Strategic Business Analysis - Tim Hortons

1 EXECUTIVE SUMMARY 3
2 TIM HORTONS MISSION AND VISION STATEMENTS 3
2.1 Mission Statement 3
2.2 Vision 3
3 HISTORY 3
3.1 Tim Hortons Brand 4
4 PAST STRATEGY 4
4.1 Merger with Wendy’s International lnc. 4
5 CURRENT STRATEGY 5
5.1 Brand Recognition 5
5.2 Unique Business Model 5
5.3 Market Expansion into the U.S. 6
5.4 Co-Branding – Cold Stone Creamery 7
5.5 Community Involvement (Children’s Foundation) 7
5.6 Coffee Partnership - Working within the Industry Value Chain 8
5.7 Measures Of Performance 9
6 FUTURE STRATEGY 9
6.1 Five Key Points for 2010-2013 Strategic Plans 9
6.2 U.S. Market expansion 10
6.3 Market Leader in Canada 10
6.4 International Strategy 11
7 CONCLUSION 11
8 APPENDIX 12
9 REFERENCES 12

1 Executive Summary
A strategic business analysis of Tim Hortons’ restaurant chain was conducted and action plan is recommended. We are the Vice President of Marketing and Chief Financial Officer and presenting this report to the shareholders of Tim Hortons.

This report includes a review of Tim Hortons’ past strategies by focusing on its origins from the beginning to the establishment of their valuable “Brand” reputation in Canada. We will perform an analysis of the past, present, and future strategies of the business.
2 Tim Hortons Mission and Vision Statements
2.1 Mission Statement:
Our guiding mission is to deliver superior quality products and services for our guests and communities through leadership, innovation and partnerships.
2.2 Vision:
Our vision is to be the quality leader in everything we do.
3 History
Tim Horton’s chain of restaurants was originated in 1964 in Hamilton, Ontario, Canada by Tim Horton. In 1967 Tim Horton and Ron Joyce became full partners. Ron Joyce was the franchisee of restaurant in Hamilton. Later in 1974 Ron Joyce became the sole owner of the company after the death of Tim Horton.
Tim Horton’s originally only offered coffee and donuts. Over the years a large variety of choices have been extended to the marketplace with the growth of taste of the consumers. The biggest change in Tim Hortons happened with the addition of “Timbits” in 1976 which is still popular today, with 35 different varieties. Over the years, Tim Hortons has also added several other choices like muffins, soups, sandwiches, and other beverages.

3.1 Tim Hortons Brand
A successful marketing strategy has enabled Tim Hortons to be a profitable operation in Canada. With powerful and effective branding, we have been able to establish ourselves as a market leader in the fast-food segment in Canada. The Tim Hortons management has always stood by its promise to the customers and been consist in delivering quality products. Our Advertising and marketing department has clearly reflected the core message to the market place.
The quality of our product has always been a very important part of our focus. Every time a customer walks into the store, we have ensured that the promise of “Always Fresh” has been fulfilled.
4 Past Strategy

From the beginning, Tim Hortons adapted an organizational structure based on the Franchisor\Franchisee model and focused on a large segment in Canada. .
4.1 Merger with Wendy’s International lnc.

In 1995 Tim Hortons merged with Wendy’s International Inc though it still continued to operate as a separate entity. This merger created a new opportunity for the organization to focus on the expansion of our concept into the United States. Our Canadian operations were 95% franchise owned and operated, and the plans for the United States called for the same implementation strategy as expansion continued. The shared mission is to deliver quality food, value and unparalleled service to the customers.
4.2 First Initial Public Offering

In 2006, Tim Hortons completed its first initial public offering as a separate company from Wendy’s International Inc. Tim Hortons currently trades on the NYSE and TSX markets. The TDL Group Corp. is the licensing company for Tim Hortons franchises presently operating in Canada and the United States.
5 Current Strategy

Tim Hortons’ Continued Growth - use Strategy and Diamond E (Appendix A1 and A2)
5.1 Brand Recognition

Market research studies consistently place “Tim Hortons” as a quality brand with customer loyalty in Canada. At the same time, we are working diligently to create the same customer loyalty in our developing and emerging markets in the northeast and mid-west United States.
5.2 Unique Business Model

