Tim Horton’s Case Study

Primary Problem:
Burger King must determine if the expansion of Tim Hortons into US markets is necessary for the successful growth of the company.

Alternative Solutions:

1. No expansion of Tim Hortons into the US market
2. Expand Tim Hortons into the US market as a stand alone company
3. Expand Tim Hortons into the US through presence in Burger King restaurants

Recommendation:

In order for both Burger King and Tim Hortons to reach their maximum growth potential, it is necessary for the Tim Hortons brand to expand into new US markets. In order to do this, the company should implement a combination of alternatives 2 and 3. The main justifications are as follows:

Limited opportunity for expansion in the Canadian Market since Tim Hortons already has dominant market share. Large mount of growth potential in US markets
Large population of US provides the potential for a substantial customer base Tim Hortons can leverage Burger King’s international success in order to eventually expand over seas.

Primary Problem:
Burger King must determine if the expansion of Tim Hortons into US markets is necessary for the successful growth of the company. Secondary Problems:
Tim Hortons is relatively unknown in the US market, even where they have a presence. Difficult to penetrate the established US market.
Large US companies are highly competitive and have more capital. Tim Hortons currently only has regional presence in certain markets in the Northeast and Midwest of the US. Previous companies in similar situations were unsuccessful in cross-border expansions. Since Tim Hortons has already thoroughly penetrated the Canadian market, domestic expansion could be limited. Cultural nuances can result in different customer demands and expectations for service, quality, and price, etcetera. Tim Hortons brand success strongly linked with Canadian culture, products are not differentiated, but they are able to capitalize on Canadian sentimentality. Implications on the Organization:

If Burger King decides to expand Tim Hortons into the US, top management must do so with caution, and ensure that they are implementing the ideal strategy for expansion. If the expansion is unsuccessful, it could be detrimental to the Tim Hortons brand, and Burger King’s $12.5 billion deal. An unsuccessful expansion into US markets can affect Tim Hortons in many different ways. First, it must be noted that a large factor in the success of Tim Hortons is gained from sentimentality. All in all, the product offerings at Tim Hortons aren’t differentiated from the rest of competitors, but rather through sentimentality.

Tim Hortons marketing strategy allowed them to capitalize on Canadian culture and nostalgia. The company has worked hard to link their brand with things like cold Canadian winters, and kids ice hockey, both iconic in a Canadian lifestyle. When expanding into US markets, Tim Hortons will need to start from scratch, and rebuild the brand image without the sentimentality. This is a task that could prove difficult, and may result in more attention put towards product and service offerings. Moving Tim Hortons into the US could jeopardize its strong link with Canadian heritage.

Furthermore, depending on the strategy that is chosen, the expansion could potentially change the two restaurants from only having individual, stand alone companies, to perhaps hybrid Burger King/Tim Hortons stores throughout the US markets. This change would have considerable effect on the way both conduct business and customer opinions.

Top management must also ensure that successful adjustments in company operations are made to comply with US political, economical, and legal systems. This expansion also raises the question of the relocation of headquarters and offices for each of the organizations. Such relocations could result in different tax policies. For instance, relocating the Burger King headquarters from American to Canada is beneficial to Burger King because of Canada’s favorable tax climate. An expansion into US markets also has the ability to affect the organization’s share values. Depending on the execution and implementation of an expansion and its success rates, shares could go up or down in value accordingly, which then effects the companies’ shareholders.

An unsuccessful attempt to expand into US markets also puts the companies at risk for experiencing loss in capital. Many new stores will have to be designed and built in the US markets in convenient locations. One must recall that Wendy’s absorbed the company in 1995, and only 11 years later spun it off as its own company again. Wendy’s could not figure out how to successfully expand Tim Hortons in the US, which makes one wonder if Burger King will be any different. It has been proven before through the example of Wendy’s and Krispy Kreme that it is difficult to penetrate markets across borders (Hemmadi, 2014). Implications on the Personnel:

The merge of Burger King and Tim Hortons will undoubtedly have considerable effects on the personnel of both companies while an expansion into US markets will result in more substantial effects. First, if the company chooses to expand in the US, and chooses to relocate the headquarters of Burger King to Canada, this will cause a lot of administrative employees of Burger King to relocate as well. This type of relocation would also be a cause for change in the way business is conducted due to varying labour laws, political, economic, and legal policy from Canada to the US. Additionally, the CEOs and top management of both companies must cooperate with one another during the common ownership and expansion in the US, as the companies merge and positions are created, absorbed, changed, or eliminated.

