ago. "I have an advantage as a Canadian because I know what kind of a powerhouse franchise this is."

Back in downtown Columbus, Ms. McCotter acknowledges before she began working at the chain two months ago she didn't have a clue who Tim Horton was. She does now, thanks to a plaque on the back wall of the store, detailing the rugged former Maple Leaf defenceman's career, along with a brief history of the company.

"People need to know who Tim Horton is," says Canadian George Mitges, who owns the franchise with his wife, Barbara. "A lot of our regular customers know the heritage now."

Taking the U.S., one city at a time
Tim Hortons' strategy in the U.S. is not to think of it as a national market. Instead, the approach is to battle for market share in city and regional clusters.
Yukon 2
British Columbia 193
Alberta 185
Northwest Territories 1
Saskatchewan 30
Manitoba 48
Ontario 1,358
Quebec 280
Newfoundland & Labrador 56
New Brunswick 122
Prince Edward Island 17
Nova Scotia 180
Canada total 2,472
Michigan 73
Kentucky 1
Ohio 64
West Virginia 3
New York 62
Connecticut 13
Massachusetts 3
Rhode Island 28
Maine 8
United States total 255

Yukon 2
British Columbia 193
Alberta 185
Northwest Territories 1
Saskatchewan 30
Manitoba 48
Ontario 1,358
Quebec 280
Newfoundland & Labrador 56
New Brunswick 122
Prince Edward Island 17
Nova Scotia 180
Canada total 2,472
Michigan 73
Kentucky 1
Ohio 64
West Virginia 3
New York 62
Connecticut 13
Massachusetts 3
Rhode Island 28
Maine 8
United States total 255


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