A Timbit of Trouble

570 News in Toronto reports that Tim Horton’s franchise owners have launched a near $2-billion lawsuit claiming lost profits since the iconic Canadian company switched from fresh-baked to frozen donuts. The $1.95-billion suit is scheduled to go to court in November and it has even divided franchisees, as a large group of store owners is trying to stop a smaller group from following through on the lawsuit.

“It really plays out as a battle between those ‘old school’ guys who were loyal to the Ron Joyce era and Ron Joyce himself against some of the newer store owners who have come in under the new guard in the last 10 or 15 years,” explains Michael Friscolanti, senior writer for Maclean’s, where the story appears this week.

Joyce, a co-founder of the Tim Horton’s chain, revealed in 2003 that the company had stopped baking donuts on-site and had instead turned to the “par-bake” method where a donut was 95 per cent prepared, flash frozen, and then later re-heated for sale.

At the root of the lawsuit is the cost of these new donuts. The plaintiffs in the case allege the company told them it would cost no more than 12 cents per donut, while the true cost today (according to Tim’s) is 17.9 cents. One franchise owner claims that increase cost him as much as $57,000 in profits at one store.

“What you have here is this classic case of a few disgruntled franchisees who are saying we’ve lost some money (and) Horton’s needs to pay us back some of this money that we’ve lost,” Friscolanti tells 570′s Gary Doyle Show. “And at the same time you have a much larger group of franchise owners who have come forward to say ‘no, no’ no, that’s totally wrong, we’re doing very well.’ ”

Friscolanti says the concern of the franchise owners opposed to the lawsuit is that trade secrets and their bottom line will become public fodder, making them appear greedy. There is also concern over negative media coverage of the iconic restaurant chain.

One of the franchise owners opposed to the lawsuit is Graham Oliver, who owns five Tim’s stores in Kitchener. In an affidavit obtained by Maclean’s, Oliver writes “I do not agree with many of the material allegations and claims advanced by the plaintiffs. In fact, they are patently wrong and cannot be supported. Negative publicity has the potential of tainting the public image of the Tim Horton’s brand, which is vital to our business.”

To read Friscolanti’s full story in Maclean’s, click HERE.

A Cup Good to the Last Drop-off

Jenn Abelson reports in the Boston Globe that Coffee rivals join forces in quest for perfect green container. For more than four years, Hellyar, supply chain manager for Dunkin’ Donuts, has hunted for an alternative to the much maligned Styrofoam cup — long enough to earn him the nickname “Joey Cups.’’ The ideal container would have to be recyclable or compostable, keep coffee hot, and not cost franchisees too much.

It might as well be the Holy Grail. Neither Joey Cups and his team of 12, nor anyone else in the industry, has been able to find it.

So now they have decided to join forces. For the first time, Dunkin’, Starbucks, and Tim Hortons are working together to conquer the sustainable container. On Earth Day this April, the competitors convened with cup manufacturers, waste haulers, and municipal officials at a cup summit held at MIT. Since then, they have been sharing prototypes of innovative designs, researching ways to make it financially worthwhile for communities to recycle used coffee cups, and designing a pilot program for a waste-free zone at Faneuil Hall Marketplace where everything would be recycled or composted.

“We are fiercely competitive but we really want to differentiate ourselves on the quality of our product and level of service in stores,’’ said Jim Hanna, director of environmental impact at Starbucks, which hosted the cup summit. “Sustainability is a problem we all have to solve together.’’

Many consumers (and even some coffee executives new to the struggle) think there is an easy answer: switch to paper. But it’s not that simple. It takes roughly 20 million trees and 12 billion gallons of water to manufacture the 58 billion paper cups that end up in the trash every year. Most communities do not have the means or equipment needed to recycle these cups, which involves separating the paper container from the wax-like inner lining that prevents your java from leaking out.

Even the compostable cups of Green Mountain Coffee, known as ecotainers, fall short of perfection because they can only be composted at a few commercial facilities, not in backyard composters.

