Tim Hortons: The Strategic Growth of an Iconic Canadian Company

Building on 50 Years of Success to Win in a New Era

LISA HEIDMAN LL.B.
SENIOR CLIENT PARTNER, THE BEDFORD CONSULTING GROUP,
NORTH AMERICAN DIRECTOR OF BEDFORD LEGAL

Tim Hortons® (TSX:THI, NYSE:THI) is one of the largest publicly traded quick service restaurant chains in North America based on market capitalization, and is the largest in Canada. As of December 29th, 2013, Tim Hortons had 4,485 system wide restaurants, including 3,588 in Canada, 859 restaurants in the United States and 38 in the Gulf Cooperation Council (the “GCC”), which includes several middle Eastern countries. Core to their Canadian market domination (a staggering number of restaurants, approximately 3 times more than Starbucks presence in Canada, and 10 times more than Second Cup’s), their “we fit anywhere” strategy has also led to a number of non-traditional locations in gas stations, convenience stores, universities, hospitals, office buildings and airports.

To say that Tim Hortons is a beloved and iconic Canadian brand is an understatement. Tim Hortons is the undisputed coffee leader in Canada, the #1 most trusted coffee retailer brand and the sixth most influential brand in Canada, according to Ipsos Reid. It is also one of the top 100 most loved companies in the world according to APCO Insight. Tim Hortons opened its first restaurant in Hamilton, Ontario in 1964 and celebrated its 50th year anniversary in May 2014. Since Tim’s early beginnings, the focus on top quality, “always fresh” product innovation, economic value, exceptional service and community leadership has contributed to its significant growth in Canada and its strong, emerging presence in the U.S. and internationally.

The company’s commitment to maintaining a close relationship with its franchisees and its integration into the communities where they operate, through the Tim Horton Children’s Foundation and their Timbits minor sports programs has helped generate immense guest loyalty and build Tim Hortons into one of the most widely recognized consumer brands in Canada. Tim Hortons is everywhere. It’s in every hockey rink and linked to all parts of our communities, and is a part of many of our every day lives. Over 2 billion cups of Tim Hortons coffee are served annually, and nearly 8 out of 10 cups of coffee sold in Canada are poured at Tims, with 15% of all Canadians visiting Tim Hortons, every single day.

Tim Hortons has new leadership as Marc Caira was appointed Tim’s new President & CEO on July 2nd, 2013, replacing Paul House, now non-Executive Chairman of the Board of Directors. Prior to joining the company, Mr. Caira was the Global CEO of Nestlé Professional, and was a member of the executive board of Nestlé SA, the world’s largest food and beverage company. Under this new leadership, and at a time of intensified brewing competition with McDonald’s and Starbucks nipping at its heels, with ever changing demographics and heightened consumer demands, and a slow growth quick service market in Canada, Tim Hortons is faced with an interesting problem to solve: How do you strategically grow an iconic Canadian company and brand, both in Canada and globally?

 

Steven Wuthmann, Executive Vice President, Human Resources, Cynthia Devine, Chief Financial Officer, Tim Hortons, and Lisa Heidman, Senior Client Partner, The Bedford Consulting Group. Photo taken at Tim Hortons Corporate Office, Oakville, Canada. Photography credit: Nick Wong.

As the theme of this summer edition of WOI magazine is on reinvention, we asked two of Tim Hortons’ senior executive team members, Ms. Cynthia Devine, Chief Financial Officer and Mr. Steve Wuthmann, Executive Vice President, Human Resources to share their insights into Tim’s business success, its new leadership and new 5 year strategic plan. And we discovered just how Tim Hortons intends to turn donuts into dollars not only in Canada, but also south of the border and internationally. Cynthia Devine joined Tim Hortons in 2003 as its Chief Financial Officer. Ms. Devine developed the infrastructure, processes and capabilities necessary to successfully lead the company through its IPO in 2006 and through its repatriation as a Canadian corporation in 2009. In August 2012, in addition to her role as CFO, Cynthia assumed executive responsibility for the supply chain strategy and operations. Additionally, she leads the company’s financial organization including accounting, financial reporting, tax, financial planning and analysis, treasury, internal audit, investor relations as well as information technology and manufacturing operations.

