The proposed marriage between Tim Hortons and Burger King looks, at least initially, like a lopsided relationship.
Moving its head office to Canada would reduce the King’s taxes by more than 13 percentage points while also bolstering it in the ever-more-crowded breakfast market. Tim Hortons is also a wildly successful, constantly growing business that recently posted its strongest same-store sales in two years.
As spouses go, Burger King would be getting a peach. But for Tim Hortons, the King looks more like Prince Humperdinck than Prince Charming. Burger King’s market performance has been weak, with a 6% drop in revenue in the last quarter alone. Furthermore, the coffee chain’s previous dalliances with American companies were unsuccessful. It was purchased by Wendy’s in 1995, only to be spun off again in 2006. A recent flirtation with Cold Stone Creamery cost the company $19 million when it pulled the ice cream chain’s products from its Canadian stores. So, one wonders: What does Tim Hortons see in Burger King?
The chain’s initial explanation makes little sense. “A key driver of these discussions is the potential to leverage Burger King’s worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets,” said a Tim Hortons press release. It’s true—Burger King has been expanding rapidly into international markets in recent years, adding 1,493 locations in 2013 alone, to reach a total of 13,667; the chain added another 77 new restaurants in Europe, 47 in Asia and 29 in Latin America just in the last quarter. This strategy looks great—same-store sales in China have grown three times faster for Burger King than McDonald’s— but it’s awfully soon to call it a success. Previous efforts to grown internationally stalled when the novelty wore off. When Burger King entered China in 2005, it said it wanted to have 300 restaurants there by 2012; it only managed to open 63. And at the same time as it’s been chasing international growth, the company has cut its corporate expenses, added new items to its menu and gone from having 11% of its restaurants owned by the company to just 0.4%, with the rest held by franchisees. In short, it’s made itself look a lot like Tim Hortons.
Indeed, Tim Hortons proudly boasts on its website that it’s “95% franchise owned” and has been expanding its own menu with smoothies and, most recently, dark coffee. Where Tim Hortons needs help isn’t with international logistics or corporate structure. It’s in finding a brand identity that resonates with American consumers. And having struggled for years with the same problem in its domestic market, Burger King isn’t in any position to help its new partner find one of its own.
Odd couplings have produced plenty of happy marriages, and the value that Burger King sees in Tim Hortons is clear. The question now is: why does Tim’s appear to reciprocate?