There are also limitations on materials used to create environmentally friendly cups. The US Food and Drug Administration restricts how much post-consumer recycled fiber can be used in products that come in contact with food. Other cutting-edge containers can’t be readily manufactured in the amounts needed by coffee chains, or they fail to meet performance standards.

One time, Hellyar brought some new cups made of eco-friendly materials to Dunkin’s quality assurance lab to test them out. He poured a fresh hot brew in them and returned to his desk. A few minutes later, a research and development worker came running after him, cursing that two dozen coffee cups were leaking all over the lab.

Read more at: Boston Globe

Tim Hortons Sells Interest in Bakery to Partner

Sunny Freeman reports in The Canadian Press that Tim Hortons announced Thursday morning it is selling its 50 per cent interest in Maidstone Bakeries of Brantford, Ont. to joint venture partner Aryzta AG for $475 million after the Swiss company invoked a contract provision forcing Tims to buy or sell the stake.

The iconic fast food company, headquartered in Oakville, Ont., will return the $475 million that it will receive from the sale to shareholders, though the company is not yet sure how, its CFO Cynthia Devine said in an interview Thursday.

“We really just finalized it with our partners yesterday… and we’ll review various alternatives to return value to our shareholders,” she said.

President and chief executive Don Schroeder said the decision to sell the stake came after realizing the bakery was of “much greater economic value” to Aryzta, which provides specialty baked goods to restaurants around the world.

“Because of the international nature of this relationship, the value that we put on the facility was greatly different than what our partner Aryzta was able to put on it,” he said.

Brian Yarbrough, a retail analyst at Edward Jones said the company will likely do a share buyback, raise its general dividend, or issue a special dividend.

“That’s a pretty big announcement because if they buy back a bunch of stock that’s accretive, if they pay a big one time shareholder dividend, that’s nice for shareholders,” he said.

Tim Hortons shares rose steadily by seven per cent or $2.48 to $37.92 Thursday on the Toronto Stock Exchange. That was the highest the stock has traded at since January 2008.

Devine noted that the company is flush with cash and doesn’t need to use money from the Maidstone sale to fund planned international expansion.

The company has said it would publicly announce its next steps in the second half of this year after updating its board of directors on the strategy in June. Those discussions will continue at a meeting in November, Schroeder said.

“Because the playing field is littered with companies that rushed in and did the wrong thing, we are taking our time we’re doing the appropriate research, so that when we finally make a decision in any regard it will be the right one,” he said.

Schroeder noted that Tims still has supply agreements for donoughts and Timbits to be produced at the Brantford, Ont., bakery until at least early 2016.

“Given the fact that we have an extremely good supply agreement that was negotiated a number of years ago that clearly provides appropriate protection for our store owners in terms of pricing and source of quality supply,” Schroeder said.

He added that nothing will change operationally at the facility, where employees have been “virtually part of the Tim Hortons family,” since the facility opened in 2002.

“We see no reason why we won’t be able to work with them in the same way for years to come.”

Maidstone currently operates at only 55 per cent of its capacity as Tim Hortons is its sole customer. But Aryzta said Thursday it is looking to expand capacity at the bakery and pursue agreements with other restaurants.

“Arytza will be in a position to market Maidstone’s spare capacity across all its customer channels …This increased capacity utilization will unlock value for Aryzta from its investments in Maidstone,” it said in a statement.

Read More at: The Canadian Press

Tim Hortons U.S. Prototype Opens in Dayton, Ohio

A quick-service restaurant institution from Canada has targeted the Dayton region to test its new concept stores.

Tim Hortons, one of the largest restaurant chains in North America, has recently renovated two of its Dayton-area restaurants with a new format and now seeks to gauge the results.

Depending on the success of these two stores, the company will make adjustments and then roll the concept out to at least 10 more locations in the U.S. this year.

The two stores, one in Troy and another in Bellefontaine, got upgraded chairs, digital menu boards, fireplaces, and an open concept that allows for more interaction between the customers and employees making doughnuts and coffee.

