The new leader of Tim Hortons Inc. wants to cut the wait time for your next double double.
Marc Caira, who took the top job at the iconic chain on July 2, says the coffee chain needs to speed up service, streamline offerings and develop new products – including healthier choices – to win over customers and disgruntled investors.
“Clearly we are operating in a very challenging, competitive and volatile environment,” he said during his first analysts’ conference call on Thursday. “In fact, I would refer to the environment as a new reality for our industry and Tim Hortons – a new reality where we need to work harder than ever before to earn and keep the trust of our consumers.”
The new chief executive officer has moved swiftly in his bid to appease unhappy shareholders, marking a shift in approach from his predecessor. Shareholders in the United States had pushed Paul House this spring to pare back U.S. growth, borrow billions to finance a share buyback and spin out the company’s real estate assets into a real estate investment trust.
Mr. Caira’s initiatives so far include borrowing $900-million to repurchase shares and a greater reliance on master franchises at its U.S. cafés to cut capital costs. The United States is the company’s only international market without master franchises, under which well-capitalized entrepreneurs control multiple store locations.
Now Mr. Caira, a former Nestlé SA food executive and supplier to Tim Hortons, has his work cut out for him to put Tim Hortons back on the fast-track of sales growth to regain shareholder support.
His efforts got an initial thumbs up from Scout Capital Management LLC of New York, one of two investors demanding changes at Tim Hortons.
Adam Weiss, co-founder at Scout Capital, said the new CEO’s message represents ”a good first step.”
“We look forward to meeting with Mr. Caira and gaining a better understanding of the actions management intends to take to realize the company’s potential and generate greater shareholder value," Mr. Weiss said in an e-mail.
Derek Dley, an analyst at Canaccord Genuity, said the CEO appears to be more willing to undertake “shareholder-friendly, value-creating initiatives ... What it shows is that Mr. Caira is going to be more aggressive than what we’ve seen in the past.”
Tim Hortons has been under pressure from fast-food behemoth McDonald’s Corp. and its upscale rival Starbucks, which are trying to lure customers with store makeovers and promotions on selected products. The Canadian company, named after the legendary hockey player, has fought back by touting $1 iced lattes and other promotions to draw customers. That has cut into margins.
And while it’s still the country’s top coffee restaurateur, Tim Hortons has been challenged by two activist U.S. hedge fund investors that have called for changes, including some of the initiatives that the company disclosed on Thursday.
Tim Hortons “has provided a clear answer to activist shareholders,” said Irene Nattel, retail analyst at RBC Dominion Securities.
To speed things up at the counters, the company is installing double lanes and ordering stations at its drive-throughs and stretching the stations to either four or five car lengths, which is considered the most efficient way to allow for food preparation. Tim Horton’s is also testing beverage express lines and adding more tandem teams at cash registers. A reduction in the number of products, sizes and prices on its menu boards is also under consideration to simplify ordering, Mr. Caira said.
The moves were announced as the Oakville, Ont.-based retailer reported improved results, although still a tepid sales performance. Its same-store sales at outlets open a year or more – a key retail measure – rose 1.5 per cent in Canada and 1.4 per cent in the U.S.; in its last quarter, those sales fell 0.3 per cent in Canada and 0.5 per cent in the U.S., marking the chain’s first Canadian same-store sales decline since it was spun off as a public company in 2006.
Second-quarter profit beat analysts’ expectations, rising 14.5 per cent to $123.7-million or 81 cents a share from a year earlier. Overall sales grew 1.9 per cent to $800.1-million.
Mr. Caira suggested that Tim Hortons has been a victim of its own success.
“The fact is that today’s consumer is not prepared to wait in long line-ups,” he said, noting that he’s a long-time customer of the chain but unwilling to stand a long time to put in his coffee order.
“While our drive-throughs are relatively quick compared to the industry, we need to get faster. At the same time, we need to make it easier for our guests [customers] to get in and out of our restaurants.”
“The good thing is we know what we need to do. Now we just need to do it.”
It needs to bring “more creativity” to its coffee offerings, slim down its overall offerings and stock its coffee in “alternative” retail locations while using technology in new ways to enhance performance, he said.
He stressed that the company is committed to its U.S. business, which is “a must-win market for us” despite suggestions from some investors that it pare back its growth there. “We are not satisfied with the returns we have generated in the past.“