Tim Horton's

HBP# HEC275
Volume 19
Issue 1
March 2021
The International Expansion of Tim Hortons

Case prepared by Diorgenes Fernando BELLINI1 and David PASTORIZA2
In 2014, Tim Hortons, a fast-food chain serving coffee, doughnuts, and other fast-food items, was
the largest quick-service restaurant in Canada. Wendy’s International Inc. had acquired the
company in 19953 and, in 2014, U.S.- and Brazil-based 3G Capital had merged it with Burger
King under a new parent company, Restaurant Brands International (RBI). At the time of its
acquisition by RBI, Tim Hortons held a 75% share of Canada’s caffeinated-beverage market and
was one of the country’s top ten companies or brands in terms of its reputation among
consumers4 – due in part to its fiercely cultivated Canadian identity and its engagement with local
communities. Seeing a growth opportunity, 3G Capital had decided to expand the iconic
Canadian brand into new, high- growth international markets.5 While 3G announced plans to
open restaurants in select countries in Latin America, Europe, and Southeast Asia,6 it also
targeted two other objectives deemed essential to the long-term success of its internalization
strategy: increasing Tim Hortons’s presence in the United States and entering the Chinese
market.
By late 2019, however, Tim Hortons was far from the global winner envisioned by 3G Capital in
2014.7 In the U.S., the company had failed to significantly increase the chain’s presence, with
cumulative sales down 17%.8 Many restaurants had closed, and most surviving businesses were
concentrated in northeastern cities near the Canadian border;9 the company had been forced to
exit numerous locations dominated by Starbucks and Dunkin’ Donuts, two heavyweight
American competitors, and a group of dissatisfied franchisees had filed a lawsuit alleging price
gouging and equity theft.10
1
Diorgenes Fernando Bellini is a senior consultant at FAI Consultoria in Brazil.
2
David Pastoriza is an associate professor in the Department of International Business at HEC Montréal.
3
The merger between Tim Hortons and Wendy’s lasted just over a decade before Tim Hortons was spun off and the relationship
ended.
4
Marina Strauss, “Tim Hortons slides from fourth to 50th in brand reputation survey”, The Globe and Mail, April 5, 2018.
5
RBI, Restaurant Brands International, Inc. 2014 Form 10-K Annual Report, p. 5, February 12, 2015. Retrieved February 2019
from http://www.rbi.com/Cache/1001217624.PDF?O=PDF&T=&Y=&D=&FID=1001217624&iid=4591210.
6
Harmeet Singh, “Tim Hortons is going to Spain”, strategy. August 2, 2017.
7
RBI, Restaurant Brands International Investor Day, pp. 59-65, May 15, 2019.
8
https://www.restaurantbusinessonline.com/financing/why-cant-tim-hortons-work-us
9
Jonathan Maze, “Why can’t Tim Hortons work in The U.S.?” Restaurant Business, May 16, 2019.
10
The Canadian Press, “U.S. Tim Hortons franchisee group sues RBI over alleged price gouging, equity theft”, CBC News, July
24, 2018.
© HEC Montréal 2021
All rights reserved for all countries. Any translation or alteration in any form whatsoever is prohibited.
The International Journal of Case Studies in Management is published on-line (http://www.hec.ca/en/case_centre/ijcsm/), ISSN 1911-2599.
This case is intended to be used as the framework for an educational discussion and does not imply any judgment on the
administrative situation presented. Deposited under number 9 00 2021 001 with the HEC Montréal Case Centre, 3000, chemin de
la Côte-Sainte-Catherine, Montréal (Québec) H3T 2A7 Canada.
In China, the plan had been to open more than 1,500 restaurants over ten years 1 but, by 2019,
several major international brands were already present in the Chinese market. Starbucks, which
had seen its growth slow in major U.S. cities, had opened 3,400 outlets in the country and signed
a preferred partner agreement with e-commerce giant Alibaba to expand delivery services
nationwide.2
On the domestic front, Tim Hortons had also encountered major setbacks. 3G Capital’s
acquisition model, based on staff downsizing, cost-cutting, and increased franchisor returns,
created numerous conflicts. Issues ranging from the brand’s damaged reputation to a franchisee
dispute led to several multimillion-dollar lawsuits against RBI, Tim Hortons’s parent company,
and both consumers and the media began to question Tim Hortons’s new management. The
criticism intensified when the company announced near-zero growth in Canada for five
consecutive quarters (late 2016 to early 2018).3
Given these developments, industry analysts wondered how Tim Hortons should expand its
brand. With U.S. consumers loyal to domestic chains and major international brands having
already established a firm foothold in China, it was unclear whether Tim Hortons should focus on
growing the brand internationally or simply focus on defending its home market. Perhaps the
business model that made Tim Hortons an iconic brand in Canada was not transferable to
international markets. Additional questions were raised in December 2019 following the
announcement that Alex Macedo, president of Tim Hortons since 2017 and the driving force
behind its recent international expansion, would be leaving the company. Although Macedo’s
international responsibilities would now be handled by a global leadership team, not having a
single executive accountable for internationalization raised additional concerns about Tim
Hortons’s future.