Read more: Tim Hortons U.S. prototype opens locally – Dayton Business Journal  (Subscription required)

A look at the fastest-growing chains

Mark  Brandau of Nation’s Restaurant News reports that the annual Technomic Top 500 report found that 2009 was a brutal year for the industry’s largest concepts, with aggregate systemwide sales for the largest chains falling 0.8 percent. Upstarts, however, including Five Guys, Noodles & Company and Potbelly Sandwich Works, were able to post double-digit increases in sales.

Data compiled by the Chicago-based consulting firm revealed that the 500 largest restaurant chains posted aggregate annual sales of $230 billion, down almost $2 billion from a year earlier. In 2008, aggregate systemwide sales for the group had increased 3.4 percent. Many concepts halted expansion plans and closed underperforming locations, resulting in an anemic 0.3-percent increase in unit growth, compared with 1.8 percent growth in 2008.

“As the U.S. economy remained in a recession, restaurant operators continued to face a host of challenges, including cost pressures followed by declines in consumer dining demand,” Ron Paul, president of Technomic, said in a statement. “The data in this report clearly supports what we’ve been hearing in our consumer research surveys over the past year.”

Paul told attendees at the annual UCLA Extension Restaurant Industry Conference last week that growing sales in 2010 likely would remain difficult as unemployment and underemployment are expected to stay near current levels for the rest of the year. [Earlier coverage: Recovery in 2010? Maybe not]

Technomic also found that the country’s 500 largest chains performed better abroad than in the United States. International sales for the Top 500 brands grew 3.3 percent in 2009, and international unit expansion was 5.2 percent.

While the top 500 chains struggled as a whole in 2009, certain brands and industry segments bucked the trend with growth in sales and locations.

The 10 fastest growing chains with 2009 sales over $200 million

Ranked by largest percentage sales increase with concept name; 2009 U.S. systemwide sales; % sales increase
•Five Guys Burgers and Fries; $453 million; 50%
•Tim Hortons; $446 million; 23%
•Buffalo Wild Wings Grill & Bar; $1,496 million; 22%
•Jimmy John’s Gourmet Sandwich Shop; $602 million; 21%
•Wingstop; $307 million; 20%
•Noodles & Company; $230 million; 15%
•BJ’s Restaurants & Brewhouse; $430 million; 14%
•Chipotle Mexican Grill; $1,517 million; 14%
•Firehouse Subs; $206 million; 10%
•Potbelly Sandwich Works; $246 million; 10%

Source: Technomic Inc.

Read more: Nation’s Restaurant News

Tim Hortons Plans 900 New Sites By 2013

Judy McKinnon, of  Dow Jones Newswires reports that Tim Hortons Inc. (THI) plans to open about 900 locations in North America by 2013, including about 600 in Canada, and is forecasting 2010 earnings of C$1.95-C$2.05 a share, well ahead of the C$1.64 a share it recently reported for 2009.

The big coffee and doughnut chain said new locations in Canada will focus on growth markets in Quebec, western Canada and major urban locations, as well as Ontario. The company had about 3,000 stores in Canada at the end of 2009 and sees potential for another 1,000 across the country.

U.S. expansion will focus on existing regional markets in New York, Ohio and Michigan. It plans to differentiate its brand through a new concept restaurant design to be piloted in at least 10 existing locations. The new concept features a “dramatic re-imaging” to define itself as a cafe and bake-shop destination.

At an investor conference, the company said a key part of its U.S. strategy is to become “famous” for its core coffee and baked goods, and so it will add the words “Cafe & Bake Shop” to its logo. “We have to call out what we are,” said David Clanachan, chief operations officer for U.S. and international at Tim Hortons.

He said the company’s new U.S. store concept will have the feel of a cafe inside and out, with goods baked before customers' eyes, equipment moved out of the way to create more opportunities for interaction with staff, and tables and chairs that aren’t fastened together or to the floor.

The company also plans to complement its standard restaurant-development activity in Canada and the U.S. with non-standard formats and locations, extending its reach in hospitals, universities and colleges, airports and other non-traditional sites.

