Tim Hortons to open 900 new North American stores

Tim Hortons currently runs 563 stores in 12 states, in addition to 3,015 in Canada…By the end of 2013, the company expects to have about 4,000 stores in Canada with new openings targeted for Ontario, Quebec and British Columbia. The Oakville, Ont.-based company remains ambitious about its Canadian operations, noting there is enough capacity in the country, especially in Western Canada and Quebec, to handle another 1,000 restaurants.

The Financial Post
March 5, 2010

Tim Hortons to open 900 new North American stores
Eric Lam

TimHortons.jpg

A row of Tim Hortons coffee cups are lined up for customers at Penn Station in New York, July 13, 2009. Tim Hortons Inc. today began serving its coffee, baked goods and soups and sandwiches for the … Brendan McDermid/Reuters

TORONTO — Tim Hortons Inc. unveiled Friday an ambitious multi-year growth strategy for its North American operations that includes a "dramatic reimagining" of its U.S. brand, an upscale shift away from the company's working-class Canadiana roots.

The plan has Tim Hortons opening about 900 restaurants in North America between 2010 and 2013. More than 300 of those restaurants will be in the United States. Storefronts there will be rebranded "Tim Hortons Cafe & Bake Shop" to help the chain named after a Canadian hockey player stand out in a crowded fast food market.

"In Canada Tim Hortons can get away with just slapping a ‘Tim Hortons' on its signs," David Clanachan, Tim Hortons chief operating officer for U.S. and international markets, told a presentation to analysts. "But in the U.S. it's very important to let people know who we are. Establishing being a cafe and bake shop is very important to us."

The U.S. expansion will be mostly in New York, Ohio and Michigan, states that border Canada.

The rebranding will eventually extend to the inside. Over the next six months, Tim Hortons will renovate 10 existing U.S. locations with more refined, upscale furnishings, furniture and lighting, test-driving a concept that may eventually be applied to stores across the chain.

Tim Hortons currently runs 563 stores in 12 states, in addition to 3,015 in Canada.

Those numbers pale compared with Starbucks, which has more than 11,000 outlets in the United States alone, and Dunkin' Donuts, which has 6,400 in its home market.

By the end of 2013, the company expects to have about 4,000 stores in Canada with new openings targeted for Ontario, Quebec and British Columbia.

The Oakville, Ont.-based company remains ambitious about its Canadian operations, noting there is enough capacity in the country, especially in Western Canada and Quebec, to handle another 1,000 restaurants.

It also plans to choose three to five overseas markets for expansion in the second half of the year.

Brian Yarbrough, analyst with Edward Jones in St. Louis, said the company is showing it has learned from its mistakes in the U.S. market.

"The problem is they've been complacent because what they had in Canada was so strong, they thought they could just go into the U.S. and do the same thing," he said. "The focus on the bakery, the coffee, it will go a long way towards building that brand awareness."

However, volumes in the United States remain half what they are in Canada, so Mr. Yarbrough maintains a "hold" rating on Tim Hortons until he sees more concrete growth.

"We're still on the fence," he said. "Huge opportunities for growth, but volumes are so low. It's tough."

The company also outlined its objectives and outlook for 2010, headlined by a plan to grow Canadian franchised restaurant sales to more than $5-billion, a realistic number considering Tim Hortons accounts for 77% of all brewed coffee served in Canada and has 1.5 billion customers a year.

For 2010, Tim Hortons forecasts earnings-per-share of between $1.95 and $2.05 (In 2009, Tim Hortons earned $1.64 a share), operating income growth of 8% to 10%, and same-store sales of 3% to 5% in Canada and 2% to 4% in the United States. Tim Hortons also expects to spend between $180-million and $200-million on capital expenditures.

Beyond 2010, the company has set a goal of 12% to 15% EPS growth annually, a goal that is attainable, according to RJ Hottovy with Morningstar in Chicago.

"I'll probably be raising my sales forecast. Should see top line growth, higher revenue, profit, some margin benefit," he said. "Anything like this can backfire, but they've taken a smart enough approach that they can pull back if they need to."

The company is also looking to expand its menu, including the debut of the long-awaited cheese bagel, which a company presenter said took 12 years to develop.

Financial Post with files from Reuters

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TIM HORTONS INC.
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http://www.financialpost.com/story.html?id=2645021


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Risks: U.S. expansion is graveyard for many Canadian businesses, Encroachment (too many outlets put in territory), Expand with another store across the street or we’ll sell to new franchisee, Rebranding usually hides real objective, Canada, 20100305 Tim hortons

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