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Tim Hortons' U.S. growth slowly panning out Add to ...

You don’t hear much about Tim Hortons’ U.S. strategy from our comfortable perch in the north. Here in Canada, the coffee chain is practically considered part of our cultural fabric, and its profitability is taken for granted.

But south of the border, the coffee chain has been trying hard to expand as a ‘coffee and bake shop,’ and the strategy has gone through fits and starts. Of late, though, there’s been some sustained success.

Take a look at the new quarterly numbers. Operating income from the U.S. of $3.2-million is 23 per cent higher than the same period last year. And the first quarter of 2011 saw a big gain over the $246,000 loss in 2010, as well as over the $564,000 loss in 2009. (Note: if you look up historical numbers yourself, Tim Hortons Inc's profits vary widely by quarter. For instance, how much snow a city gets drastically affects how many people turn up in store.)

The U.S. operation is physically growing too. Tim Hortons added seven new stores south of the border this quarter, bringing total store count down there to 721.

Now, none of this really compares to the Canadian figures. Here, Tim Hortons has 3,315 stores and operating income last quarter came in at $140-million. Plus, the chain added 22 Canadian stores last quarter, so the Canadian operation is still growing faster than in the U.S., even though most people assume our market is already heavily saturated.

However, the U.S. rate of growth is much faster. Over the past two years, U.S. store count jumped 27 per cent; in Canada, it’s climbed 9 per cent. Operating income is also growing much more quickly in the U.S. (Funny anecdote: this quarter it was driven by Panini sandwiches and red velvet desserts. These are the kinds of things discussed on the company’s conference calls.)

Looking back, the U.S. growth hasn’t always been stellar, and some stores had closed down at a cost, incurring goodwill impairments. But overall, growth can be seen. Now Tim Hortons thinks it has enough public awareness to double down on the areas its been targeting for the past few years. These locations are the U.S. northeast and the Midwest, mostly Michigan and Ohio, where Tim Hortons can now be found in stadiums at the University of Michigan and Ohio State University.

“Our development strategy will focus on working to establish a greater density of restaurants in our most developed markets to accelerate the time it takes to create critical mass for convenience and advertising scale in those markets, while continuing to develop other emerging markets for long-term growth,” the company said in its annual filing earlier this year.

Yet on Wednesday, analysts weren’t so enthused with the company’s overall growth, and the tone on the conference call today wasn’t exactly friendly. (There are worries about rising costs.) This prompted the company’s temporary chief executive officer, Paul House, to make sure analysts see the big picture.

“In the United States, man, we’re really happy with our core markets and the same store sales growth we’re getting,” he said.

“In these times, man, I’m really pleased with this.”

Follow on Twitter: @timkiladze

 
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