The quick-service restaurant industry

In 2018, the global quick-service restaurant (QSR) – or “fast food” – industry generated
US$830 billion, with 940,000 restaurants employing 14.3 million people around the world.4 With
a 12.7% market share, McDonald’s was the industry leader, followed by Yum! Brands (owner of
Taco Bell, KFC, Pizza Hut, and WingStreet) 5 with a market share of just 4.9%. In 2018, the four
largest industry players accounted for less than 25% of the global market,6 and the ten largest
firms accounted for less than a third of the global industry. 7 Fast-food restaurants were the most
affordable in the restaurant industry, with average meal prices at U.S. QSR restaurants ranging
from $5 to $8, compared to $12 for fast-casual restaurants such as Chipotle and Panera Bread,
and
$15 for casual dining restaurants such as Olive Garden, Chili’s, and Red Lobster.8
1
Josh Kolm, “Tim Hortons to launch in China”, strategy, July 11, 2018.
2
Lizzy Gurdus, “Starbucks CEO confirms Alibaba partnership, plans to expand delivery to 2,000 stores in China”, CNBC,
August 1, 2018.
3
The Canadian Press, “Tim Hortons sees slow sales for 5th straight quarter amid franchisee dispute”, CBC News, February 12,
2018.
4
IBISWorld database, IBISWorld Industry Report: Global Fast Food Restaurants, April 2019, p. 30.
5
Euromonitor International Passport database, Fast Food Global Overview – Part 1: Value or Premium? April 2017, p. 9.
6
IBISWorld database, April 2019, op. cit., p. 17.
7
© HEC 2
Montréal
8
Melanie Bradley, “The difference between QSR, fast casual & casual dining”, ParTech Blog, June 19, 2018.
© HEC 3
Montréal
Geographically, the quick-service restaurant industry was concentrated in countries with high
population density and high disposable income.1 In 2019, North America was expected to
account for 35% of global revenue, Europe for 14%, and Oceania for 2%. In the coming decade,
however, Asia – which accounted for 38% of global revenue that year – was expected to be the
epicentre of the fast-food industry. Burger chains represented the largest market segment at 27%,
followed by Asian foods at 24% and bakery products at 14%.2
The largest growth seen in the fast-food industry was in the Asian fast-food segment in the Asian
Pacific, which had surged $24 billion at a 7% annualized rate between 2014 and 2019. The
second major source of growth was the North American burger segment, which had grown $12.6
billion at a 4% annual rate during that same period. Bakery products were the industry’s third-
largest growth engine, growing by $7.8 billion at a 5% annualized rate during the same period.3
Franchising was a widespread growth strategy, although its prevalence varied by food segment:
only 11% of Asian-style restaurants were part of a fast-food chain, compared to 80% of burger
joints.4 Most franchisees were responsible for both developing their own outlets and managing
their day-to-day operation. Franchisors retained control over strategic decisions, including
pricing, product development, promotions, and restaurant design. New franchisees were usually
expected to pay a “buy-in” fee (ranging from US$15,000 for Subway to US$45,000 for
McDonald’s),5 as well as a percentage of sales, and to contribute to a centralized marketing fund
for national advertising campaigns. Some franchisors owned the land and buildings housing the
franchised restaurants, allowing them to charge rent.6
With globalization, the role of franchising also expanded. Apart from acting as outlet operators
and sources of growth capital, international franchisees were also strategic partners, providing the
knowledge of local markets required by global chains. The importance of these strategic partners
led to the development of the master franchise agreement (MFA) – a type of agreement giving
the master franchisee the right to own and operate more than one establishment in a specific area
(usually an entire country) and the right to sub-franchise the right to open establishments to other
independent businesses (franchisees). Master franchisees also helped master franchisors to adapt
their menus and brand to local tastes, to secure the best locations for new restaurants, and to
provide support for local franchisees.7 Major industry players used master franchise agreements
to quickly expand their operations internationally, to learn about new markets, and to reduce the
costs associated with expansion.
1
IBISWorld database, April 2019, op. cit., p. 13.
2
3
Euromonitor International Passport database, A New Era of Growth and Competition: Global Consumer Foodservice in 2015
and Beyond, August 2015, p. 20.
4
5
Don Daszkowski, “Most popular food franchises and how much they cost”, The Balance Small Business, November 20, 2019.
6
Euromonitor International Passport database, Master Franchisees: The New Power Players in Global Foodservice,
February 2015, p. 5.
7
Ibid., p. 12.
© HEC 4
Montréal
The cost structure of a typical franchised restaurant1 is composed of the following variable and
fixed costs:
1. Supplies: food and beverages are a restaurant’s main costs, accounting for roughly
35% of its revenue
2. Labour: labour costs vary significantly, ranging from almost 40% in some developed
countries to less than 15% in most developing countries
3. Rent and utilities: rent and utilities combined generally account for 12% of revenue
4. Franchise fees: franchise fees generally account for 3–5% of revenue
5. Other costs: administrative costs, depreciation costs, and payments to the advertising
fund account for roughly 25% of revenue.
In 2019, a typical franchised quick-service restaurant could expect its profit margins to be about 7
or 8%.
