Tim Hortons: Canada’s Beloved Coffee Chain Struggles to Conquer the US Market
While Tim Hortons is a national treasure in Canada, its attempts to capture the hearts (and stomachs) of American consumers have been met with mixed results. The brand, synonymous with hockey, politeness, and, of course, coffee and doughnuts, has struggled to gain a foothold in the highly competitive US market. The question remains: why can’t this Canadian icon win over its southern neighbors?
Tim Hortons’ success story in Canada is undeniable. With a store density comparable to Starbucks and Dunkin’ Donuts in the US, it has become a staple in the lives of Canadians, providing a convenient and affordable option for everything from coffee and breakfast to lunch and snacks. But this success is quickly becoming a problem. The company has reached saturation point in Canada and must expand elsewhere, making the US a natural target.
However, Tim Hortons’ journey south has been plagued with challenges. Despite opening its first US location in 1984, the brand has struggled to replicate its Canadian success. Analysts point to several contributing factors, including market saturation, fierce competition from established brands like Starbucks and Dunkin’ Donuts, and a lack of strong brand recognition among American consumers.
The closer an American city is to the Canadian border, the better Tim Hortons performs, suggesting that Canadians travelling south are familiar with the brand and are willing to continue their patronage. However, even in these border states, Tim Hortons has faced stiff competition from existing players.
One of the most notable setbacks came in 2010 when Tim Hortons closed 36 locations throughout New England, including a complete retreat from Connecticut, Rhode Island, and Massachusetts. This move highlighted the brand’s struggles to gain a foothold outside its core customer base.
Since its acquisition by Burger King in 2014, Restaurant Brands International (RBI) has attempted to revitalize Tim Hortons’ US presence, promising expansion and increased investment. However, data suggests that RBI has scaled back its US ambitions, with the company choosing to focus on international markets like Mexico and the Philippines instead.
Analysts believe that Tim Hortons’ focus on premium coffee, plant-based options, and healthier breakfast sandwiches could be a key to success in the US. However, they also caution that RBI may be waiting too long to introduce these innovations in the American market.
Ultimately, Tim Hortons’ success in the US will depend on its ability to overcome the challenges of brand recognition, market saturation, and fierce competition. With the right strategy and dedication, Tim Hortons may yet win over American hearts and stomachs, but it will need to find a way to stand out in a crowded and competitive market.
Tim Hortons: Canada’s Beloved Coffee Chain Struggles to Conquer the U.S. Market
You know that old joke that there’s a Starbucks on every corner in the United States? And that Dunkin’ Donuts slogan, "America runs on Dunkin’?" Well, there’s a Canadian coffee chain that makes those look like quaint little neighborhood cafes. Meet Tim Hortons, Canada’s one-stop shop for coffee, breakfast, lunch, and doughnuts. In 2018, it supplied over 60 percent of the revenue of its parent company, Restaurant Brands International, which also owns Burger King and Popeye’s. More importantly, it’s been a company darling among Canadians. The DNA of the brand is Canadian. It’s hockey. It’s "oh, we’re polite." It’s all the stereotypes that Canadians, you know, love that they have. It’s every bit as Canadian, and even more so, than Coca-Cola is American.
In 2015, the last year that Tim Hortons made its store count publicly available, there was one Tim Hortons location for every nine thousand eight hundred Canadians. These are the same figures for Dunkin’ and Starbucks in the United States. But this success is quickly becoming a problem. They have probably definitely reached a saturation point within Canada. The company needs to expand elsewhere. And the U.S. has long been a target, but they’ve struggled here for decades. Which raises the question, why can’t this Canadian icon win over its southern neighbors?
Key Takeaways:
- Tim Hortons’ Canadian dominance makes it a powerhouse in the coffee and donut market.
- The company faces challenges expanding into the highly competitive U.S. market.
- Tim Hortons’ success in the U.S. is closely tied to proximity to the Canadian border.
- Brand recognition and market saturation are significant hurdles for the chain in the U.S.
- Tim Hortons may need to explore alternative strategies, including premium coffee offerings, healthier menu options, and international expansion beyond the U.S.
A History of Near Misses
The first ever Tim Hortons opened in 1964 right here in Canada. However, the first successful location in the U.S. opened just across the border 20 years later. A few years earlier, Tim Hortons opened two locations in two Florida beach towns, hoping that vacationing Canadians would both support the business and bring in Americans. But these struggled because of production issues and because Floridians lacked the brand awareness that Americans closer to the Canadian border have.
