Menu innovation the centerpiece of road map at Tim Hortons

by Eric Schroeder
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New items such as the Crispy Chicken Sandwich are benefiting business at Tim Hortons.

OAKVILLE, ONT. — It may be only six months into a five-year strategic plan, but Tim Hortons, Inc. already is seeing momentum in both its major markets: the United States and Canada.

“We knew we needed to work hard to establish additional traction in the business, especially in this new era of low growth, competitive intensity, evolving consumer demands, and changing technology,” Marc Caira, president and chief executive officer, said during an Aug. 6 conference call with analysts. “Achieving the goals we set out in the strategic plan will be a long-term process.”

Mr. Caira said menu innovation is the centerpiece of the strategic road map, and Tim Hortons has used the past few months to identify key trends in the marketplace, including changing demographics, increased emphasis on nutrition, health and wellness, and a growing desire for bold flavors and fresh ingredients.

He said the company has taken steps to introduce more value-added premium products as well as appealing side dishes, a move designed to encourage consumers to purchase more combo meals.

“There is a long list of criteria we need to satisfy, and our R.&D. team has been doing a great job of developing our innovation pipeline,” he said. “Our new frozen hot chocolate beverage was a driver of same-store sales growth in the U.S. this quarter, and a great addition to our cold beverage lineup. In Canada, we continued to benefit from products launched in the previous quarter: the Crispy Chicken Sandwich, which is a premium item for us; the Turkey Sausage Hot Breakfast Sandwich; and our improved hash browns. Hash browns, along with our brand new Kettle Chips, are side dishes we are promoting as part of our combo options.

“We want our guests who currently purchase one item from us, to buy two, and those who buy two items, to buy three. In order to accomplish this goal, we first need the right menu items.”

New products introduced during the second quarter included frozen green tea, Greek yogurt parfaits, Oreo Iced Capp Supreme, Ultimate Cinnamon Buns and a line of strawberry baked foods.

 Tim Hortons’ U.S. segment had operating income of C$9,254,000 ($8,470,000) in the second quarter ended June 29, up sharply from C$2,587,000 in the same period a year ago. Total U.S. revenues increased 26% to C$51,878,000 ($47,486,000) from C$41,220,000.

Looking closer at Tim Hortons’ U.S. business, Mr. Caira said the company particularly is pleased with two things: that the company has awareness and that it has convenience. He said U.S. consumers now recognize that Tim Hortons is a cafe and bake shop, and they also have little trouble locating the outlets.

“Now what we need to do is leverage that,” he said. “And thus far, our success in the U.S. has been really focused on the breakfast dayparts. And we do extremely well in the daypart, and we continue to innovate, and we continue to launch new initiatives in that daypart.

“But very clearly, we’ve identified going beyond breakfast and going into lunch to try and create loyalty beyond breakfast. So again, it’s leveraging your asset. We have the restaurant that’s sitting there, and there is no reason — now that we have awareness, now that we have convenience — that we can’t take our business beyond breakfast.

“We’re going to continue to innovate breakfast. There’s still lots of room for us to grow, but the incremental opportunity is for us to develop specific products for lunch, catered to the taste of U.S. consumers. Again, we’re not going to assume that what works well in Canada works well in New York, because it doesn’t.”

Overall, net income attributable to Tim Hortons Inc. totaled C$123,750,000 ($113,276,000) in the second quarter, equal to C$0.92 per share on the common stock, up narrowly from C$123,736,000, or C$0.81 per share, in the second quarter of fiscal 2013. Total revenues were C$874,347,000, up 9% from C$800,139,000.
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