Tim Hortons
Tim Hortons was founded in 1964 by Miles Gilbert “Tim” Horton, a professional ice hockey
defenceman and National Hockey League (NHL) player.2 His first restaurant, opened in
Hamilton, Ontario, served coffee and two types of doughnut.3 Within just three years, Horton had
opened two more restaurants.4 In 1964, Ron Joyce – one of Tim Hortons’s first franchisees –
became a full partner in the business, aiming to accelerate the chain’s expansion across the
country. Over the next seven years, the two partners opened thirty-seven more restaurants. After
Horton died in 1974,5 Joyce purchased Horton’s share of the business from his widow, becoming
the company’s sole owner in 1975.6
Over the next four decades, the company grew fast, and, by 2013, it was the largest quick-service
restaurant in Canada in terms of both sales and restaurants.7 In Canada, the chain boasted one
Tim Hortons restaurant for every 9,800 people, compared to one Starbucks for every 42,431
people in the U.S. Its franchising strategy was based on a decentralized network of small-scale
franchisees operating an average of three or four restaurants with the support of headquarters.
Each of the 3,630 Canadian restaurants – 99.6% of which were run by franchisees 8 – generated
average sales of Can$2.2 million, with total annual sales of over Can$7 billion.9
1
Adapted from IBISWorld database, April 2019, op. cit., p. 18.
2
Stu Hackel, “Tim Horton: 100 Greatest NHL Players”, NHL.com, January 1, 2017.
3
Tim Hortons, Our Story. n.d., retrieved January 2019 from https://www.timhortons.com/us/en/corporate/our-story.php
4
The Globe and Mail, “A brief history of Tim Hortons”, The Globe and Mail. Retrieved January 2019 from
https://www.theglobeandmail.com/report-on-business/a-brief-history-of-tim-hortons/article20392885
5
Tim Hortons, 2013 Tim Hortons Annual Report on Form 10-K, p. 5, February 24, 2014, retrieved February 2019 from
http://m3.ithq.qc.ca/collection/00000152.pdf
6
The Globe and Mail, “A brief history of Tim Hortons”, The Globe and Mail, February 7, 2007.
7
8
Ibid.
9
RBI, Creating a Global QSR Leader [internal presentation], August 26, 2014, retrieved January 2019 from
https://www.rbi.com/Cache/1001218284.PDF?O=PDF&T=&Y=&D=&FID=1001218284&iid=4591210, p. 8.
© HEC 5
Montréal
Franchisees were generally housed in commercial spaces developed and owned by Tim Hortons,
generating rental income for the company. In Canada, this income came from a combination of
fixed rent and percentage rent ranging from 8.5% to 10% of gross franchise sales. In 2013, rental
fees and royalties generated over Can$820 million, accounting for nearly 25% of total revenue. 1
New franchisees also paid a one-time franchise fee of Can$50,000, 2 with additional fees payable
every time their restaurant was renovated or sold. The standard term of a license agreement was
ten years plus one renewal period of ten years less one day at the option of the franchisee. In
2013, these franchise fees generated another Can$168 million, 5% of the company’s total
revenue.3
Over time, Tim Hortons’s menu had been expanded to appeal to a broad range of consumer
tastes. In addition to regular coffee and doughnuts, the menu now featured numerous other
items, including premium blend coffees, teas, smoothies, wraps, yogurt, sandwiches, and
baked goods. Tim Hortons provided nearly all their supplies to franchisees through an extensive
supply chain, including coffee roasting plants in Ontario, where the coffee served in its
restaurants and the packaged coffee sold by retail stores was blended,4 and a manufacturing
facility in Ontario, where the fondant, fills, and ready-to-use glaze used in its products was
produced. In 2012, Tim Hortons had made further inroads into retail by introducing single-serve
premium-blend coffee, decaffeinated coffee, and lattes to be sold primarily at Tim Hortons
restaurants in Canada and the U.S. In 2013, the company had expanded its retail offering by
introducing Tim Hortons RealCup, a single-serve coffee cup to be sold at retail locations in both
Canada and the U.S. In 2013, the company generated over Can$1.8 billion from the manufacture
and distribution of supplies and the sale of retail products, accounting for 57% of total revenue. 5
This vertical integration facilitated quality control and product consistency across restaurants.6
Tim Hortons’s menu items were priced lower than those of competing chains, which targeted
higher-end consumers, and its beverage customization was also more limited. While Tim
Hortons’s customers could choose between milk and/or cream and sugar or Splenda,
customers at higher-end chains enjoyed a wide range of customization options, including
premium coffees, different types of milk, hot or iced drinks, shots of espresso or syrup, and
decaf. On the other hand, Tim Hortons’s food menu tended to be more extensive than those of
high-end chains such as Starbucks, including soups, custom-made sandwiches, and chili,
requiring a mechanism to keep food hot, which was not needed by other chains. At a typical Tim
Hortons, the same employee would prepare the coffee and work the register, although more
complex food orders would be prepared by a different employee. At some competitors, such as
Starbucks, employees were specialized by task, providing more efficient and personalized
service. Finally, in terms of interior design, menus at Tim
1
Tim Hortons, 2013 Tim Hortons Annual Report on Form 10-K, February 24, 2014, p. 38, retrieved February 2019 from
http://m3.ithq.qc.ca/collection/00000152.pdf.