Prior to joining the company, Ms.Devine served as the Senior Vice President, Finance for Maple Leaf Foods, and from 1999 to 2001, was the CFO for Pepsi-Cola Canada. Cynthia is a Chartered Accountant and holds an Honours Business Administration degree from the Richard Ivey School of Business at Western University. In 2008, Cynthia was named one of the top 100 most powerful women in Canada and was a co-recipient of the Canadian CFO of the Year Award in 2010. In August 2011, she was elected as a Fellow of the Canadian Institute of Chartered Accoun-tants for her contributions to the profession. Ms. Devine was a member of the Board of Directors of ING Direct Canada until December 2012, serves on the Board of Directors of Canada’s Walk of Fame, and became a member of the Board of Directors of Empire Company Limited in 2013.

Steve Wuthmann was appointed Tim Hortons’ Executive Vice President, Human Resources in September, 2013. He is responsible for directing all human resource functions of the organization, including driving organizational engagement, capability, alignment and performance. Mr. Wuthmann was most recently EVP, Supply Chain, for Parmalat Canada, and prior to that, served as Parmalat’s SVP, Human Resources and Corporate Affairs. Prior to joining Tim Hortons, Steve acquired two decades of human resources and operations experience with Purolator Courier, Labatt Breweries of Canada and Canada Packers. He received a Bachelor of Commerce degree from Concordia University and has completed the Corporate Director Certification at McMaster University. Steve also has a history of involvement in the not-for-profit sector and was awarded the Queen Elizabeth II Diamond Jubilee Medal for his work with Kids Help Phone.

Lisa: What’s unique about Tim Hortons is that it has only had 4 CEOs in its 50 year history, which is very rare… What did you walk into Cynthia, when you joined Tim Hortons in 2003? How has the company evolved under this changing leadership?

Cynthia: The culture of Tim Hortons is special and each of the CEOs, Ron Joyce, Paul House, Don Schroeder and now Marc Caira, have made their mark on the company. While each of our CEOs had different leadership styles, what they share in common is an authentic connection to restaurant owners, customers and guest service, our brand, our community and to the foodservice industry more broadly. Marc brings exceptional knowledge of the North American and global foodservices industry. His leadership capabilities, vision, and strategic focus on our opportunities to grow the business in North America and internationally make him an ideal leader to set us up for success for the years ahead.

When I joined in 2003, we were a wholly owned subsidiary of Wendy’s, a US foodservice company. Wendy’s was very supportive of Tim Hortons and allowed us to run our business autonomously. Paul House, our previous CEO, said in some ways it was like Camelot, because we didn’t have to deal with shareholders and a lot of the outside distractions that can sometimes take away from driving and operating the business. We were simply able to focus on growing our business, and we grew significantly during this period. Three years later, we were doing an IPO, as Wendy’s wanted to try and substantiate the value of Tim Hortons inside of its business. The need for an IPO and the ultimate spin-off of Tim Hortons as a separate public company was mainly driven by Wendy’s board and their shareholders, as we were a hidden jewel within the company. From our perspective, we were excited about it, as it gave us the opportunity to be on our own. We did the IPO, and within 6 months we were completely spun off as our own company by September 2006.

Lisa: In the careers of exceptional leaders, I often see significant career development opportunities that mentors have provided. How important was Paul House’s belief in you Cynthia, to lead the IPO and what kind of learning opportunity did that offer you and your team?

Cynthia: The IPO was a great opportunity for me to be a part of and it was about being in the right place at the right time and demonstrating that I could step up and take that role. In hindsight, I was pretty young and didn’t have any public company experience, so it would have been easy for Paul and the team from Wendy’s to bring in a seasoned IPO veteran. I was very fortunate to be given the chance to lead one of the most complex spin-offs you could imagine. One of the great things about the culture at Tim Hortons, is that they always want to give our team an opportunity to grow. We’re given the chance to try new things and contribute to making important changes to the business. The nimble and entrepreneurial approach to decision-making, and the opportunities provided to learn and develop are, and always have been, an important part of our culture and it’s what makes Tim Hortons such a great place to work.

Lisa: So that would have been around 2006…tell us about what happened next?

Cynthia: So now we were a separate stand-alone public company. That meant we had to take on a new role managing our shareholders. We had always had a strong relationship with our franchisees and our employees, but now it was about operating our business under a new level of scrutiny and that took us a couple years, to really get it right. The next milestone for the company was that we did a major public company reorganization and we were able to, through a very complex transaction, turn the organization back into a Canadian company. We became THI, a Canadian public company, in September 2009. One of the highlights for our team was when Prime Minister Steven Harper and the former Finance Minister, Jim Flaherty came to Tim Hortons and warmly welcomed us back to Canada.

