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Tim Hortons Strategy

In: Business and Management

Submitted By connie1124
Words 2296
Pages 10
Individual Assignment
Connie Chiu
301150054
Bus 478 D102
Professor: SOH, Pek-Hooi
301150054
Bus 478 D102
Professor: SOH, Pek-Hooi

Tim Hortons strives to deliver superior quality products and services for its guests and communities through leadership, innovation and partnerships, with its vision to be the quality leader in everything they do. This following essay will first evaluate Tim Horton’s internal strengths and weaknesses and its external opportunities and threats by using the SWOT analysis, it will then examine its current strategy at functional level, business level, global, and corporate level.
Tim Hortons is the largest fast food restaurant chain in Canada and the fourth-largest in North America based on market capitalization. It operates a chain of more than 4,250 coffee and donut shops across the country, in several US states and a few other outposts. It features a variety of coffees and cappuccino with a food menu that offers doughnuts, sandwiches and other food items. Tim Hortons not only competes with the typical coffee and baked goods chains, but also with all restaurants in the Quick Service category, with its major competitors being Starbucks and McDonalds.
Firstly, we will conclude Tim Hortons’ situation from different angles using the SWOT analysis. The central purpose of a SWOT analysis is to identify the strategies to exploit external opportunities, counter threats, build on and protect company strengths, and eradicate weaknesses. (Hill & Jones, 2013)
Strengths
Tim Hortons dominates the Canadian coffee chain market with 76% of the market share. (The Canadian Press, 2013) It now has 4,485 restaurants, including 3,588 in Canada, 859 in the U.S. and has opened 38 in the Gulf Cooperation Council in the past three years. One of the biggest advantages Tim Hortons has is their price points. Tim Hortons has established a solid partnership with its farmer in South America and it gets reduced price by buying large quantities of supplies and achieved the economies of scale. Compared to Starbucks drinks of the same size, it is much more affordable. Also, it has established a recognizable Canadian brand image which promotes national pride and thus has gained customer loyalty in Canada over the years through excelling the customer’s demand by successfully providing excellent service, location, price and a variety of food and beverages.
Weaknesses
Tim Hortons does not only have intense competition from its industry rivals such as Starbucks and Waves coffee, but also from other non-traditional coffee providers such as Burger King, Subway and McDonalds. Unlike Starbucks and McDonalds, the business is only well known in Canada, but is not well established worldwide. Furthermore, due to its franchising nature, Tim Hortons has weak management at specific store locations. When franchisees have control over customer service, its operational service performances can be varied.
Opportunities
There is an aging, more ethnically diverse population, as well as increasing Millennial purchasing power, drive different needs. Customers are also acting on their perceptions of value, trading up affordable pleasures. There is also technology convergence, where a digitally connected and social world is driving new ways to gather information, connect with community and engage with brands. (2013 Tim Hortons Annual Report, 2013)
Threat
With the increasing consciousness about health and diet, there is a shift in buyer preference for healthy products. Menu trends are fuelled by an increasing desire for health, wellness, natural ingredients and variety. (2013 Tim Hortons Annual Report, 2013) The demand for donuts may slowly decrease and will affect Tim Horton’s food sales since donuts are its main product and it lacks healthy alternatives on the menu. Moreover, the company operates in the highly competitive quick service restaurant segment of the foodservice industry. The persistently weak economic conditions in North America for the past several years have resulted in fragile consumer confidence, relatively high levels of unemployment in many regions and changed discretionary spending patterns. (2013 Tim Hortons Annual Report, 2013) This has created an even more competitive and intense business environment in the industry.
Competing in this new era will require companies to understand consumer trends and evolve their capabilities to survive or win. Successful companies are the ones who are able to recognize the importance of innovation and react rapidly with the new consumer trends. We will now consider the strategies Tim Hortons used or going to use to face the challenges using its competitive advantage and expand itself into new markets with the given opportunities.
Functional-Level Strategy