2
Tim Hortons, Frequently Asked Questions, n.d., retrieved January 2019 from
https://www.timhortons.com/ca/en/corporate/franchise-ca-faq.php
3
4
Ibid., p. 5
5
The remainder of company revenue came from a combination of returns generated by equity investments owned by Tim Hortons
– Can$370 million (US$275 million), representing roughly 11% of revenue in 2013 – and sales from company-operated
restaurants – Can$25 million (US$ 18.5 million), representing less than 1% of revenue in 2013.
6
© HEC 6
Montréal
© HEC 7
Montréal
Hortons’s restaurants were usually posted on bright screen monitors, and tables were illuminated
by overhead lights. This contrasted with some higher-end competitors, which offered a cozy
atmosphere, including artwork on the walls and mood lighting.
In a market populated by large American chains, including Dunkin’ Donuts and Starbucks, Tim
Hortons cultivated a fiercely Canadian identity. Its ads featured hockey and the celebration of
diversity – two sources of Canadian pride.1 The company sponsored community programs such
as youth hockey and children’s camps,2 and its focus on small-scale local franchisees reinforced
its image as a homegrown company with strong ties to local communities. All of this had helped
make Tim Hortons one of the top ten most admired companies in Canada3 and the country’s most
trusted coffee retailer,4 boasting a 75% share of the caffeinated beverage market.5
Acquisition of Tim Hortons

In August 2014, 3G Capital – a Brazilian-American private-equity firm founded in 2004 by a
group of former investment bankers – announced the acquisition of Tim Hortons for $11.4
billion.6 3G Capital’s management philosophy was anchored in the principle of meritocracy, with
an incentive system rewarding top performers with bonuses and shares, and in cost-cutting
policies designed to eliminate unnecessary or wasteful spending.7
Prior to acquiring Tim Hortons, 3G Capital had already made three major acquisitions in the food
and beverage industry. In 2008, InBev – a 3G-controlled beer company – acquired Anheuser-
Busch (owner of Budweiser and Stella) for $52 billion, creating the world’s largest brewer.8 In
2013, with Berkshire Hathaway, it acquired the H.J. Heinz Company (owner of Heinz Ketchup)
for US$28 billion, in the largest acquisition in the food industry’s history.9 In 2010, 3G Capital
entered the quick-service restaurant industry by acquiring Burger King for US$3.3 billion. 10, 11 At
the time, Burger King was struggling to stay afloat, lagging far behind McDonald’s, its greatest
rival, in the internationalization race: while 65% of McDonald’s sales came from abroad,12 only
38% of Burger
1
Joe Friesen, “Tim Hortons: How a brand became part of our national identity”, The Globe and Mail, August 26, 2014.
2
Leslie Patton, “Tim Hortons operators fear chain is losing its Canadian culture”, The Star, July 12, 2017.
3
4
RBI, Creating a Global QSR Leader [internal presentation], August 26, 2014, retrieved January 2019 from
https://www.rbi.com/Cache/1001218284.PDF?O=PDF&T=&Y=&D=&FID=1001218284&iid=4591210, p. 9.
5
Ibid.
6
Michael J. de la Merced and Ian Austen, “Global web of financial connections in Burger King’s deal for Tim Hortons”, New
York Times, August 26, 2014.
7
Samantha Pearson, “Jorge Paulo Lemann, a lean, hungry mogul”, Financial Times, March 27, 2015.
8
Later in 2016, 3G also announced the acquisition of SABMiller for US$ 107 billion, consolidating its position as the number one
brewer in the world, reaching $55 billion in annual sales. Source: Tara Nurin, “It’s final: AB InBev closes on deal to buy
SABMiller”, Forbes, October 10, 2016.
9
Business Wire. “H.J. Heinz Company enters into agreement to be acquired by Berkshire Hathaway and 3G Capital”, Business
Wire, February 14, 2013.
10
Including equity and the assumption of debt, the total value of the deal totalled roughly $4 billion.
11
Julie Jargon and Gina Chon, “BK’s strategy: Play catch up”, The Wall Street Journal, September 3, 2010.
12
Mallory Russell, “How Burger King went from McDonald’s greatest rival to total train wreck”, Business Insider, April 15, 2012.
© HEC 8
Montréal
King’s sales came from its international operations.1 This, along with the 2008 financial crisis in
the U.S., translated into poor financial performance for Burger King: in 2010, it saw a 2.3%
decline in worldwide sales and a 7% decline in profits.2
The steps taken by 3G Capital to turn Burger King around were typical of its modus operandi: it
first focused on cost-cutting measures, the most important of which was a refranchising initiative.
In 2010, Burger King owned and operated 1,387 of its 12,174 global restaurants. 3 By 2013, that
number had dropped to 52.4 This initiative allowed Burger King to reduce its corporate workforce
from 38,884 in 2010 to 2,420 in 2013.5 Other cost-cutting initiatives included stricter budgeting
procedures and selling the corporate jet,6 allowing the company to slash its per restaurant
overhead costs by two-thirds by 2016.7 The second major step was to accelerate Burger King’s
international growth.8 The company signed master franchise agreements giving it a minority stake
in new international ventures in key markets, including Brazil, Russia, and China, in exchange
for upfront equity commitments from its international partners. These partners were, in turn,
given exclusive development rights to and operational control of the Burger King brand in their
local markets.9 As a result, Burger King jumped from 12,174 restaurants in 2010 10 to 17,796 by
the end of 2018.11 (For a comparison of pre- and post-acquisition performance, see Exhibit 1.)