Following this, there were some organizational changes as Paul House retired and Don Schroeder came in as CEO, which was a different dynamic for the team. Don was the right choice for the job at that time and there were a lot of things that Don did to bring the team together and continue to drive the business forward. We did a strategic plan that served us very well from 2010 to 2013. Then there was the changeover in leadership, as Paul came back as CEO for two years, while the search for our new leader took place. Marc Caira was well worth the wait. He’s been a great addition to our Executive Team and has really brought fresh eyes and insight into our business.

Lisa: Steve, what did you walk into in 2013 and how would you describe Tim Horton’s culture at that time?

Steve: It’s been a brilliant time to join Tim Hortons because we’re in a transition and growth period looking ahead to the next 50 years. I think we have a lot of great people here who are fanatics about the brand and want to do the right things. Brigid Pelino, who previously led Tim’s executive human resources function, built an exceptional HR team over the years, implemented a number of key processes and initiated an engagement survey that have all served the organization very well. Brigid was also instrumental in bringing in the Women’s Foodservice Forum (the “WFF”) to Canada and to Tim Hortons, which supports developing the career paths of women in the foodservice industry throughout North America. The focus on diversity and our commitment to the WFF and the career development of each and all of our employees is very important to us.

The timing to join the company was excellent from my perspective because we were starting to build the strategy for our future and the engagement results were coming in at the same time. We created a plan to empower and engage our people and that’s what we needed to do. We want to attract, retain, engage and empower an exceptionally high performing team at all levels of the business. Engaged employees are critically essential to providing and ensuring the ultimate experience for our customers. Our people and our culture are key to Tim Hortons continued growth and success.

Lisa: Let’s talk about the new 5 year strategic plan. It’s a pretty ambitious plan, 500 new restaurants in Canada, 300 in the US and continued growth internationally, with a plan for 220 locations in the GCC by 2018. What was the thinking behind this plan and what are the highlights within it?

Steve: We know we have to grow in Canada and intend to do that by becoming one of the industry’s most consumer-centric, innovation driven companies, dedicated to improving and delivering the ultimate guest experience. The strategic plan highlights leveraging technology and customer insights so we can respond swiftly and innovatively to changing consumer needs and demographics, including focusing on new product choices reflecting consumer interest in health, wellness and nutrition. It focuses on streamlining our operations, and engaging our team to increase accountability, drive performance management and enable execution. It also targets strategic growth opportunities. We plan on developing approximately 500 net new locations in Canada by 2018, including both standard and non-standard restaurant formats, such as office, sporting venues and health care settings.

Cynthia: We also plan to work closely together with our restaurant owners to expand our footprint in alternative channels of distribution. We believe that we need to position our brand when and where our consumers wish to purchase their coffee. The grocery segment represents approximately 40% of the overall single serve market dollars and we intend to lead in this channel. Tim Hortons entered the single serve market with Keurig compatible coffee offering and we will begin selling this through the grocery channel this summer. Whether in our restaurants, at home or on the go, we plan to give our consumers the opportunity to have their Tims cup of coffee whenever, wherever and however, they want it.

Lisa: What about your expansion plans into the US? It’s been a challenging nut to crack, although you do seem to be making some important headway. What have you learned along the way that you can share with other Canadian companies looking to expand into the US and globally?

Cynthia: The US market is a must-win battle as Marc describes it, and everyone on our team agrees. As one of the largest quick service restaurant markets in the world, success in the US is essential. To do so, there are some things we now know that we have to do differently, as it’s a unique market that requires a multi-layered and disciplined approach. We had an early “aha” moment several years ago. One of our potential partners at the time actually asked us, what it was that we were famous for. As Canadians, who all grew up with Tim Hortons, we thought it was pretty obvious that we were famous for coffee and donuts, but in the US, especially in new markets, it became clear that we actually had to tell people what it is that we do so well. Since then, the team in the US has spent a lot of time establishing and branding Tim Hortons as a Cafe & Bake Shop which required redesigning the restaurants, as well as opening in new markets. Establishing what our brand is and what we were known for was important for us to do.

The other thing we learned is that you simply can’t build the loyalty and repetition of visits required for revenue growth without multiple locations in one area. Although we had initial presence in Buffalo, Columbus, Detroit, Erie, and Rochester, Buffalo was probably the only market where we could be considered convenient, where there was a Tim Hortons on your way to work, next to the hockey arena or at a soccer field. So for the past four years, the team has added a number of restaurants to those locations to drive that convenience factor. We penetrated the market well and our research has shown that we have made significant inroads. The brand awareness in the US in these markets for coffee and baked goods is now extremely high, so that’s a real win for us in a very short period of time.