A central element of the Tim Hortons operating philosophy is that if our franchisees are successful, then our shareholders will be successful. Our powerful business model is focused on responding to the changing needs of our customers and helping our franchisees remain successful.
Our business model is unique, due to our franchising system, coupled with our real estate scale (80% control of system real estate), and vertical integration throughout our business. As a result, we are able to respond to market dynamics and create system value. We believe this platform provides a competitive advantage that generates above-average performance among industry peers due to the various layers of income streams:
• Real Estate – Primary formula is rent based on percentage of sales; 10% in Canada and 8.5% in the United States.
• Franchising – Primary formula is royalty based on percentage of sales; 3% in Canada and 4.5% in the United States.
• Vertical Integration - Five distribution centers, Coffee roasting operation, bakeries, and packaging.
5.3 Market Expansion into the U.S.

Tim Hortons’ expansion strategy in Canada has been achieved by setting up stores in relatively under serviced markets. To differentiate ourselves from our U.S. competitors, which include chains such as Dunkin' Donuts, McDonald's, and Starbucks, our value proposition is to provide the fresh products. We have three main menu offerings: beverages, baked goods and lunch, with coffee that is always less than 20 minutes old as our core item. Rather than entering the U.S markets with a single store, our plan is to cover and entire region so that we can support the region with an aggressive advertising campaign.
With the success of our current business model, we have 602 U.S locations concentrated in 10 U.S. States: Michigan, Ohio, New York, Maine, Kentucky, West Virginia, Rhode Island, Connecticut, Massachusetts, and Pennsylvania.
5.4 Co-Branding – Cold Stone Creamery

We have entered into a co-branding agreement with Cold Stone Creamery, which is a subsidiary of Kahala Corp and one of the fastest growing franchises in the world. This offers customers another reason to visit these locations. In addition to the morning and noonday periods with coffee and baked goods, Cold Stone's strength is afternoon and evening periods with ice cream as a snack treat. It is our intention to fill each other's non-peak periods with new or even repeat customers. Co-branding allows us to leverage efficiencies and costs from a real estate and operational standpoint as well as the opportunity to optimize the similar customer profiles.
5.5 Community Involvement (Children’s Foundation)

Canadians consider Tim Hortons to be a definitive Canadian brand, with values that they can relate to, such as inclusiveness, honesty, and approachability. The brand’s social strategy is a reflection of these values. Tim Hortons has had a profound impact on individuals, families, and communities, all across Canada, some of our community programs are listed below:
• Camp Day/Tim Hortons Foundation: A non-profit, charitable organization committed to providing a fun-filled camp environment for children from economically disadvantaged homes designed to give them the chance to develop confidence.
• TimBits Hockey: Tim Hortons began sponsoring hockey over 20 years ago. Timbits Hockey helps players aged four to eight learn hockey skills in a fun, non-competitive environment.
• Other community based initiatives: Tim Hortons also supports causes and activities on a community basis. Some examples are: Free swim and skate program, Community clean up, Halloween safety program, Smile Cookie program, and earn a bike program.
5.6 Coffee Partnership - Working within the Industry Value Chain

Our goal is to work directly with our coffee suppliers to create community partnership programs by supporting them in key areas that will improve their coffee business and lives such as:
 Establishing technical training, through direct financial assistance, to improve the quantity and quality of coffee produced.
 Consulting farmers to ensure their coffee gets to market at the best time and at the best price.
 Providing assistance in education and medical care.
 Strengthening environmental management by educating farmers on enhanced farming techniques and reforestation projects.
We have already supported projects in Guatemala, Colombia and Brazil. Our next opportunity to do so will be a new project in the El Valle region of Colombia and the Trifinio region in the triangle of Guatemala, Honduras and El Salvador. The Tim Hortons Coffee Partnership approach is unique from other coffee initiatives. Together with our partners, we are involved in grassroots projects that work closely with small farmers, local coffee organizations, and government and non-government organizations. Through these projects, farmers are encouraged to improve farming practices and to enhance productivity.
5.7 Measures Of Performance
Perspective Ratio 2007 2008 2009 2009 Industry Averages
Liquidity Current Ratio 1.23 1.27 1.45 1.70
Asset Management Total Asset T\O 1.07 1.08 1.2 1.20
Solvency Debt Ratio 44.20% 42.80% 41.40% 36% Equity Ratio 55.80% 57.20% 58.60% 64%
Profitability R.O.A. 15% 14.30% 14.84% 14.20% Profit Margin 14.20% 14.28% 13.22% 11.70%

Tim Hortons maintains consistent averages as per the industry trends. Due to the continued growth and expansion our profits show slight decline in 2009.