3G Capital’s decision to acquire Tim Hortons was motivated not just by its healthy financial
performance – the company’s revenue exceeded those of Burger King and Dunkin’ Donuts
combined12 – but, as with Burger King, by its internationalization possibilities. According to 3G
Capital’s 2014 annual report, “international activities have not contributed significantly to Tim
Hortons’s financial results. [But] we intend to leverage our master franchise joint venture model,
network of global partners, and experienced global development teams to substantially accelerate
Tim Hortons’s international growth over time and help bring this iconic Canadian brand to the
rest
1
Burger King, Burger King Holdings, Inc. 2010 Form 10-K Annual Report, August 26, 2010, p. 25, retrieved February 2019 from
http://www.rbi.com/Cache/1500094527.PDF?O=PDF&T=&Y=&D=&FID=1500094527&iid=4591210.
2
Burger King, Burger King Holdings, Inc. 2010 Earnings Press Release, August 24, 2010, retrieved February 2019 from
https://last10k.com/sec-filings/1352801/0000950123-10-081065.htm
3
https://last10k.com/sec-filings/1352801/0000950123-10-081065.htm.
4
Burger King, Burger King Holdings, Inc. 2013 Form 10-K Annual Report, February 13, 2014, p. 3, retrieved February 2019 from
https://www.sec.gov/Archives/edgar/data/1547282/000119312514061827/d648966d10k.htm.
5
Ibid., p. 12.
6
Ibid.
7
Jonathan Maze, “How Burger King and 3G Capital are putting pressure on competitors”, Nation’s Restaurant News, November
17, 2016.
8
Michael J. de la Merced, “Burger King agrees to $4 billion private equity offer”, The New York Times, September 3, 2010.
9
RBI, Restaurant Brands International, Inc. 2014 Form 10-K Annual Report, p. 5, February 12, 2015. Retrieved February 2019
from http://www.rbi.com/Cache/1001217624.PDF?O=PDF&T=&Y=&D=&FID=1001217624&iid=4591210
10
https://last10k.com/sec-filings/1352801/0000950123-10-081065.htm.
11
RBI. Restaurant Brands International, Inc. 2018 Form 10-K Annual Report, February 11, 2019, p. 25, retrieved February 2019
from https://www.rbi.com/Cache/1500117588.PDF?O=PDF&T=&Y=&D=&FID=1500117588&iid=4591210.
12
Roberto A. Ferdman, “Tim Hortons makes more money than Burger King and Dunkin’ Donuts, combined”, The Washington
Post, August 26, 2014.
© HEC 9
Montréal
of the world.”1 The acquisition also created a major global player in the QSR space. Together,
Burger King and Tim Hortons – which were brought together under a new parent company,
Restaurant Brands International (RBI) – formed the world’s third largest QSR company, with
systemwide sales of roughly US$ 21 billion, behind only McDonald’s and Yum! Brands. 2 (For
select metrics on Burger King and Tim Hortons at the time of their acquisition, see Exhibit 2.)
Finally, when the acquisition was announced, pundits speculated that the potential for a tax
inversion – establishing RBI’s headquarters in Canada, where corporate taxes were 15% as
opposed to 35% in the U.S. – was also a major driver of the acquisition.3 Although it is not
possible to assess the extent to which tax savings influenced 3G Capital’s decision to acquire Tim
Hortons, the move did result in lower taxes, with the newly established RBI facing a 22%
effective tax rate in its first quarter of operations in Canada compared to the average effective
rate of 27.5% paid by Burger King as a standalone company headquartered in Miami.4
Following the acquisition, 3G Capital also took a series of steps to lighten Tim Hortons’s cost
structure:
1. Downsizing. Analysts estimated that roughly half of all employees at corporate
headquarters were laid off.5 In addition, all of Tim Hortons’s executives were relieved of
their management duties to make room for a 3G Capital-appointed management team.6
Tim Hortons’s managers were replaced with young executives focused on financial
benchmarks.7
2. Cost-cutting. The new management team eliminated what it viewed as wasteful
expenditures – from providing coffee at shareholders’ meetings to the corporate jet 8 –
saving the company US$18 million in administrative costs alone in the first six months. 9
3G Capital also slashed spending on local marketing initiatives10 and on supplies – testing
the removal of porcelain cups from some of its restaurants and replacing them with
cheaper, disposable alternatives.11
3. Increasing franchisor returns. The company increased the price it charged franchisees for
supplies, including everything from sugar to cutlery.12 For coffee alone, each restaurant
had to pay an additional $13,750 per year, on average.13
1
RBI, Restaurant Brands International, Inc. 2014 Form 10-K Annual Report, p. 5, February 12, 2015, retrieved February 2019
from http://www.rbi.com/Cache/1001217624.PDF?O=PDF&T=&Y=&D=&FID=1001217624&iid=4591210.
2
RBI, Creating a Global QSR Leader [internal presentation]. August 26, 2014, p. 18, retrieved February 2019 from
https://www.rbi.com/Cache/1001218284.PDF?O=PDF&T=&Y=&D=&FID=1001218284&iid=4591210
3
Forbes. “Burger King-Tim Hortons cross-border merger much more than tax inversion”, Forbes. August 29, 2014.