The personnel will also be dealing with a large amount of new and unfamiliar colleagues. It will demand patience, cooperation, adjusting, and considerable effort from all employees to ensure a smooth transition. Whether it is top management dealing with other top management positions, or even new restaurant level employees that will need to be hired, the merge will evoke change among the employees of both companies. Implications on the Environment

If Tim Hortons is expanded into US markets, there will be several implications on the environment. Firstly, one can consider the impacts in terms of resources and construction. There will be a large amount of new stores that will need to be constructed and operated. This will have a definite impact on the environment. The materials and energy needed to build a Tim Hortons restaurant will contribute to the company’s carbon footprint on the environment and use many resources. One should also note that the majority of Tim Hortons major environmental impact comes directly from store locations. Moreover, these stores will need to be operated for long periods of time. This contributes to the environment in terms of consumption. Each Tim Hortons restaurant will have substantial energy and water consumption, along with greenhouse gas emissions.

Tim Hortons restaurants are what generate the large majority, producing 88% of all GHG emissions. In 2013, Tim Hortons total GHG emissions increased by 5% from 2012. In 2013, their annual revenue increased 4.3% from 2012, and the number of restaurants expanded by 5%. As a result of these increased operations, their gross energy consumption for corporate operations increased by 3%, and 11% for their franchised restaurants (2013 Sustainability And Responsibility ReportTop of Form). There is no question that an expansion into US markets would only increase these numbers. That being said, Tim Hortons also has many sustainability and responsibility efforts put in place to create a positive impact on the environment and communities. For example, redesigning packaging to reduce environmental impact, implementation of reduction, reuse and recycling initiatives in restaurants, evaluating new technology, design and construction methods to improve the energy and water efficiency of restaurant buildings, and animal welfare policies (2013 Sustainability And Responsibility ReportTop of Form). Alternative Solutions

1. No expansion of Tim Hortons into the US market
In this alternative solution, the status quo option is implemented. This would mean that Burger King would continue to expand the Tim Hortons Company domestically in Canada, where its presence in the market is dominant and secure. This means that Burger King and Tim Hortons will have to exemplify creativity when creating an expansion strategy for Canada. Tim Hortons can allocate a significant portion of their success through its connection with Canadian citizens and culture. Tim Hortons is more than just a coffee shop to Canadians. It is a symbol; an iconic brand that has been a large part of many peoples’ lives since the store first opened. Canadians treasure this unique brand that they can call their own. Tim Hortons is able to capitalize on sentimentality. Although Tim Hortons has thoroughly saturated the Canadian market, a new, creative, marketing and expansion strategy can bring success to the company. Expansion should begin in areas with the fewest Tim Hortons locations, with the largest amount of population. It will also be necessary to think outside the box in terms of generating revenue in ways other than expansion.

For example the company should always be looking at adding new menu items that are relevant to consumers and unique, and by adding more specials like combos or special deals. The US markets are much different than the ones in Canada. They mainly consist of corporate giants, like Dunkin Donuts and McDonalds, which have already established their position in the competitive market. If an expansion to US markets occurs, there is going to be a need for a new marketing strategy, which would be built from scratch and which does not rely on culture and sentimentality. This will be difficult for Tim Hortons to do because, in general, their product and service offerings are not differentiated from competitors.

This, in combination with low brand awareness and no customer loyalty, means competitors with larger financial pockets and long time presence in the market will prove to be a challenge for Tim Hortons, and their US expansion. It must be noted that Tim Hortons stores sales in the US sales are about half that of comparable stores in Canada. We must consider that Wendy’s purchased Tim Hortons in 1995, tried to expand into US markets, but was unsuccessful and spun Tim Hortons off as an individual company in 2006. It has been done before, and it was not successful. Burger King must acknowledge the fact that they might be no different than Wendy’s in this case,. Advantages:

Tim Hortons brand is already established and well known in the market. Tim Hortons will not lose any of its Canadian authenticity. Canadian consumers will not feel as though they are losing their iconic brand to the US. Will not need to compete with American corporate giants, such as Dunkin Donuts, who are wealthier and larger than Tim Hortons. Do not need to worry about rebuilding customer loyalty or brand awareness from scratch, since they are still relatively unknown in the US. Restaurant already matches with the culture of Canada, will not need to re-establish a company culture that aligns with consumers. Will not need to establish a new differentiation strategy for US markets that would exclude the sentimentality of the brand. No risk of failure and loss of capital during expansion (like Wendy’s). Do not need to adjust policies according to legal, political, or economical procedures of the US. Avoid the difficult US markets that are not a good fit for the Canadian Tim Hortons chain. Disadvantages:

Limited opportunity for expansion in the Canadian Market since Tim Hortons already has dominant market share. Over 75% of coffee purchases in Canada are from Tim Hortons
67% of quick service restaurant traffic in the morning
Canadian market nearly fully saturated with Tim Hortons locations The company will not grow internationally without expanding to the US first. Large opportunity to generate capital in the US, due to large population Missing out on growing brand awareness

2. Expand Tim Hortons into the US market as a stand alone company In this alternative, Burger King will open individual Tim Hortons restaurants strategically and consistently throughout the United States. The basis of this alternative revolves around the fact that Tim Hortons has nearly fully saturated the Canadian market. With over 3000 stores across Canada, strategically placed in convenient locations, Tim Hortons is the largest quick service restaurant chain in Canada. Tim Hortons has tapped out the Canadian market (see appendix 1). It is at a critical point in the company’s life where even if they choose to open more stores in Canada, it will not necessarily result in larger sales. The market has been so thoroughly covered by Tim Hortons that in anyone’s mind, the natural next step would be expansion into a massive, world leading country, like the United States.

There simply is not enough growth opportunity left in Canada for a company of this size and value, if they wish to continue to expand in size. To do so, Burger King will have to implement the expansion in the US strategically and very carefully. It has been seen in the past that Canadian companies do not always have success in the US, and vice versa. Although we are neighbors, not everything is transferable from country to country. Canadian culture largely focuses on our winters, ice hockey, maple syrup, etc. Tim Hortons’ marketing largely revolves around this fact, for example the very successful “True Stories” commercials showing real Canadians and the role Tim Hortons plays in their lives (Shaw, 2011). The connection between Canada and Tim Hortons is unlike any other business and considerable effort will need to be executed in order to create the same type of loyalty within the US markets. Since Tim Hortons brand has little value in the states, the expansion should occur from the north, down, and gradually. This prevents opening stores in areas where no one has ever even seen the Tim Hortons sign. Advantages:

Large amount of growth potential as most markets in the US are untouched by Tim Hortons Continue the pursuit for international growth
Lower corporate tax rate if company becomes Canadian based
Potential to leverage Burger King’s international success Tim Hortons has hit a wall in Canada, new opportunities where growth would otherwise be stagnant (see appendix 1) Large population can be translated into large potential customer base Disadvantages:

US Market is extremely competitive and competitors will be in their own country US Competition has larger financial pockets
Brand name has little to no meaning in the US  Cultural Nuances need to be addresses in terms of customer expectations Doughnuts are not a growing market in the US as concerns for healthy living becoming increasingly popular Wendy’s was unsuccessful in the US expansion, Burger King could be the same Tim Hortons may lose their Canadian authenticity that customers value 3. Expand Tim Hortons into the US through presence in Burger King restaurants In this solution, Burger King would execute the expansion of Tim Hortons into US markets by developing the company’s presence in existing and new Burger King locations.

This would create hybrid locations offering products from all spectrums of fast food offerings. The combination of these two large-scale companies creates great potential for Tim Hortons to have a coffee-and-doughnuts presence inside Burger King restaurants in the US. A good example of how this can be successful is Swiss Chalet and Harvey’s long lasting partnership in-stores. Since Tim Hortons has previously struggled with their US locations, perhaps a store containing both menus would be the key to success. This would be in Burger King’s best interest in the sense that all of their major competitors have surpassed them in new product offerings.

It is well known that McDonalds has shifted their focus to additional product offerings beyond the classic burger and fry combo. It is clear that the main competitor, McDonalds, is dominant in the market. Perhaps the addition of the “McCafe” is a large contributor to this success. This could give Burger King the opportunity to follow in the footsteps of competitors and expand their coffee, doughnut, and breakfast food offerings through the use of a successful brand name. Advantages:

Allows Burger King to be more competitive with their major competition Good way to ease Tim Hortons brand into the US markets
Raise awareness and exposure of Tim Hortons for the customers of Burger King Provide Burger King with a more well rounded menu
Disadvantages:

Tim Hortons may take a back seat to Burger King
Expansion of Tim Hortons can only occur where there are Burger King locations All Burger King locations may not be ideal for this type of expansion Recommended Solution
In order for both Burger King and Tim Hortons to achieve maximum growth potential, it is necessary for Tim Hortons to expand into US markets. To do so, Burger King should adopt a combination of alternative 2 and alternative 3. It is necessary for Tim Hortons to expand into US markets because they are a considerably successful company with a large amount of growth potential. They have clearly maxed out the Canadian market and in order for the company to grow and prosper they must enter new markets. Although it is possible to further expand in Canada for the present moment, it is not a viable long-term growth strategy.