As part of its overall development strategy, Tim Hortons will target smaller communities in Canada, mostly with standard restaurants, though it will also test a new, flexible restaurant design in these communities.

The chain will extend its co-branding initiative with Cold Stone Creamery and plans to convert up to 60 locations in Canada in 2010 to include the Cold Stone Creamery concept. In the U.S., it plans to co-brand 15 to 20 existing locations and open 10 to 15 new restaurants as co-branded locations in 2010.

It's also exploring the idea of co-branding with other companies.

For 2010, Tim Hortons is also projecting operating income growth of 8% to 10% and same-store sales growth of 3% to 5% in Canada and 2% to 4% in the U.S. Capital spending for 2010 is projected at C$180-C$200 million.

Beyond 2010, it’s targeting share earnings growth of 12% to 15% on a compound annual average growth rate basis from 2011 to 2013.

Executives said that, while Tim Hortons does most of its business in the morning and snack periods, it sees room for growth at all times of day, notably lunch and dinner through the launch of new products that appeal to its “on-the-go” customers.

In Toronto Friday, Tim Hortons is up 81 Canadian cents to C$32.73 on 723,000 shares.

Tim Hortons Plans Menu Expansion to Compete with Starbucks, Dunkin’ Donuts

The New York Daily News reports that Tim Hortons is brewing up a fresh strategy to take on Starbucks and Dunkin’ Donuts.

The big Canadian coffee chain said Friday it would open hundreds of new cafés, including in New York City, that break the mold of Tim’s iconic coffee shops north of the border.

Tim Hortons already has 11 shops in the city – nine in Manhattan and two in Brooklyn.

As part of a plan to open 900 stores in North America over the next three years, the company said it will build 300 more outlets in the U.S. That will increase its total of U.S. stores by more than 50%.

Rather than sticking with a format that has become a part of Canadian culture, Tim’s said it would open what it described as “redesigned upscale café/bake shops” that feature a menu that differs from the Canadian fare, including pastries baked on premises.

“The bottom line is that the Tim Hortons you know today will be dramatically different in four years from now,” CEO Don Schroeder said.

The company told industry analysts Friday it would locate the 300 new cafés in parts of the U.S. in which it already had a presence – mostly in New York, Ohio and Michigan.

“They are making the right move by targeting current markets. You just can’t continue to throw more stores out there. It’s like throwing bad money after bad money,” Edward Jones analyst Brian Yarbrough told Reuters.

Tim Hortons currently has 3,015 shops in Canada and 563 in the U.S. Those numbers pale compared with Starbucks, which has more than 11,000 outlets in the U.S. alone, and Dunkin’ Donuts, which has 6,400 in its home market.

Also for 2010, the company expects sales at stores open for at least a year to increase by 3% to 5% in Canada and by 2% to 4% in the U.S.

Read More:  New York Daily News

Tim Hortons Profit Rises, Boosts Payout

The Canadian Press reports that Tim Hortons Inc. THI-T brewed up a bigger profit in its latest quarter and is preparing to serve up higher dividends for its shareholders.

The Ontario-based restaurant company says it has boosted the dividend range and will raise its quarterly payout by 30 per cent, to 13 cents per common share.

The coffee, doughnut and sandwich chain also says it will use some of its cash to buy back shares from the open market.

Tim Hortons had profit of $91-million, or 51 cents per diluted share in the fourth quarter – a 32-per-cent gain from the year-earlier profit.

Revenue increased by 9.2 per cent, to $615.3-million in the three-months ended Dec. 31 from $563.7-million a year earlier.

Tims says sales at its stores accelerated each month of the quarter and the momentum continued into the current year.

Same-store sales, which compare locations open for at least a year, were up 3.4 per cent in Canada during the quarter.

Same-store sales growth was somewhat slower for Tim Hortons in the United States – rising by 2.1 per cent.

Tim Hortons Bets on Michigan Expansion

Jennifer Youssef  of The Detroit News reports that as Starbucks Corp. shutters stores in Michigan — seven closed last year and 11 more are on the chopping block — Canada’s Tim Hortons Inc. is moving in to serve coffee-drinkers left in the lurch.