6 Future Strategy

See Appendix A3 - Porter’s Five Forces
See Appendix A1 - SWOT Analysis

6.1 Five Key Points for 2010-2013 Strategic Plans

1. Attacking day part, category and marketing opportunities to drive same-restaurant sales by leveraging menu to grow afternoon and evening snacking and by maximizing lunch opportunities, and differentiating ourselves as a café/bake shop designation in the US.
2. Leverage our marketing strength to drive same-restaurant sales using our scale to reinforce our price-to-value position and brand equity in Canada and pursuing other means such as community involvement, sponsorships, and other forms of communication to reinforce our brand in the US.
3. Investing to build our scale and brand in new and existing markets by targeting smaller communities as part of our broader development strategy as well as a regional presence in the Northeast and Midwest US and standardizing restaurants in Canada and the US with non-traditional formats and locations.
4. Growing differently in ways we haven't grown before by extending our service competitive advantage through a new hospitality strategy in Canada. Expanding Cold Stone Creameries in Canada and US as well as pursuing other strategic alliances/partnerships to take our brand to new US markets.
5. Leveraging our core business strengths and franchise system by continuing to work collaboratively with franchisees to build upon the success of the system. Pursue other vertical integration and supply-chain opportunities to create value for our franchisees and shareholders and assess acquisition opportunities that leverage our core strengths and capabilities.
6.2 U.S. Market expansion

The goal of Tim Hortons in the United States is to duplicate the same commitment to product quality, value, cleanliness, customer service and community leadership that has been established in Canada.
6.3 Market Leader in Canada

As Tim Hortons continues to grow into the U.S. market, it is also of great importance for us to maintain our status as leader in the quick service restaurant segment within Canada by continually focusing on our value proposition. Our focus for future expansion in Canada will be driven by opening non-traditional outlets such as kiosks within stores, and stores in smaller markets.
6.4 International Strategy

Signed a Master License Agreement (MLA) with Apparel Group based in Dubai for up to 120 multi-format restaurants in markets in the Gulf Cooperation Council (GCC) Locations will be developed and operated by Apparel Group in the GCC markets of United Arab Emirates, Qatar, Bahrain, Kuwait and Oman In 2011, Apparel Group is committed to developing and operating ~5 restaurants .Our international growth strategy is designed to evaluate potential additional international market entries following success in the GCC.

7 Conclusion

As evidenced by the recent financial performance numbers presented above, Tim Hortons is still continuing to maintain results at par or above their industry competitors while staying true to their core values as stated in their “Mission Statement”. Tim Hortons appears to be on the right path with maintaining their status as “Leader” in the Canadian market by looking at smaller markets and different types of outlets. Their approach towards expansion in the U.S. seems to be working because they have never lost sight of the fact that the U.S. market is different from the Canadian market.

Their initiatives of community involvement have helped them to become a trusted brand in Canada and they should continue to develop those programs, and their partnerships vertically within the industry value chain help them to ensure that they are always meeting their quality goals.

Tim Hortons has shown that a company can have a positive impact on an individual, a community, and a nation, and as they move forward they may one day be able to have an impact on the entire world.

8 Appendix

Appendix A4 – SWOT Analysis

Appendix A5 – Balance Sheet

Appendix A6 – Income Statement

9 References

1. Web site: http://www.timhortons.com

2. 2009 Annual Report. Web site: http://annualreport.timhortons.com Web site: http://timhortons.com/ca/en/about/investors.html
3. Coffee Association of Canada Web site: http://www.coffeeassoc.com/
4. Current financial information about Tim Hortons can be found at: Web site: http://www.timhortons-invest.com/
5. Crossan, M.M., Rouse, M.J., Fry, J.N., Killing, P.J. (2009)
Strategic Analysis and Action -Seventh Edition. Toronto: Pearson Prentice Hall.

6. Crossan, M.M., Bansal, P., Killing, P.J., White, R.E., Zietsma, C. (2008)
Strategic Management: A Case Book –Eighth Edition. Toronto: Pearson Prentice Hall.
7. Larson, K.D. & Jensen, T. (2007)
Fundamental Accounting Principles –Twelfth Canadian Edition. Toronto: McGraw-Hill Ryerson.