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Coffee cups sit at a Tim Hortons in Oakville, Ont., in September, 2013. The coffee chain upped its revenue in the second quarter of 2014, though profits stayed flat. (Chris Young/The Canadian Press)
Coffee cups sit at a Tim Hortons in Oakville, Ont., in September, 2013. The coffee chain upped its revenue in the second quarter of 2014, though profits stayed flat. (Chris Young/The Canadian Press)

Tim Hortons shoots for more sales growth with menu innovation Add to ...

After just over a year in the top job, Marc Caira is starting to see signs that his strategy at coffee chain Tim Hortons Inc. is helping perk up its business as he battles heavy competition and cautious consumer spending.

His key initiatives of introducing new menu items, such as premium crispy chicken and turkey sausage sandwiches, as well as technological improvements, including digital payments, are bolstering sales, he said on Wednesday. They contributed to the company posting second-quarter results that beat analysts’ estimates. Its same-store sales – a key measure of retail health at outlets open a year or more – were Tim Hortons’ strongest since 2012, he told analysts.

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In the next few weeks, the chain is expected to launch dark roast coffee at its North American restaurants in a bid to nab customers from dark-roast specialist Starbucks Corp., industry sources said. The move follows Tim Hortons’ test of dark-roast java beginning last fall in London, Ont., and Columbus, Ohio, and, since June 30, in Quebec.

On an upbeat note, Tim Hortons raised its financial outlook for 2014. Now, Mr. Caira, who started as chief executive officer in July of 2013, feels the pressure to roll out more products and digital initiatives to draw customers who have drifted to Starbucks, McDonald’s Corp. or other emerging cafés.

“It’s an outlook in a moment in time,” Mr. Caira said of the company’s upgraded forecast. “In this new era of volatility and uncertainty, these things can change very, very quickly.”

Tim Hortons’ effort to sell dark-roast coffee follows the move by Starbucks in early 2012 to offer a lighter Blonde roast that caters to customers who often buy their coffee at Tims, which is known for its light brew. But about 40 per cent of Canadians prefer darker coffees, Starbucks’ [cct] research suggests. Tims is intent on banking on that dark-roast demand, sources said. A company spokeswoman would not comment on the company’s plans.

“We believe a new blend, like dark roast, is a good start in expanding our appeal to the full spectrum of coffee drinkers,” Mr. Caira told analysts.

Investors seemed pleased with the overall progress at Oakville, Ont.-based Tim Hortons, pushing its shares up 7.4 per cent to $64.52 on the Toronto Stock Exchange on Wednesday.

As Irene Nattel, retail analyst at RBC Capital Markets said: “2014 is shaping up as a very good year” for Tim Hortons.

Mr. Caira set out his five-year strategic plan for the chain in February, aiming to expand its restaurant base and spur customers to spend more during each visit to narrow the gap between what customers shell out at its cafés compared with McDonald’s and Starbucks. The average Tims bill is between 23 and 45 per cent lower than its rivals – the lowest in the market, he said at the time.

In its second quarter, Tim Hortons results were helped by price increases. It raised prices by just over 1.5 per cent in Canada and 2.5 per cent south of the border, Cynthia Devine, chief financial officer, said.

Added Mr. Caira: “I have been particularly pleased with our success in growing average check [spending], delivering menu innovation and implementing new technology.” To boost spending, he’s adding premium products, side dishes (such as hash browns) and more combo items. He wants customers who purchase one item to buy two, and those who purchase two items to buy three, he said.

Second-quarter sales at Canadian restaurants open for at least 13 months rose 2.6 per cent, and by 5.9 per cent for U.S. locations. BMO Capital Markets analyst Peter Sklar said that was well ahead of his expectation for a 1.5-per-cent gain in Canada and a 2.3-per-cent pickup in the United States, as pricing, menu changes and product mix boosted the average bill.

Still, for a ninth consecutive quarter, same-store transactions – or people coming to outlets – dropped in Canada, a declining traffic trend that is cause for caution, said Canaccord Genuity analyst Derek Dley.

The company now sees 2014 profit per share at the high end, or slightly above, its target of $3.17 to $3.27. Sales growth at established restaurants in the United States are now seen near the top, or slightly above, a target of 2 per cent to 4 per cent.

Tim Hortons’ second-quarter profit was flat at $123.8-million, although its share profit rose to 92 cents from 81 cents, as the company bought back shares in the quarter. Revenue rose 9.3 per cent to $874.3-million. Analysts had expected profit of 87 cents a share on revenue of $843.3 million, according to Thomson Reuters I/B/E/S.

Follow on Twitter: @MarinaStrauss

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