The great news is that we have begun to build a breakfast market in the US. People are visiting us and returning, so we are already building that loyalty, but it does take time. We need to continue to create more loyalty in the morning segment. Secondly, we learned that lunch is a great potential opportunity for our growth. In the same way that we are growing effectively into the lunch segment in Canada, we need to expand from being just a morning player in the US. It’s not a surprise we are in that situation in the States at this time as we spent the past few years establishing ourselves as a Cafe & Bake Shop, because we needed to build our coffee brand equity.

We have a strong lunch business in Canada. In our last few quarters, we have been neck and neck for number 1, which is great because we don’t play in the burgers and fries landscape, so to be in first place at lunch in Canada is pretty significant, but we feel like there is still so much more room to grow. In the US, we intend to similarly build our lunch segment and we also have to make sure our product offering is relevant to the US consumer. We can’t just assume that American consumers are looking for the same thing that Canadians are, just the same way that we can’t assume that in Ontario it would match what our customers like in the Atlantic provinces or in Quebec. So we need to make sure that we have the product innovation right and that we are entrepreneurial and nimble enough to proactively provide it.

Lisa: I heard that they shot a ceremonial Canadian hockey puck at the opening of a new Tim Hortons in Kuwait. How do you transfer your culture and brand and what you do so well in Canada and have it resonate globally? If you order a double-double in Abu Dhabi, will they have the same Tim Hortons experience?

Cynthia: The representation of the Tim Hortons brand is fantastic in the GCC, and shooting a hockey puck to open our restaurant is a perfect example. The restaurants look and feel a lot like Tim Hortons in Canada. We didn’t have to do too much from a product standpoint, however we did have to remove pork from the ingredients, and now we have a turkey sausage breakfast sandwich. This was first introduced in the GCC and then was brought back to Canada and the US because it was a great product with healthier attributes, which is also now resonating in these markets. From a product standpoint, and the look and feel of the restaurants, you would think you were in Canada.

I wouldn’t say it was easy to enter the GCC market, as they already had a lot of higher end coffee players and shops, but we didn’t see anyone serving coffee and food together at a reasonable price point, and we saw our opportunity. One of the reasons we have been so successful in Canada is that our products represent such great value. The GCC was also easier than other countries for us to enter because there were no language barriers, and the transportation, infrastructure and supply chain capabilities were very good. In terms of market entry criteria, internationally, the GCC was a great entry point for us.

What we have also learned is that when it comes to building your company outside of Canada, it’s tremendously helpful when you find the right partner on the ground. Leveraging local knowledge and community connection is paramount to success. Internationally, The Apparel Group has been a terrific partner for us. They have excellent knowledge of the local real estate market and have done a great job with our brand, as they treated it like it was their own. Before we even opened our first restaurant in the GCC, The Apparel Group spent months in Canada training, and spending time with us to understand our culture and our restaurant operations. We also have dedicated resources in the market there, making sure, all of the time, that we don’t lose what makes Tim Hortons so special in Canada. Ensuring we could deliver our products and protect our brand was one of the biggest apprehensions we had about growing internationally as we didn’t have the resources or infrastructure to do that on our own. We knew that to be successful we really had to make sure that we picked the right partner to work with and I think we’ve done that very well in the GCC. There are now 220 locations planned for development by 2018.

Initially in the US, we began growing as we had in Canada with individual franchisee restaurant owners opening one or two restaurants in an area, but we now know, and in light of our successful experience in the GCC, that in order for us to really grow in the US, we do need to find these types of partners that can help us grow faster, together. We are now doing larger deals, Area Development Agreements and Master Licensing Agreements with franchisees. In St. Louis, Missouri for example, we are planning 40 restaurants over a 5 year time period. In Youngstown, Ohio, 25 new restaurants, in Fort Wayne, Indiana, 15 new locations and in Fargo and Minot, North Dakota, another 15 are planned for development by 2018. These are the types of things we are doing to grow the brand quickly, while driving convenience in these areas. The learning is that key partners, who have access to real estate, marketing, media connections, supply chain and labour, and most importantly, a connection with the local community, are extraordinarily helpful to driving our growth. We believe that with the right partners on the ground, we can grow these markets more effectively than we could going into a new market solely by ourselves.

