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Burger King is in talks to buy Tim Hortons, in hopes of creating a Canadian holding company, bound by Canadian “territorial” tax laws and rates which are generally lower than in the U.S. (Claude Paris/AP Photo)
Burger King is in talks to buy Tim Hortons, in hopes of creating a Canadian holding company, bound by Canadian “territorial” tax laws and rates which are generally lower than in the U.S. (Claude Paris/AP Photo)

Identity crisis shouldn’t pull Tim Hortons too far from home Add to ...

Fifty years after its first restaurant opened in Hamilton, Ont., Tim Hortons Inc. is having a midlife crisis.

The company, always so solid and dependable, is becoming more adventurous. It’s starting to dress in a way that garners a little bit more attention, especially when it’s in the big city, donning a new “urban” format. Its repertoire of staple beverages has grown to include dark roast coffee, iced green tea, and plenty of espresso. Realizing that it had fallen behind the times, it’s adopting the latest technology including everything from plastic payments to speedier toasters.

Globe and Mail Update Aug. 25 2014, 7:00 PM EDT

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Much of this is likely for the best. It’s too soon to say. But, with Tims considering choosing a new partner amid all this change, it could be disastrous for it to stray too far from home at this point.

This past February, Tims’s executive team, led by chief executive Marc Caira, spent a day trying to convince analysts that the chain has a solid growth plan. Much of it focused on Canada, the only place where Tims will ever have home-ice advantage. “There is no such thing as a mature market – it’s only people that become mature,” Mr. Caira said, rejecting the notion that Tims is tapped out at home.

But it’s a notion that persists and Tims is now carrying on this dalliance with Burger King because it’s worried that it will not be able to maintain a growth rate in Canada that will keep fickle investors happy.

Indeed, a point is on the horizon where it just won’t be possible to build many new Tim Hortons in this country. “Management perceives 4,100 restaurants as the current ceiling in Canada,” Desjardins analyst Keith Howlett said in a research note earlier this year. At last count, there were about 3,488, not counting self-serve kiosks, and Tims added about 500 between 2009 and 2013. Roughly 80 per cent of Tim’s restaurants are in Canada.

So the company is considering getting hitched to Burger King, which is wooing it with promises of letting it leverage Burger King’s “worldwide footprint” and “experience in global development” to speed up Tims’s growth in international markets.

Burger King is well travelled, it’s true, with restaurants in dozens of countries. Tims, on the other hand, has until recently been concentrating on less exotic locales such as Buffalo, N.Y., where its regulars are familiar with Canada. And it has had missteps, stubbing its toe in New England in 2010.

In recent years, it has dabbled in the Middle East, using a relatively low-risk strategy that’s funded largely by capital from a local partner. It started in Dubai and now has about 50 locations in the Gulf Cooperation Council. Tims feels that effort has been a success.

“People, when they talk about the international markets, everybody gets excited,” Mr. Caira told analysts in February. “There are risks associated with going into some of these parts of the world. So we need to understand where we are going, why are we going there, what’s the supply chain, products have to be different.”

But then he added something that’s worth pausing over: “Some of these countries don’t drink coffee. Some of these countries don’t eat meat. So you need to tailor your supply chain to these individuals, so we’re going to do that.”

Tim Hortons without coffee? A doughnut shop, okay, but will it look to brand itself as a purveyor of fine teas or espresso drinks abroad?

Earlier this month, Mr. Caira revealed that Tims had identified a “short list of markets we believe are most suitable for Tim Hortons.” He wants to venture into some of them as early as next year. But there are better avenues for growth at home.

When consumers walk into nearly any one of Tims’s major competitors, they spend more money than they do when they walk into Tims. Almost 60 per cent of Tims’s customers just buy one item when they come in.

In banking it’s known as “share of wallet,” in the food business it’s known as “share of stomach,” but the concept is basic – cross-sell. Tims is toying with ideas around bundling and combos. It also has opportunities to sell more at lunch, and especially dinner, and to appeal in new ways to customers who are health-conscious.

“While Tim Hortons is an iconic brand in Canada and perhaps in a few regions in the U.S., we believe the brand generally has limited appeal outside of Canada,” Bank of Montreal analyst Peter Sklar wrote Monday.

Tims would be wise to stay close to home until it has a better sense of who it wants to be in this next phase of its life. Sure, shareholders might get frustrated if its growth shrivels. But they’ll be a lot more frustrated if it promises them the world and fails to deliver.

Follow on Twitter: @taraperkins

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