Functional-level strategies are ones that try to improve a company’s operations effectiveness, in terms of efficiency, quality, innovation, and customer responsiveness. (Hill & Jones, 2013) Firstly, Tim Hortons aims to leverage their marketing strength to drive store sales growth by taking technology, marketing and promotional initiatives to appeal to consumer needs. Currently, about 60% of the Tims orders consist of just one item, whereas the corporate goal is to get 15 to 20 % of customer to opt for three items instead of two. It continuously reinforce the price-to-value position and brand equity. It strives to deliver an ultimate guest experience more consistently by reducing wait times, improving order accuracy and working to improve consistency in operations standards for fast, friendly service and cleanliness. Its ongoing renovation of restaurant interiors to include arm chairs and flat-screen TVs and the improvement of drive-thru service were noted to enhance customer experiences. Also, Tim Hortons has shown its dedication to leverage menu and technology innovation. The new technology innovation includes the introduction of “Tims Express” locations aimed at coffee drinkers in urban areas which added option of being able to place a pick-up order via smartphone to enhance customer service quality. (Weisblott, 2014) On the other hand, Tim Hortons has decided to discontinue 24 items in the coffee chain including Timbit Dutchie, double berry muffin and mixed berry smoothie in order to add some new, limited-time items. Frozen Green Tea was announced as a Tim Hortons menu addition for spring 2014 along with the nationwide roll-out of Dark Roast Coffee to provide an alternative to its primary product; Warmed kettle chips were also mentioned as a new item being tested in conjunction with its sandwiches. (Weisblott, 2014)
Business-Level Strategy
Even though Tim Hortons is well known for its low price coffee and donuts, like we have mentioned above, it also must find ways to differentiate its product in some way to attract customers. It is particularly important in today’s marketplace because intense global competition from companies abroad, and rapid technological changes that allow competitors to develop strategies provide companies with some type of superior differentiation or cost advantage. (Hill & Jones, 2013) Tim Hortons is one of the companies that have business-level strategies to better differentiate its products and lower its cost structures simultaneously. Therefore, although it may have higher costs than cost leaders like Dunkin' Donuts, and offer a less differentiated product than differentiators like Starbucks does, it has its own competitive position that offers their customers more value than industry rivals. The barriers to entry characterize the fragmented quick service restaurant industry because of the low start-up cost and the large number of suppliers. Tim Hortons uses the franchising business-level strategy in the fragmented industry that allows it to enjoy the competitive advantages. Franchising is a strategy in which the franchisor grants to its franchisees the right to use the franchisor’s name, reputation, and business model in return for a franchise fee and often a percentage of profits. (Hill & Jones, 2013) Since franchisees essentially own their businesses, they are strongly motivated to make the company-wide business model work effectively, and ensure that quality and standards are consistently high so that customers’ needs are always satisfied. (Hill & Jones, 2013)Also, as a nationwide franchised company, Tim Hortons can take the advantages of large-scale advertising, as well as economies in purchasing, management, and distribution.
Furthermore, non-price competition is also used as a strategy to manage the intense rivalry. Tim Hortons has always been concentrated on expanding its market share in its existing product market, engaging in a long term market penetration strategy. Tim Hortons is planning to develop approximately 500 more new locations in Canada by 2018, while at the same time extending its reach through new restaurant formats and sizes that target under-represented audience settings such as office, sporting venue and health care locations. (2013 Tim Hortons Annual Report, 2013) This will greatly help Tim Hortons to achieve an even higher market share. It also engages in a product proliferation strategy where it is exploring new food and drink items to accommodate the changing needs and tastes of the customers. Like mentioned in the SWOT analysis and the functional-level strategy, it has already developed plans to eliminate some traditional products and add in some new and time-limited products to fit the new trends.