Tim Hortons has 125 stores in Michigan, including 93 in Metro Detroit, and plans to open more here, though officials wouldn’t disclose details of the expansion plan. The company also has stores in Flint, Saginaw and Lansing. It employs about 2,000 workers in the state.

Two weeks ago, the Canadian company signed an agreement with the Red Wings for the exclusive “pouring rights” at Joe Louis Arena, meaning only Tim Hortons can serve coffee there, said David Morelli, director of public affairs for the company based in Oakville, Ontario, a suburb of Toronto. Last year, it signed a similar deal with The Palace of Auburn Hills.

The company has existed since 1964 and has been growing steadily, Morelli said. Store sales in 2008, the latest annual figures available, topped $4 billion.

It’s uncommon for national restaurant chains to be expanding in Michigan now, said Andy Deloney, vice president of public affairs for the Michigan Restaurant Association. But Tim Hortons’ emphasis on value is a quality Michigan customers are demanding.

“There’s something they see in Michigan that says ‘This is right for us,’ ” Deloney said. “Success is a gamble, but companies will do their research and do whatever they can to compete.”

“They’re placing a bet on Michigan and I hope their bet pays off,” he said.

Company officials are confident the coffee and baked goods chain will do well in the Michigan market. David Clanachan, Tim Hortons chief operations officer for the United States and internationally, said he was aware that Starbucks closed three stores in Detroit last year and also announced in 2009 that it would close 18 stores in the state, but he is confident Tim Hortons won’t face the same fate.

Unlike Starbucks, which has limited food choices, he said, Tim Hortons has “the right menu mix” of breakfast foods, soups and other lunch items, as well as coffee, all for an affordable price. Plus, the company already has many loyal customers in Michigan and retail space that was previously occupied by other businesses is available for Tim Hortons stores to move in, he said.

“We’re very positive about our position in the Michigan market and our progression there,” he said. “We think we fit the bill.”

Walter Bender, owner of four Tim Hortons stores in Metro Detroit, fell in love with the eatery as a high school student in Detroit and used to cross the border into Canada to go there. He opened his first store in 2008 in Warren and has two in Detroit — both of which have moved into space vacated by Starbucks — and one in Harper Woods.

“It’s been going great,” said Bender, who employs about 70 people. “Business is growing, it’s picking up every day.”

He said he has a “very loyal” customer base and new customers stop into his stores all the time, he said. Customers are always commenting on how good the food and coffee taste and what a good value they got, he said.

“I’m living a dream,” he said.

 From The Detroit News: http://www.detnews.com/article/20100223/BIZ/2230330/Tim-Hortons-bets-on-Michigan-expansion#ixzz0gMKxLmeC

Tim Hortons Arriving in Capital Area — at UAlbany

Steve Barnes reports at The Times Union that Tim Hortons, a 46-year-old Canadian chain of coffee and doughnut shops, will open its first Capital Region location in the fall, at the University at Albany’s Campus Center.

The arrival seems a likely indicator of more local Tim Hortons to come, in plazas and as standalone stores, given the company’s precedent of growth once it moves into a region. Elsewhere in the state, there are dozens of shops from Syracuse to Buffalo, eight Manhattan locations and one in Plattsburgh. The chain includes 2,800 stores across Canada and 500 in the U.S.

The detail about Tim Hortons at UAlbany is included in the current isue of the Albany Student Press, the campus newspaper. The coffee shop and a Cold Stone Creamery are being built in a Campus Center space that currently houses a spot called Corner Cafe, according to the report.

Tim Hortons will be open to the public, though I don’t envision anyone who isn’t already on campus being a customer. During the day, finding a free parking spot or paying for parking then hiking across campus to get a cup of coffee is the opposite of convenience, especially when there are Dunkin’ Donuts locations on the main roads flanking UAlbany’s north and south sides.

I’ve never been to a Tim Hortons. Is it just another Dunkin/Starbucks?

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