Brewing up change at Tim Hortons

With the exit of Tim Hortons CEO Don Schroeder, it seems Canada’s Oakville, Ont.-grown coffee chain may be ready to make some changes to its well-established brand. After 20 years with the company (three as CEO), Schroeder’s departure seemed abrupt. And while the company didn’t give a reason for his exit, the news release did say “a transitional arrangement could not be reached,” suggesting there may have been some conflict surrounding the decision.

Now the Tim Hortons brand, which has built itself on delivering a consistent product that people count on, not to mention warm and patriotic feelings among Canadians, needs to focus on growth outside of the saturated Canadian marketplace. So far, that hasn’t been easy for the country’s number one coffee chain. Tim Hortons established itself by entering small communities and growing with them. It also did a good job of opening in unusual locations to take advantage of coffee drinkers waiting around in hospitals, universities and airports. Most recently, it added Cold Stone Creamery ice cream product to some of its locations, extending the brand farther.

But that hasn’t translated as well in the U.S. as Tim’s would like. At the company’s AGM in Toronto on May 13, Schroeder maintained that the Tim Hortons brand formula “works” in the United States, even though the chain had to close 36 stores and 18 kiosks in New England late last year. The U.S. may have twice the population of Canada within the target regions Tim’s hopes to infiltrate, but one thing is clear: the Tim Hortons brand really isn’t working seamlessly south of the border.

From that standpoint, Schroeder’s exit provides an opportunity for the company to shift direction and set itself apart from major fast-coffee rivals like Dunkin’ Donuts, and McDonald’s. If the company wants to stick to its plan to open about 300 new U.S. locations before 2013, it will have to adapt.

But even on Canadian soil the chain must work to maintain its reputation as Canada’s uncontested favourite coffee shop. In this year’s Canadian Business “Companies we love” ranking of the country’s top brands (conducted in partnership with the Reputation Institute), Tim Hortons was bumped from the top spot by Jean Coutu, the Quebec pharmacy chain. This may have been caused by the fading halo of the Olympics, which found people a little less patriotic this year. Tim Hortons is also coming off a tough first quarter, after it blamed some of its disappointing drop in sales on the abundance of prizes in its Roll Up the Rim contest this year. The company will also need to deal with the rising cost of coffee, and ingredients like wheat, sugar and corn. Since Tim Hortons prides itself on low prices, which appeal to those who are appalled by a $5 Starbucks latte, it will be important for the company to keep prices stable to maintain that consumer trust. It already raised prices once this year in mid-April.

It may be that for Tim Hortons the opportunities for fast growth and expansion aren’t on Canada’s doorstep. The chain already announced plans in February to infiltrate the newly developed malls of the Middle East over the next five years by opening up to 120 restaurants in the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman. This focus on bringing the North American coffee shop experience to less-flooded markets may be more profitable in the long term. The question now is whether the chain that was built on Canadiana can translate that warm, home-grown feeling overseas, or whether it will need a new strategy altogether. If it’s the latter, now might be the perfect time for an upper-management shakeup.