The bottom line is this: the closer the geographical proximity of an American city to the Canadian border, the better off Tim Hortons does. Both of the Florida Tim’s closed in 1995 and the brand has stuck close to the border ever since. The company expanded rapidly across these states using a franchise model in the 1990s and listed on the U.S. stock market in 2006. Tim Horton’s kind of just jumped into the franchise, opened up a couple hundred stores in the U.S. fairly quickly.
Using data from their subsequent public filings, we can see that 98 percent of Tim’s locations in the U.S. were in just these eight states: Maine, New Hampshire, Vermont, New York, Massachusetts, Connecticut, Rhode Island, and Pennsylvania.
Why the Border Matters
Why did both recognition and recall increase closer to the border? The closer you are to the Canadian border, the theory would would say that you are going to be more likely to cross the Canadian border for a weekend shopping trip. There’s a Tim Hortons on every block, and it’s not bad stuff. They like it, you know, go back across the border and if Tim Hortons is there, you know, the more likely they are to be a consumer.
Overcoming the Competition in a Crowded Market
But even these border states couldn’t cushion Tim Hortons against their biggest problem in the U.S. – market saturation. If you’re the 15th company that’s entering an American market offering coffee and doughnuts, you’re so far back in terms of mindshare. And Tim Hortons does not have huge dollars in comparison to some of the other competitors or the entrenched regional players that maybe there or national players like Starbucks, for example. Anyone can name their nearest Starbucks or maybe their nearest Dunkin’ Donuts. So in the U.S., it’s facing a lot of competition.
For Canadians, Tim Hortons is a go-to spot for many food items, hot and cold, coffee, drinks, breakfast sandwiches, lunch wraps and soups, fruit smoothies, and, of course, doughnuts. But Americans have many other options. Dunkin’ and Starbucks, of course, but also Panera Bread, Jamba Juice, McDonald’s, or one of the other estimated 58,000 coffee and snack shops in the U.S.. And these all have far better brand recognition among Americans.
Humans are creatures of habit. If you have an option between a Starbucks, Dunkin’ Donuts, and a Tim Hortons, you’re probably going to go to Dunkin’ Donuts because you know that product. You know what your order is; it’s familiar.
Tim Hortons’ Expansion Woes
In 2010, Tim Hortons closed 36 locations throughout New England after their poor performance cost the business $4.4 million that year. This included a complete retreat from Connecticut, Rhode Island, and Massachusetts.
Burger King bought Tim Hortons in 2014 for $11 billion, and the combined company, Restaurant Brands International established its headquarters in Toronto. Analysts told CNBC as part of the agreement to locate the company in Canada, the Tim Hortons segment promised to continue expanding in the U.S. They had to prove that they were going to expand internationally, especially in the U.S., and get their brand to grow further and not just be concentrated and saturated within Canada.
But in 2015, the very next year, RBI closed 234 locations in the U.S., telling CNBC in an emailed statement that the closures were part of building a foundation for future growth in the United States.
Starting in 2016, they’ve stopped breaking out the Tim Hortons growth specifically in the U.S. as focused just because of the heat they’ve been getting in terms of performance of Tim Hortons in the United States. RBI did not respond to CNBC requests for comments or an interview.
So no word on exactly what their plan is. But analysts point to a few trends or strategies the brand could use going forward.
Strategies for Future Success
- Premium coffee and dormant options: Offering high-quality, specialty coffee could appeal to a more discerning customer base.
- Healthier breakfast sandwiches: Introducing options with plant-based protein and other healthier ingredients could attract health-conscious consumers.
- International expansion: Expanding into other markets where Starbucks and Dunkin’ haven’t fully saturated the coffee market could be a viable strategy.
RBI has been at the forefront of the plant-based meal trend, including Impossible burgers at Burger King and Beyond Meat sausages at Tim Hortons in 2019. It also struck a deal in July 2019 to test Just brand plant-based eggs at some Canadian Tim Hortons locations.
But some think RBI is waiting too long to launch these items in the U.S. Something they should consider doing is launching the products that they launch in Canada at the same time in the U.S., because it’s not like they don’t have the infrastructure.
And some wonder whether RBI should look beyond the U.S. altogether. Outside of the U.S., Tim Hortons is growing quite popular.** They have introduced stores in Mexico and the Philippines, and they just started launching in the Philippines as well.
"So anywhere where Starbucks and or Dunkin’ hasn’t completely taken over, I think might actually be a better fit for them," says one analyst.
"I know the U.S. is the big gym for any company that wants to create an international brand or grow biggest consumer market in the world. But it’s also the most competitive and that’s a very tough market."
Ultimately, Tim Hortons’ success in the U.S. will depend on its ability to overcome the challenges of brand recognition, market saturation, and intense competition.