Lisa: Can you talk about the technology, loyalty and data analytic focus that you believe will help drive revenue growth and improve your customer experience?

Steve: That’s one area that Marc has spoken about repeatedly that we really need to focus on, to help understand our customers better so we can provide them with what they want, when they want it, with ease. In May 2014, we introduced the new CIBC/ Tim Hortons credit and loyalty card, which is a great fit for those customers who want more immediate rewards for their everyday spending. It’s a 2-in-1 dual technology, with 2 buttons on the card, so it functions as both a credit card and a Tim’s loyalty card. You can earn rewards on all Visa purchases made anywhere, and those rewards will be instantly loaded onto the card for immediate use at Tim Hortons. The new card complements our strategy to actively pursue technological innovation and directly connect our guests with our brand. The beauty of the card is that it’s available to everyone, there is no annual fee, so we feel like we can get the card in the hands of many of our customers and the rewards are in real time, which is novel.

We really do need to be more data driven and understand people’s purchasing habits. It’s about understanding the behaviors of our customers, and anticipating their needs to drive loyalty and improve customer experience, all of which we believe will drive revenue growth. Also speaking about technology, you can make payments at Tim Hortons now on your smart phones. We have added mobile apps and also barcode technology to our restaurants. Leveraging technology and data analytics is an essential component of our new strategic plan and for the future of Tim Hortons’ success. It’s a huge industry trend for both retailers and the foodservice industry and we intend to be leaders in this field.

Lisa: What else within your strategic plan will be key to your success in Canada and to your growth south of the border and internationally?

Steve: Our new strategic plan is really about delivering the ultimate guest experience. Everything we do has to make every interaction we have with our customers better than ever, particularly in this competitive environment. Whether that is reducing wait times in the line up, making sure we get your order right or making our restaurants more comfortable and inviting for our guests, it’s all is about delivering on that ultimate guest experience. Marc has also added a new focus in terms of health, nutrition and wellness. We are in a good spot today, because we have healthy alternatives and decadent treats, but it’s all about balance. We need to give our customers a choice, and I think you will see more products from us that play in that arena. Building on the new lunch and expanding into dinner items will also be key to our growth over the next 5 years.

Lisa: You have effectively embedded yourself in the Canadian culture and within our communities. How do you translate that comfort and trust that is so core to Tim’s culture? How do you ensure Tim Hortons’ continued success as you grow globally?

Cynthia: People see Tim Hortons as one of the most successful businesses in Canada. But you have to remember that we are a 50 year old overnight success story. It took us a long time to become who we are today. The first 20 years in Canada we had just over 200 restaurants. Our growth did not come easily for us, and it does take time to build. It all starts in the community. Over the years, thousands of Canadian children have had an opportunity to attend Tim Hortons camps and each year Tims helps more than 300,000 kids get active through Timbits minor sports programs. Our restaurant owners are active in their communities, at hockey tournaments and their giving back, resonates with our customers. The first Wednesday in June is Camp Day when restaurant owners donate 100% of the proceeds from coffee sales to the Tim Horton Children’s Foundation. There is a tremendous authenticity to it and our community involvement has been core to our brand and to our growth from day one. Our business is swiftly adapting to the changing needs of our guests in each new market and we need to continue to be innovative to lead in these new times. Essential to our continued growth however, is understanding and staying true to the core elements of the Tim Hortons brand and culture that have always made us successful.

Steve: The heart and soul of Tim Hortons success is that it has always been all about our people. We have developed new engagement tools to inspire our team to ensure we deliver an exceptional guest experience for our customers. We have a unique partnership that benefits our investors, restaurant owners, employees and the communities we so proudly serve. Combining strategic partnerships, stream-lined operations, innovative products and services, effective leveraging of technology and data analytics to improve our customer experience and drive loyalty, we believe is a winning proposition to ensure Tim Hortons global growth for the next 50 years ahead.

Lisa: Thank you both for sharing Tim Hortons learnings and inspiring Canadian businesses to grow globally. Market competition is fierce, but know that Tim Hortons continued growth and success, around the world, makes Canadians exceptionally proud.

Lisa Heidman, LL.B., Senior Client Partner, The Bedford Consulting Group, North American Director of Bedford Legal, brings over 15 years of Legal, Board and Executive Search Experience working with Boards and their Senior Leadership Teams, placing Board, CEO and C-Suite Executives across functions. Appointed to the Board of Directors of Women of Influence in 2009. Lisa can be reached at lheidman@bedfordgroup.com.