4
Jamie Sturgeon, “New Tim Hortons owners slash corporate taxes post-Burger King deal”, Global News, April 27, 2015.
5
Marina Strauss, “Inside the brutal transformation of Tim Hortons”, The Globe and Mail. February 22, 2017.
6
Ibid.
7
Ibid.
8
Peter Henderson, “New Tim Hortons CEO focuses on efficiency, cost-cutting”, The Star, June 17, 2015.
9
James Cowan, “Why foreign ownership has been great for Tim Hortons”, Canadian Business, May 6, 2016.
10
Sylvain Charlebois, “The decline and fall of Tim Hortons: How an iconic brand lost its Canadian identity and why its corporate
masters probably don’t care”, The Guardian, April 24, 2018.
11
Marina Strauss, “Tim Hortons’ cost-cutting efforts could dispose of porcelain mugs”, The Globe and Mail, November 15, 2015.
12
Leslie Patton, “Tim Hortons franchisees fret coffee chain is losing its Canadian culture”, The Seattle Times, July 12, 2017.
13
Ibid.
© HEC 10
Montréal
In 2015, one year after the acquisition, overall sales had risen by 9.3%, thanks to higher same-
restaurant sales and the opening of 155 new restaurants. 1 However, the changes implemented by
3G Capital had also created some difficulties:
1. Lack of support for franchisees. Historically, if franchisees encountered problems (e.g.,
obtaining supplies or HR-related) they could call headquarters to speak to a franchise
manager. Those managers had been with the company for years and had developed
strong, personal relationships with franchisees across the country. As a result of
downsizing, many of those relationships had ceased to exist and it was difficult to provide
the same level of personal attention.2
2. Loss of ties to local communities. Reduced spending on local marketing initiatives
resulted in the elimination of community programs that had helped forge ties with
consumers.3
3. Supply quality issues. Reduced spending on supplies resulted in using cheaper products
and equipment, with franchisees’ complaining that some of the new products did not meet
minimum quality standards (e.g., hot-holding trays that cracked under heat).4
4. Profitability issues. Higher prices for supplies made it harder for franchisees to turn a
profit, particularly those owning a single restaurant. At the same time, headquarters
forbade franchisers from increasing their menu prices. This situation became particularly
tense when Ontario increased its minimum wage to Can$14 an hour – costing an
estimated Can$240,000 a year per franchise5 – and headquarters again refused to allow
Ontario restaurants to increase their prices.
Reactions to these changes were swift. Some consumers and media began questioning whether
Tim Hortons was losing its identity, placing its bottom line above the interests of its employees
and the community.6, 7 In addition, a group of over 1,500 independent franchisees filed two
lawsuits totalling Can$1.35 billion, alleging that the company had breached its obligations to
small franchisees, and that it was trying to drive them out of business.8 A spokesperson for the
franchisees stated that 3G Capital had “turned everything into a profit centre,” and that “you’ve
got three or four generations that have been brought up with Tim Hortons […], we were involved
in the community. All those things that we are famous for – the kids’ camps – those are the things
that make us different than everyone else […] We built this brand one store at a time, and it was
based on that community thing. Somehow, we’ve got to get back to that.”9 Partly as a result of
these
1
RBI, Restaurant Brands International, Inc. 2015 Form 10-K Annual Report, February 12, 2016, p. 36, retrieved March 2019 from
https://www.rbi.com/Cache/1001217622.PDF?O=PDF&T=&Y=&D=&FID=1001217622&iid=4591210.
2
Marina Strauss, “Inside the brutal transformation of Tim Hortons”, The Globe and Mail, November 12, 2017.
3
4
Marina Strauss, “Tim Hortons outlets ‘being destroyed’ by cost-cutting, letter alleges”, The Globe and Mail, March 13, 2017.
5
Aleksandra Sagan, “Ontario’s minimum wage hike will cost the average Tim Hortons franchisee $243,889 this year”, Financial
Post, January 9, 2018.
6
7
Aaron Saltzman, “Tim Hortons heirs cut paid breaks and worker benefits after minimum wage hike, employees say”, CBC News,
January 3, 2018.
8
Hollie Shaw, “Tim Hortons franchisees sue corporate parent for $850M, alleging bullying and intimidation”, October 6, 2017,
Financial Post.
© HEC 11
Montréal
9
Leslie Patton, “Tim Hortons operators fear chain is losing its Canadian culture”, The Star, July 12, 2017.
© HEC 12
Montréal
complaints, Tim Hortons suffered significant damage to its reputation: for the first time in over a
decade, it was not one of the top ten most admired companies in Canada, plummeting to
50th position in 2018.1 The problems soon started translating into poor financial performance,
with the company posting five consecutive quarters of zero growth between the end of 2016 and
early 2018.2
In early 2018, the company implemented three courses of corrective action.
