Put it all together, and it adds up to corporate reven ue for 2009 of $2.2 billion (on systemwide sales of $5 billion)-up by 9.7% over the previous year despite the economic downturn. As for McDonald's and Starbucks, they were down 3.3% and 5.9%, respectively. In the second quarter of 2010, Tim Hortons' earnings per share were up 25%. "I don't think many investors lose sleep at night worrying about Tim's making some sort of tragic operational mistake in Canada," says Candice Williams, an analyst with Canaccord Genuity Capital Markets in Vancouver. (They may, however, wonder why the stock is sitting at $35-where it was back in 2007, a year after the company was repatriated following a period under the Wendy's umbrella-and why its dividend yield is a measly 1.4%.)
Tim Hortons isn't satisfied with mere domination of the market, however. At an investors' conference this past March, the company laid out an ambitious plan to open nearly 1,000 more stores across the country, most of them in Quebec and the West. Its goal is a coast-to-coast Tim's-per-Canuck ratio of 1:8,200-which is where it's at in Ontario.
Williams questions whether B.C. can sustain that level of saturation. "There are a few East-West cultural differences that make that unlikely," she says. "We're Starbucks people." Indeed, there are signs that Tim Hortons has reached a peak in Canada, period. Though same-store sales growth-a key metric in the fast-food sector-has averaged 6.6% over the past decade, it's on a downward trend. In 2000, it was around 9%; in 2009, it was 3%.
Tim Hortons is also pushing ahead in the United States, where it has 587 stores. By 2013, it plans to build an additional 300 stores stateside, primarily in the markets it has already colonized: the Northeast and Midwest. CEO Schroeder points out that the 12 states in which Tim Hortons currently operates have a total market of 90 million people.
So the potential is huge. But there's no getting around the fact that the U.S. has stymied Tim Hortons ever since it made its first foray south in the mid-1980s. Average same-store sales there are about $1 million, half of what they are here. And as of January, 2010, the company was subsidizing struggling U.S. franchisees to the tune of $50 million.
But then Tim Hortons was slow to catch on in Canada, too-Schroeder et al. like to say it's a 46-year-old overnight success. It's just a matter of time, they believe, before they perfect a formula that will decisively crack the U.S. market. They're so confident, in fact, that they've already got their head of U.S. operations looking into opportunities even farther afield. For a company as relentlessly ambitious as Tim Hortons, it's impossible to ignore the flowering fast-food markets in Europe, India and China, which are expected to be worth $88 billion this year.
Analyst Williams is doubtful. "If the U.S. opportunity is as big as they believe, there's no reason for them to look beyond that in the next five years," she says. "There's no need to jump on your horse and gallop off madly in all directions to appease the investor's appetite for growth."
Don Schroeder's weakness, he admits, is Tim Hortons' sugary iced coffee. His assistant makes him a big pot of it every morning in the summer, and he keeps a jug of the sweetener at home for emergencies. As for the hot stuff, he drinks just one cup a day-black, of course-to make sure it's up to snuff.
"I can tell you, that one cup is enough to get me in crap," says Kevin West. "If he doesn't like it, he calls me."
Consistency is key-both Schroeder and West never tire of that axiom. Achieving it is tricky, since coffee from a particular mountainside will not taste the same from season to season. Flavours change depending on the weather: too much rain or too little, more sun or less. The mercurial nature of the bean means that Tim's coffee team is constantly revising the secret blend to maintain its trademark flavour.
The biggest name in the history of the company is not actually Tim Horton, but his friend Ron Joyce, who was a Hamilton police officer when Horton was a star of the Toronto Maple Leafs. Schroeder met Joyce at the Quebec International Bonspiel in the winter of 1976. Just two years earlier, Horton had died in a car wreck, leaving Joyce in control of the chain. Horton had always been a better defenceman than businessman, and it was largely thanks to Joyce that the chain had grown to about 75 stores.