Eventually the company will hit a plateau in Canada and will need to expand elsewhere. It will be worthwhile for Tim Hortons to begin raising brand awareness and exposure now, so that they can become as well known as they are in Canada in the US, sooner than later. The reason for also using alternative 3 is to assist in the first stages of expansion. By combining the two restaurants in popular locations, the traffic flow of Burger King will ideally initiate consistent purchases at the Tim Hortons counter as well. This will get the Tim Hortons name circulating around the US, and directly associate the company with an American favourite, Burger King. Implementation

Short Term:
The first step in the implementation of US expansion is to determine ideal locations for Tim Hortons restaurants. Since Tim Hortons is already present and known by some of the public in the Northeast and Midwest of the states, it makes sense to being the expansion in these areas. Tim Hortons has more of a chance at success if they expand in areas where they are not unheard of. This would put too much pressure on marketing departments at such an early stage in expansion, when the actual logistics of expansion are still being sorted. It also makes sense to start regionally, with US cities that have a close proximity to the Canadian Border, as these cities probably have some small measure of Tim Hortons brand recognition that Burger King can build on. The initial expansion should consist of approximately 100 stand-alone Tim Hortons locations, and 25 hybrid restaurants.

They should not all be hybrid, because we still want Americans to view Tim Hortons as a serious, stand alone company. The rate of expansion should start out gradually. Burger King should not open a mass amount of stores in the US until they are certain it will be successful. For this reason, a small amount of trial stores should be opened first. Another area of expansion to focus on could be some “convenient” locations that Tim Hortons capitalizes on in Canada. For instance at universities or colleges, where there may perhaps be numerous Canadian students. Additionally, some Tim Hortons Express could be opened in airports that have high Canadian traffic. The line up of Canadian will lead US travellers to experience Tim Hortons. Medium Term

The profitability of the stores that were opened in the short-term phase should be examined and analyzed. If there are adequate profits from these stores, the expansion should continue in the Northeast and Midwest, and eventually make its way to the Northwest (in proximity to Canadian border) then Southeastern states. This expansion should include mainly stand alone Tim Hortons. The rate of this expansion should be faster than the short-term expansion, but Burger King must be careful to no bite off more than they can chew. An appropriate amount of stores to open would be approximately 150.

During this time period, Tim Hortons should also be looking to expand their product offerings and take on a more American theme. As they have the specialty maple doughnuts, or Canada cookies, Tim Hortons needs to find specialized products that they can offer to Americans to make them feel connected with the brand, and not as though they are a Canadian intruder. They need to tailor the menu with a focus on local tastes in order to compete with American rivals like Dunkin Donuts and Starbucks. Long Term:

Based on the previous success, Tim Hortons and Burger King should continue their expansion process across all of North and Central United States, and eventually the entire country, while keeping the menu relevant and appealing to all unique areas of the country. This means the product offerings may vary from store to store, but will fit the needs of the customers in proximity to Tim Hortons. They should measure profits of hybrid stores and stand alone stores and expand each accordingly. Very Long Term:

Once there is certain success across the US, Tim Hortons should being to use Burger King’s international presence and success to expand across seas. This means places like Asia and Europe, where Burger King is already dominant.

Bibliography

Hemmadi, Murad . “Blast from the past: A timeline of the Tim Hortons-Wendy’s merger.” Canadian Business. N.p., 25 Aug. 2014. Web. 1 Oct. 2014. .

Shaw, Hollie . “Tim Hortons found brand truth early.” Financial Post Business
Tim Hortons found brand truthearly Comments. N.p., 6 Oct. 2011. Web. 1 Oct. 2014. .

“Our Pillars.” 2013 Tim Hortons Sustainability and Responsibility Report. N.p., n.d. Web. 29 Sept. 2014.

Appendix:

Retrieved from:
http://www.macleans.ca/economy/business/why-tim-hortons-needs-burger-king/