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Cruller fate: Tim Hortons tweaks formula to tackle long wait times

Staff serve customers at a Tim Hortons on Queen St., Toronto, on Feb. 20, 2014.

Fernando Morales/The Globe and Mail

Tim Hortons Inc. is well known for doughnuts, the double-double and the lineup.

The long queues for coffee and sugary treats are a sign of the chain's market dominance, but also a hindrance to growth in sales and profit, as time-pressed customers sometimes opt out and go elsewhere.

To speed up service, the company, based in Oakville, Ont., is shortening its menu, and introducing express coffee lines for people who don't want a sandwich or bowl of chili.

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Gone are the double berry muffin, blueberry danish, gingerbread man cookies. Gone, too, is ice cream. The company will also increasingly standardize lunch sandwiches.

The changes, which include an easier-to-read menu board, are small tweaks that can have a big impact, said Marc Caira, Tim Hortons chief executive officer.

"Any time you make it easier for your guests to order, reduce complexity for the restaurant team members or decrease the time it takes to execute an order, it makes a difference when you multiply it across the millions of transactions we complete every day," Mr. Caira said.

Tim Hortons' quarterly and full-year financial results released Thursday highlight the company's challenges: boosting static sales in a slow-growth business, where competition is fierce and consumers are easily swayed.

"There is little to no growth in this industry," said Mr. Caira, who next week will unveil the company's five-year strategic plan.

Same-store sales, a closely watched gauge of restaurants that have been open at least a year, rose by 1.6 per cent in Canada as the number of transactions fell. In the United States, sales rose by 3.1 per cent.

Net income for the three months ending Dec. 31 was $100.6-million, almost unchanged from the same period in 2012. The per-share quarterly profit of 69 cents missed expectations of 76 cents. For the full year, net profit rose by 5 per cent to $424-million.

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Tim Hortons said the lacklustre performance was due to a weak economy, intense competition in the coffee and fast-food business, and soft consumer confidence.

For 2014, Tim Hortons said it is aiming for same-store sales growth of 1 per cent to 3 per cent in Canada and 2 per cent to 4 per cent in the U.S.

Tim Hortons said quarterly profit was reduced by the impact of closing poorly performing U.S stores, which cost $6.6-million, as well as a $19-million charge to end its Canadian partnership with Cold Stone Creamery, whose sales were underperforming.

The company, however, boosted its dividend, and shares climbed nearly 2 per cent Thursday.

Mr. Caira said streamlining operations will allow Tim Hortons to offer new food, including grilled steak and cheese panini, jalapeno biscuit breakfast sandwich, steak and egg breakfast sandwich. Restaurants in London, Ont., and Columbus, Ohio, are testing sales of darker roast coffee.

In a bid to open new revenue streams, Tim Hortons said it will begin selling its single-serve coffee at grocery stores by the summer.

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Tim Hortons, which opened its first store in Hamilton, Ont., in 1964, made its name selling coffee and doughnuts by the dozen. Over the years, it has expanded its menu to include sandwiches and soup, in addition to hash browns and something called a pretzel bagel it offers with mustard spread. Its chain of more than 4,400 stores, which is made up of franchises as well a company-owned outlets, has been facing increasingly intense competition.

Fast-food giant McDonald's has been strong in the breakfast market for years, and recently expanded its McCafe coffee offerings to include specialty coffee such as espresso. While sales at McDonald's have been slow, the company poses a formidable challenge to Tim Hortons, as do higher-end cafés such as Starbucks.

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