Business
10 Reasons Why Tim Hortons Struggles In The United States
When in Canada, you are never too far away from a Tim Hortons store. Canadians love their Tim Hortons as much as Americans love their Starbucks! This ubiquitous brand has a cult-level following in its native country but has struggled quite a bit to succeed in the United States. Here are 10 reasons why!
10. Saturated American market
Being an iconic Canadian coffee and donuts chain, Tim Hortons is used to being easily accepted by customers everywhere in Canada. But the United States is a completely different ballgame altogether. To begin with, the American coffee market is already so saturated, with dozens of brands vying for the customers’ attention, that it would be very difficult for a new entrant to make an impact. And that is exactly what happened to Tim Hortons when it entered the United States in the 1980s. Though it adopted various strategies to stay relevant in the market, it has never succeeded to break through and make a mark in the minds of the American consumer. In a market saturated with competition, if you are the 15th company offering coffee and donuts in America, you’re so far back in terms of market share that it doesn’t really make a difference. And as per a market research report from 2016, Tim Hortons ranked 39th in terms of revenue in the U.S. on the list of companies offering coffee. Also worth noting is the fact that the U.S. is one of the most challenging markets in the world in terms of gaining customer loyalty. Coffee sales in the U.S. tend to be habitual. Starbucks and Dunkin’ Donuts make up a majority of coffee sales market share, with McDonald’s coming in a close third. Plus, local coffee shops and convenience stores eat away the remainder of the market share. Thus, new international entrants often end up playing for scraps in the wake of established brands.
9. Lack of brand awareness
Tim Hortons is a ubiquitously Canadian brand. It is a well-known, well-established and well-loved brand in Canada. But that is not the case in the United States. In a market filled with the likes of Dunkin’ Donuts and Starbucks, Tim Hortons does not really stand out. Other than the fact that it is Canadian, there is very little differentiating Tim Hortons from other established American coffee brands. In fact, in a survey conducted in 2014, Tim Hortons’ brand awareness score in the U.S. was only 25 out of 100. And this low brand recognition can be attributed to a lack of advertising on the part of Tim Hortons. Most American brands spend a large amount of their annual budgets on advertising and marketing. Brands like Dunkin’ Donuts and McDonald’s spare no expense in advertising any new product, even if it is just a new version of an older product. For an international brand like Tim Hortons to succeed in the U.S., a huge investment in advertising and brand awareness is vital. To grab customer attention, Tim Hortons has to come up with ways to solidly differentiate itself from established brands. To its credit, Tim Hortons has made some headway into this space. They developed, launched and tested products specifically for American markets. Tim Hortons has learnt that the American market needs advertising that is different from Canada. Its previous strategy of ‘Canadian products for the U.S. consumer’ failed miserably and Tim Hortons realized that they had not advertised as much as they should have in the U.S. Though its hockey fame may have carried some weight in hockey-playing towns of the U.S., where Tim Hortons advertising boards were seen inside hockey rinks, other cities simply didn’t recognize the brand. And its strategy of subtle differentiation by changing the name of its American stores to ‘Tim Hortons Cafe & Bake Shops’ in order to emphasize fresh offerings is a concept that is unfamiliar to American consumers and has clearly failed.
8. Tim Hortons suffers from a lack of variety and convenience
What customers have found sorely lacking in Tim Hortons stores is the availability of ample choice of drinks and food items as compared to competitor brands like Starbucks. Another factor that has been responsible for low footfall in Tim Hortons outlets is the lack of convenience, meaning: there are fewer Tim Hortons outlets in any given American city than those of competitor brands. Though it has strived to open outlets in prominent locations, Tim Hortons has simply struggled to gain a steady customer base, which has further stunted its plans of opening more outlets in those locations. Most customers agree that if they had to choose between Tim Hortons and Starbucks, they would choose the latter since it easily outnumbered Tim Hortons in terms of outlet count and also had more variety on the menu. Starbucks and most other coffee chains are known to customize their offerings based on the season and they regularly introduce creative drink and food options to wow customers. Tim Hortons needs to take a page out of its competitors’ books to alleviate its struggles in the United States.