First, it appointed Duncan Fulton, an executive with extensive experience in Canadian retail,3
who the media described as the “gentler, kinder – and very Canadian – face” of Tim Hortons, as
its new COO.4 Second, it launched the “Winning Together” 5 plan, making a series of
commitments to its franchisees, including investing Can$700 million in renovating its restaurants,
decorating them with artwork reflecting Tim Hortons’s values and history, and launching a
marketing campaign highlighting those values (e.g., presenting restaurants as social hubs where
neighbours meet other community members over a cup of coffee). Third, Tim Hortons offered a
settlement to its dissatisfied franchisees – which they accepted and the courts approved in April
2019 – confirming their right to review the company’s advertising spending, agreeing to spend
Can$10 million over two years on local advertising efforts, agreeing not to discourage
franchisees from joining the franchisees’ association, and revoking clauses in franchisee
agreements that prohibited franchisees from negotiating their own insurance and dairy supply
contracts.
International expansion
Alex Macedo had been appointed Tim Hortons’s president in 2017 with a mandate to pursue a
two- pronged strategy: to strengthen the company’s position in Canada while accelerating its
international expansion. The company had high hopes for two markets in particular: the United
States and China.6
United States
In 2019, the U.S. fast-food industry generated $273.2 billion in revenue, 7 with the coffee and
snacks segment alone accounting for $50.7 billion. 8 With over 58,000 coffee and snack shops in
the U.S., the market was thought to be close to saturation,9 and annual growth was expected to
1
2
The Canadian Press, “Tim Hortons sees slow sales for 5th straight quarter amid franchisee dispute”, CBC News. February 12,
2018.
3
Peter Armstrong, “Meet the kinder, gentler – and Canadian – face of Tim Hortons”, CBC News, July 31, 2018.
4
Ibid.
5
David Paddon, “Restaurant brands announces ‘winning together’ plan to improve Tim Hortons”, Financial Post, April 24, 2018.
6
Nichola Saminather, Karan Nagarkatti, “Canada’s Tim Hortons to enter China as it battles slump at home”, Reuters, July 11,
2018.
7
IBISWorld database, IBISWorld Industry Report 72221a: Fast Food Restaurants in the U.S., July 2019, p. 4.
8
IBISWorld database, IBISWorld Industry Report 72221b: Coffee and Snack Shops in the U.S., July 2019, p. 4.
9
Ibid, p. 10.
© HEC 13
Montréal
slow to 1.2% through 2024.1 Strong competition was expected to keep prices low while pushing
companies to offer consumers a wider range of options to increase repeat visits.2
The U.S. coffee shop market was dominated by large brands, with the top three coffee-focused
chains (Starbucks, Dunkin’ Donuts, and Tim Hortons) comprising 68% of the total branded
market, and the following three major players:3
1. Starbucks: With over 14,600 restaurants in the U.S. in 2018,4 Starbucks held a 40% share
of the U.S. branded coffee shop market.5 Starbucks used a hybrid model with both
company-operated stores (80% of revenue) and licensed stores (11% of revenue).6 Over
the years, the chain had built its brand by offering both high-quality products and a high-
end consumer experience focused on making Starbucks a “third place” for customers
between home and work.7 Recently, due to demand stagnation in its traditional U.S.
coastal markets,8 Starbucks had focused on high-growth, low-cost markets in middle
America and the South.9 In 2019, the company announced a partnership with Uber Eats to
deliver its products nationwide.10
2. Dunkin’ Donuts: With more than 9,400 restaurants in 2018,11 Dunkin’ Donuts used a
100% franchise business model. Over the previous decade, the chain had enjoyed annual
sales growth of 5.4%,12 although 95% of its restaurants were in the eastern United States. 13
The company aimed to have more than 18,000 restaurants in the U.S., 14 1,000 of which
would open by the end of 2020, primarily outside its traditional northeastern stronghold.15
3. JAB Holding Company: a German conglomerate headquartered in Luxembourg that,
partly through acquisitions,16 had consolidated several U.S. and international coffee
chains and bakeries over the previous seven years. Its major U.S. brands included Peet’s
Coffee and Tea (240 stores), Bruegger’s Bagels (270 stores), Caribou Coffee (400 stores),
Krispy Kreme (1,000 stores), and Panera Bread (2,000 stores).17
1
Ibid.
2
Ibid.
3
Beth Newhart, “U.S. coffee shop market grows to $45.4bn in 2018”, Beverage Daily, November 6, 2018.
4
Starbucks Corporation, Starbucks Corporation 2018 Form 10-K Annual Report, November 9, 2018, pp. 4-6, retrieved September
2019 from https://s22.q4cdn.com/869488222/files/doc_financials/annual/2018/2018-Annual-Report.pdf
5
Newhart, op. cit.
6
Starbucks Corporation, op. cit., p. 3, November 9, 2018.
7
Ibid.
8
Sarah Whitten, “Here’s how Starbucks plans to boost U.S. sales in five charts”, CNBC. December 14, 2018.
9
Jeff Gelski, “Starbucks details U.S. expansion plans”, FoodBusinessNews, July 30, 2018.
10
Starbucks Corporation, Starbucks outlines growth agenda and announces expansion of Starbucks Delivers in U.S. and China at
2018 Investor Conference, December 13, 2018.
11
Dunkin’ Brands, Dunkin’ Brands 2018 Form 10-K Annual Report, p. 1, February 22, 2019.
12
Ibid.
13
Jayson Derrick, “Did you know that 95% of Dunkin’ Donuts locations are in Eastern United States?” Benzinga, December 19,
2016.
14
Dunkin’ Brands, Dunkin’ Brands Presents Three-Year Plan, February 8, 2018.
