Why can’t Tim Hortons work in the U.S.?

The chain is ultrapopular in Canada, but not so much here. It’s an issue the chain has perpetually struggled to fix, says RB’s The Bottom Line.
Photograph courtesy of Tim Hortons

the bottom line

Tim Hortons is insanely popular in Canada. Some 80% of Canadians visit the chain at least once a month.

Maybe a better example is this: There is one Tim Hortons for every 9,500 people in Canada. By contrast, Subway at its peak had one location for every 11,000 people in the U.S., and even after declining by 2,000 locations in recent years, it is still considered overbuilt.

And Tims is still building in Canada, where it has the unit volumes to justify the move. “Our restaurants are extremely profitable,” Brand President Alex Macedo told analysts this week.

It’s a far different story for Tim Hortons in the U.S.

Since 2015, the year after the chain’s merger with Burger King, Tim Hortons U.S. system sales have fallen by 17%, including a 5.1% decline last year, according to data from Restaurant Business sister company Technomic.

About half of the chain’s more than 700 U.S. locations are in Detroit or Buffalo, N.Y., two communities that are just bridges away from large Canadian population centers. “Our performance in other areas, particularly as we move south, has not been where we want it to be,” said Macedo, speaking at parent company Restaurant Brands International’s Investor Day presentation.

Indeed, restaurants in Minneapolis-St. Paul closed in April. Restaurants in other areas, such as Cincinnati, have also shut down. The company is in an active dispute with many of its U.S. operators.

The sales challenge in the U.S. is a notable problem, given that at least one of the major benefits Burger King saw in its merger with Tim Hortons, creating Restaurant Brands International (RBI), was the prospect of growth south of the border. RBI also vowed to grow the brand in the U.S. and elsewhere to convince Canadian regulators to agree to the deal.

More practically is this: If Tim Hortons can’t work in the neighboring country, how can it be expected to work in places like China?

In fairness, the U.S. market has been a problem for Tims through many years and numerous ownership and management changes.

The brand struggled to generate much enthusiasm from U.S. consumers in the more than a decade it was owned by Wendy’s, and again after the brand was spun off in 2006.

International brands frequently struggle to make it in the U.S., which is far more competitive than any other restaurant market on earth.

The U.S. is loaded with coffee players, from Dunkin’ in the East to Starbucks in many other markets. McDonald’s is a massive player in coffee. So are the untold number of convenience store locations. That makes the market difficult for any new competitor, especially one trying to gain a foothold in a coffee business where sales tend to be habitual.

Dunkin’ may be a particular problem for Tim Hortons, given that it has a strong pull in the Northeast markets where Tims would theoretically do well.

Another factor is regionalization. It can be difficult for longtime regional brands to expand nationally because they don’t quite get the love of consumers in the newer markets that they had back home. That’s especially true for international brands that try to establish a foothold here.

One of Tim Hortons’ strengths in Canada is its franchise ownership strategy. Much like Chick-fil-A, the brand is largely operated by small-scale franchisees, who rely on the franchisor for just about everything.

The chain’s high unit volumes enable this strategy to work effectively, and at their Investor Day this week, company executives praised that local ownership.

Axel Schwan, the brand’s chief marketing officer, said at the presentation that its nearly 4,000 locations are operated by 1,500 franchisees, a “highly decentralized system” in which the operators are “local community leaders.”

Tims has used that strategy in the U.S., but in more recent years has shifted toward an approach of larger, market-oriented operators. But many of those franchisees have struggled.

That was the case in the Minneapolis area, where Tim Hortons entered with great fanfare three years ago. More than half of those locations have closed, and those that are open are struggling, according to local reports. That franchisee is in a dispute with the brand.

Macedo said the company plans to work in the U.S. with operators that have “a long, proven” track record.

He also said the company has “a number of initiatives” in the works, but acknowledged that “We’re still working behind the scenes, and in the kitchen, on our U.S. strategy.”

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