7. The popularity of regional brands
Popularly known as ‘Timmies’ in their native Canada, Tim Hortons is a well-known fast-food restaurant chain, specializing in coffee and donut items. For a little background on the restaurant chain: it was founded in 1964 in Hamilton, Canada by late NHL player, Tim Hortons. The chain made its foray into the United States in 1981, when they started off with outlets in Deerfield Beach and Pompano Beach, Florida, but they were largely unsuccessful and were soon shut down. Tim Hortons tried their luck in the U.S. once again in 1985 with an outlet close to the border, at Niagara Falls Boulevard, Tonawanda, New York. They soon started rapid expansion in the American market but faced steady competition from both national and regional brands. Regionalization has played a major role in the struggles of Tim Hortons in the U.S. Local mom-and-pop type of coffee shops do a lot of business in smaller towns and cities of the U.S. Consumers may prefer to support local businesses rather than go to an unknown international coffee chain. For international brands like Tim Hortons, it can be quite challenging to get customers in through the door in the U.S. This trend is illustrated by the fact that in the earlier part of this decade, Tim Hortons announced that high competition from Dunkin’ Donuts, Au Bon Pain and the local brand, Honey Dew Donuts, had forced it to close about 36 stores in the northeastern United States. Over the course of this decade, several such instances have been noted where Tim Hortons stores in the U.S. had to face an untimely demise due to stiff competition from regional brands.
6. Ineffective franchise model
Much like many other chain restaurant brands, Tim Hortons also operates on a franchise model that enables it to have a widespread reach in a country. Tim Hortons’ franchise ownership strategy in Canada is based on partnering with small-scale franchisees who are dependent on Tim Hortons for almost every aspect of running their restaurants. So successful has this model been in Canada that almost 4000 Tim Hortons locations are operated by 1500 franchisees in the country. The strategy also enables Tim Hortons to tap into the knowledge and know-how of locals who know how to effectively grab customer attention. After enjoying much success in its native country, Tim Hortons used the same strategy while launching its business in the U.S. But in recent times, it moved towards another strategy, one that utilized more established and larger franchisees or operators. This move resulted in Tim Hortons facing many challenges in the American market. Its franchise model that worked so well in Canada has clearly failed to drum up the required amount of business in the United States. For example, in the Minneapolis area, almost half the stores closed within three years of opening. And others that have managed to stay open clearly struggled to stay afloat. Many franchisees across the U.S. were even engaged in disputes with Tim Hortons.
5. Tim Hortons has made many bad business decisions
Just like any other brand, Tim Hortons has not been immune to making bad business decisions, which has added to the struggles of the company in the American market. For example, in 2004, Tim Hortons purchased a New England-based coffee and donut chain, Bess Eaton Donut Flour Co., which was bankrupt at that time. The chain had nearly 50 outlets in the New England, Rhode Island, Connecticut and Massachusetts belt. But after trying to generate sales for nearly 6 years, Tim Hortons gave up following stiff competition from Massachusetts-based Dunkin’ Donuts. Tim Hortons shuttered its outlets, suffering heavy losses, to focus on opening outlets close to the U.S.-Canadian border. In 2009, a prominent news outlet ran a story that Tim Hortons’ decision to serve products that were ‘flash frozen-and-shipped’ instead of ‘baked from scratch at stores’ like its competitors was a bad business move. It also stated that Tim Hortons outlets did not serve any local favorites like the dutchie (a type of donut) at their newly opened New York City outlets. Instead of providing options that catered to the taste of Americans, Tim Hortons continued to serve Canadian favorites in their NYC outlets. This, the news story noted, was indeed a bad business decision.
