After closing for several weeks, a Tim Hortons restaurant in north Toronto reopened this month with a new look: A sleek flat-screen television is now mounted on a stone wall above a gas fireplace, while customers slide onto benches to sip their lattes at tables overlooking an enlarged kitchen area.
McDonald’s is also giving its Canadian restaurants a facelift – with flat-screen televisions, gas fireplaces, long communal tables and armchairs where patrons can linger over their McCafé brews.
The makeovers seem similar, but there’s a big difference to the eateries’ rush to draw more customers and get them to spend more: Today, McDonald’s Canada has remodelled about 70 per cent of its 1,400-plus restaurants in Canada and will have three-quarters of them completed by the end of this year, says the domestic chain’s chief executive officer John Betts.
By contrast, Tim Hortons Inc. will have close to 10 per cent of its roughly 3,300 restaurants refurbished at the end of 2013, a spokesman says. At that rate, the job still won’t be done by the end of the decade.
A market share battle is brewing in the fast-food sector, with Tim Hortons confronting an unprecedented challenge to its decades-long reign as Canada’s coffee-and-doughnut icon.
In their glory days, Tim Hortons’ franchisees were guaranteed success and hearty profits. As Judge George Strathy of Ontario Superior Court said last year in tossing out an attempted class-action suit by franchisees: “Under the Tim Hortons system, the franchisees are given the licence to sell Tim Hortons trademarked coffee – a brand that is about as iconic as there is in Canada.”
But now its coffee business, as a foundation of Tim Hortons’ strength, is under attack.
As the Oakville, Ont-based chain faces a hesitant consumer and fiercer competition, it is grappling with some franchisees who are becoming restless about the cost of upgrading their stores, as well as an ever-expanding menu of low-margin food items, making them more reliant than ever on higher-margin coffee for their bottom line.
And the toughest challenge of all comes from global juggernaut McDonald’s Corp. of Oak Brook, Ill. The chain is gunning for Tim Hortons coffee business, touting an updated McCafé store ambiance, improved drinks and free week-long promotions. The efforts are forcing rivals to shave prices as well, bruising their profits, but the initiatives are showing signs of bolstering the burger purveyor’s position in the coffee sweepstakes: McDonald’s Canadian share of the roughly $3.3-billion out-of-home coffee market has more than doubled to 10.3 per cent in just four years, according to its data.
The coffee fight comes at a time of sluggish growth over all in the restaurant industry, with the number of restaurants having jumped by more than 12 per cent to 72,000-plus in the past five years, but customer traffic having perked up only by between 1 and 2 per cent, says market researcher NPD.
“Coffee wars are alive and well in Canada and it’s just going to continue,” said Robert Carter, executive director of food services at NPD.
McDonald’s is gaining market share, but so far Tim Hortons is holding its own, with the venerable Canadian chain continuing to command an industry-leading 77 per cent of the coffee segment, NPD figures show.
But that mounting pressure from rivals, and a soft economy, are forcing Tim Hortons to shake up the competitive formula that has churned out profits for decades. “We are working hard to adapt to current market conditions,” Paul House, chief executive officer at Tim Hortons, told analysts on Thursday.
Part of that adaptation is a reshuffling of its corporate ranks, with dozens of its 2,000 corporate staff departing. But according to company spokesman Scott Bonikowsky, “the number of people in new roles and people we are bringing into the organization bringing new capabilities exceeds those who left.” The chain is still looking for a permanent CEO after the previous one left unexpectedly 21 months ago and Mr. House temporarily stepped back into the role.
It is decentralizing and streamlining functions to prepare for international growth and broader menu offerings (although Tim Hortons has struggled to make its mark in the U.S., where it has about 620 stores). Boston Consulting Group is helping in the overhaul, sources said.Report Typo/Error