Fresh trouble for the Double-Double

Is Tims losing the coffee war?

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(Fred Lum/The Canadian Press)

There are lineups out the door every morning, and “double- double” is in the Canadian Oxford Dictionary. But lately Tim Hortons’ status as perhaps this country’s most iconic and beloved brand hasn’t been reflected in its stock price. It’s down nearly $10 from a high of $57.91 last May.

Cracks have begun to appear in the company’s 80% market share in coffee service. In the third quarter of 2012, Tim’s samestore sales were up just 1.9%, down from 4.7% a year earlier, and off the company’s full-year target of 3% to 5%. It marked the second straight quarter in which sales growth fell significantly below expectations. For a company as hell-bent on growth as Tims, the dip has caused some to ask whether the reign of the double-double is in trouble.

Part of the company’s challenge has been the likes of McDonald’s and Starbucks stepping up their game in Canada, while newer entrants to the lucrative breakfast niche like Subway and Wendy’s also try to get a taste. Tim’s isn’t taking these challenges lying down. It’s actively expanding its menu, most recently with panini sandwiches, to attract more food dollars beyond the breakfast hours. Still, McDonald’s alone has boosted its coffee market share in Canada to almost 10%, up from less than 5% in 2008, thanks to regular coffee giveaways and the cosier confines of its McCafé store designs, which feature comfortable seating and fireplaces.

“Now you’ve got a number of chains in the breakfast category all looking to capture more market share,” says Canaccord Genuity analyst Derek Dley. “Where is that going to come from? Well, it’s going to be Tims.”

The other major competitor challenging Tims is…Tims. The company’s Canadian penetration rate is among the highest in the world and could be reaching its saturation point, Credit Suisse analyst David Hartley said in a note to clients. Average transactions per store have also fallen over the past two quarters, something Dley says reflects a degree of cannibalization.“When you see negative same-store transactions, that points to a slowing growth profile and a saturated market,” he says.

But don’t panic yet, Timbit nation. It’s not clear how much of the slowdown in same-store sales is unique to Tims or the result of a general slowing in fast food. Over the same period, even the mighty McDonald’s saw sales dip in the U.S. Edward Jones analyst Brian Yarbrough is confident Tim’s same-store sales will rebound. “If we get a better feel that this is a Tims problem, then maybe we’d re-evaluate,” he says. “But if you go back and look, they’ve consistently been 4%-plus [sales growth], and we don’t see any thing that ’s suddenly changed. We’d have to see a few more quarters like the last two before we started to get nervous.”

2 comments on “Fresh trouble for the Double-Double

  1. its very truly artical

    Reply

  2. Pingback: Why Tim Hortons can’t rrroll into the United States - Blog Central, Business Blog - Macleans.ca

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