4. Turmoil between franchisees and parent company
Tim Hortons has faced a lot of challenges with its franchise model in the U.S., especially after it was taken over by the Brazilian private equity firm, 3G. Under 3G, Tim Hortons and Burger King were merged together to form one large company. Tim Hortons was previously owned by Restaurant Brands International Inc. There has been a significant amount of tension between the franchisor and franchisee owing to a host of problems like mismanagement of marketing funds, hike in supply deliveries, cost-cutting, etc. Another major bone of contention between the two parties has been the area development agreements. In 2016, Tim Hortons faced as many as 11 lawsuits about this issue. The various franchisees alleged that Tim Hortons’ parent company violated their agreement by hiking the number of stores to be opened within five years from 20 to 50. Owing to a large number of disagreements with franchisees, in 2018, Tim Hortons closed down a large number of outlets in the U.S., including those in New York. Its only outlet in Indianapolis also closed down within just months of opening. Tim Hortons lost about 14% of its total number of outlets in the U.S. in the second half of this decade due to numerous franchisee issues, falling sales, etc.
3. Tim Hortons has a limited menu compared to the competition
Change is the name of the game, and more so in the cutthroat coffee shop business. While the likes of Starbucks, Dunkin’ Donuts and McDonald’s are coming up innovative menu items like specialized coffee and healthier food options, to attract a wide variety of customers, Tim Hortons has failed to generate a buzz about its products in the market. This is quite surprising considering the fact that Tim Hortons was supposed to be at the forefront of launching plant-based meal trends like meatless sausages and plant-based eggs, healthier breakfast sandwiches, and premium coffee. But they have been waiting for far too long to launch these products in the American markets. While Starbucks comes up with a new coffee drink very often, Tim Hortons has stuck to the tried-and-tested-drinks formula that has served it well in the Canadian market. What Tim Hortons has struggled to realize is that they are facing tough competition in terms of product innovation and marketing and advertising these innovations. But it would be unfair to say that Tim Hortons hasn’t tried to differentiate themselves at all. For a little background, it is worthwhile to know that Tim Hortons offered only two products, coffee and donuts, when it first started out. In 2010, they announced that their upscale and re-designed café and bake shops would have a menu that catered to the American consumer, like fresh pastries baked in-house. In 2018, Tim Hortons revealed that they were rethinking their menu to reflect current food and coffee trends. They have been experimenting with innovative breakfast sandwiches and premium coffee, but only on a limited scale. These innovations need to be aggressively rolled out into the mainstream U.S. markets to beat the competition.
2. Sudden closure of outlets
The top executives at Tim Hortons have taken some sudden and even irrational decisions that have severely affected its popularity in the U.S. For example, in November 2015, some New York and Maine outlets of Tim Hortons were suddenly closed down, and that too, in the middle of the day! Some media outlets even reported that the staff had no prior knowledge about the imminent closure of the outlet. Along with the customers present at these outlets, they were taken by surprise when the lights suddenly went off and everyone was asked to leave the premises. Naturally, this kind of rash and irrational behavior did not go down well with employees, who should have ideally been notified about this seemingly planned closure. When several media outlets reported that Tim Hortons had shuttered 21 outlets in New York and Maine, the company stated that it was part of a move to strengthen the brand in the U.S., but declined to comment on why employees were not kept in the loop about this decision. It was widely reported that Tim Hortons was under a lot of pressure from a major investor to scale down its growth in the U.S.
1. Incorrect expansion strategy
As many analysts and former franchise owners have pointed out, Tim Hortons tried to run before they could walk, when talking about Tim Hortons’ expansion strategy in the United States. Where Burger King, another company under Tim Hortons’ parent company’s umbrella, hired local partners to help them slowly establish a customer base in markets like India and France, Tim Hortons adopted a different strategy, one of rapid expansion across several areas in the U.S. Tim Hortons lacked an understanding of the American market, and their accelerated expansion made it quite difficult for them to gain customers. But in 2016, Tim Hortons tried to turn things around by partnering with local companies who could help them establish a foothold in the American market. Company executives even proposed to spend more time observing and tweaking initial store performances before making it a stable model for further expansion. But it remains to be seen whether Tim Hortons’ struggles in the U.S. markets are over yet.