In addition, Tim Hortons pursues a corporative strategy. It has developed a relationship with Cold Stone Creamery and Wendy’s to improve its food choices and expand its distribution channels and locations. Tim Hortons is party to an agreement in 2009 with Kahala Franchise Corp, the franchisor of the Cold Stone Creamery brand, pursuant to which it has exclusive development rights in Canada. (Friend, 2013) Nevertheless, it has just decided to remove Cold Stone from Tim Hortons restaurants in Canada for the means to give many locations space to add express beverage lines. Tim Hortons ongoing relationship with Wendy’s since early 1990 to jointly develop combination restaurants was also an innovative collaboration. Under the TMWEN Partnership, the combination restaurants have separate drive-thrus, but share a common entrance way, seating area and restrooms; separate front counters and food preparation areas are also in place for each of the two restaurant concepts. As at December 29, 2013, there were 99 franchised combination restaurants in Canada in the TMWEN Partnership.
Global Strategy
Tim Hortons has developed detailed plans to further expand in U.S. and the Middle East. Tim Horton has characterized the entrance to U.S. is a “Must-Win Battle.” It uses a different strategy in the U.S., being increasingly distinct from Canada as its growth will focus on its positioning as “Café & Bake Shop.” It remains committed to the U.S. market because it believes that it will provide an additional avenue of growth in the future years. The company, which has found it difficult to translate its Canadian success in the United States, said it will open about 300 restaurants in priority U.S. markets including St. Louis and Youngstown by the end of 2018. (Toronto Sun, 2014)
Besides, Tim Hortons uses a franchising entry mode, which is considered a less capital-intense model, in which franchisees deploy capital and local market knowledge, Tim Hortons said. (Toronto Sun, 2014) Its development plans will be complemented by brand and channel extensions to drive awareness and penetration. Similar to how it operates in Canada, Tim Hortons will set up strict rules governing how their franchisees do their business. The advantage of franchising is that it has low development costs and risks; however, it suffers from the inability to engage in global strategic coordination and lack of control over quality.
Corporate-Level Strategy
As a franchisor, Tim Hortons collects royalty revenue from franchised restaurant sales, and it also generates additional revenue by controlling the underlying real estate for the majority of the franchised restaurants. At December 29, 2014, it leased or owned the real estate for around 83% of its full-serve system restaurants in North America, including 796 owned locations. (2013 Tim Hortons Annual Report, 2013)
Moreover, Tim Hortons distributes coffee and other beverages, non-perishable food and etc. to most system restaurants in Canada throught its five distribution centres from Guelph and Kingston distribution facilities in its Ontario and Quebec market. Its vertical integration model also includes two coffee roasting facilities located in Hamilton, Ontario, and Rochester, New York, and a fondant and fills manufacturing facility located in Oakville, Ontario. (2013 Tim Hortons Annual Report, 2013)
Tim Hortons’ management of supply chains activities allows it to leverage its scale in Canada to create efficiencies, build competitive advantage, enhancing product quality, improving scheduling and cost competitive deliveries to its restaurant owners.
To conclude, Tim Hortons has succeeded over the years in the Canadian market due to its consistency, reasonable price range and great product tastes. Its effort and focus on meeting existing customer demand by its menu and restaurant interior innovation can be seen easily. It has a clear and thorough strategic plan to further increase its market share in Canada and expand internationally, especially in the U.S. and Middle East market. With its competencies and resources, it is not difficult to tell that Tim Hortons will remain its competitive advantage and is able to continue dominate the Canadian coffee market. However, it is still unclear that whether Tim Hortons can replicate its success in the U.S. or international market given that the industry is getting increasingly intense and competitive.

References
Friend, D. (2013, September 17). The Canadian Press. Retrieved from New Tim Hortons CEO reviewing everything from coffee cups to doughnuts: http://www.ctvnews.ca/business/new-tim-hortons-ceo-reviewing-everything-from-coffee-cups-to-doughnuts-1.1459270
Hill, C., & Jones, G. (2013). Strategy Management Theory 10th edition.
Hortons, T. (2013). 2013 Tim Hortons Annual Report.
Toronto Sun. (2014, Feburary 25). Retrieved from Tim Hortons to open 800 restaurants under new strategy: http://www.torontosun.com/2014/02/25/tim-hortons-to-open-800-stores-under-new-strategy
Weisblott, M. (2014, February 25). Tim Hortons announces 5-year plan: ‘We are setting out to be bold, different and daring’. Retrieved from O Canada: http://o.canada.com/business/tim-hortons-liveblog/…...

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