15
Ibid.
16
CBInsights, “This secretive German firm is consolidating the U.S. coffee industry”, CBInsights, May 30, 2018.
17
Ibid.
© HEC 14
Montréal
In addition to Starbucks, Dunkin’ Donuts, and JAB Holding Company, other fast-food giants
such as McDonald’s posed a competitive threat in the U.S. market because, although not
specialized in the coffee segment, they sold coffee-based drinks and baked goods in their
restaurants. In fact, it could be argued that McDonald’s was a more direct competitor in North
America than Starbucks since the two had similar customer bases, with similar prices. While a
large latte at Tim Hortons and McDonald’s cost $3.491 and $3.392 respectively, the same drink at
Starbucks cost $4.153 – roughly a 20% difference.
In 1984, Tim Hortons opened its first international restaurant in Tonawanda, New York, 4 near the
Canada-U.S. border. By 2007, after a series of restaurant openings and acquisitions of smaller
coffee-and-doughnut chains,5 Tim Hortons had 398 restaurants in the U.S., the majority of which
were operated by small franchisees. All these restaurants were in the northeast, with a high
concentration in cities near the Canadian border.6 In 2010, after facing competition from
hometown favourite Dunkin’ Donuts, Tim Hortons withdrew from some locations in border
states.7 In 2014, the company announced seven development agreements for over 145 new outlets
over ten years in in New Jersey, Missouri, Ohio, Indiana, North Dakota, Pennsylvania, West
Virginia and New York.8 By the end of 2014, it had reached an all-time high presence in the U.S.
with 884 restaurants, or 19% of all Tim Hortons restaurants.9
Tim Hortons initially tried to implement the same strategy that had worked in the Canadian
market to the much larger market south of the border, with menus and restaurant layouts being
virtually identical.10 In the early 2000s, to pique the curiosity of U.S. consumers, the company
rolled out an ad campaign that – much like its Canadian counterpart – stressed Tim Hortons’s
identity as a Canadian brand. One ad claimed that 15 million Canadians – about half of Canada’s
population – visited a Tim Hortons each week; another claimed that many Canadians wanted to
tie the knot at Tim Hortons.11 Unfortunately, the ads did little to stimulate American interest or
help the brand to expand nationally. As noted by a Tim Hortons spokeswoman, “We did try the
Canadian angle, and it failed, because Americans showed zero interest in what Canadians like.”12
1
Fast Food Menu Prices, Tim Hortons Menu Prices, n.d., retrieved October 2020.
2
Fast Food Menu Prices, McDonald’s Menu Prices, n.d., retrieved October 2020.
3
Fast Food Menu Prices, Starbucks Menu Prices, n.d., retrieved October 2020.
4
Tim Hortons. (n.d.). Our Story, retrieved January 2019 from https://www.timhortons.com/us/en/corporate/our-story.php
5
In 2004, Tim Hortons bought up the bankrupt Bess Eaton Donut Flour Co., a New England coffee-and-donut chain with
48 restaurants throughout Rhode Island, Connecticut, and Massachusetts.
6
Maze, op. cit., May 16, 2019.
7
Tim Hortons, 2010 Tim Hortons Annual Report on Form 10-K, p. 10, February 22, 2011, retrieved September 2019 from
https://www.sec.gov/Archives/edgar/data/1345111/000119312511047696/d10k.htm.
8
Hollie Shaw, “Tim Hortons makes inroads in U.S. as combo meal deals pick up”, Financial Post, November 5, 2014.
9
RBI, Restaurant Brands International, Inc. 2014 Form 10-K Annual Report, p. 5, February 12, 2015, retrieved February 2019
from http://www.rbi.com/Cache/1001217624.PDF?O=PDF&T=&Y=&D=&FID=1001217624&iid=4591210
10
Tim Hortons, 2008 Tim Hortons Annual Report on Form 10-K, p. 5, February 20, 2009, retrieved September 2019 from
11
Paul Hiebert, “Can you sell Americans on Canada?” The New Yorker, May 21, 2014.
12
Ibid.
© HEC 15
Montréal
Starting in 2008, the company tried to jumpstart its expansion efforts by establishing its own
brand identity in the U.S.1 It launched a series of ads highlighting the quality of its products (e.g.,
the thickness of its bacon slices and freshness of its salads),2 changed its U.S. name to Tim
Hortons Cafe & Bake Shop, to clarify what type of restaurant it was, 3 and adapted its menu to the
U.S. market.4 Menu changes included the introduction of an egg-white breakfast sandwich, lunch
paninis, frozen hot chocolate, spinach and egg white hand-held pies,5 and even Mac & Cheese.6
Despite these initiatives, Tim Hortons saw its U.S. sales begin to fall in 2015. By 2019,
cumulative sales had plummeted 17%, the company had retreated from numerous locations, and
over 200 restaurants had been closed.7 While the company still had over 650 restaurants in 16
states, the majority were concentrated in the Northeast (New York), and the Midwest (Michigan
and Ohio).8 After two lawsuits were filed, the company also faced legal issues in the U.S. The
first one, in late 2018, claimed that Tim Hortons was overcharging for food and paper, as well as
placing unusual restrictions on franchisees’ ability to resell their restaurants. 9 The second one, in
early 2019, accused the company of price gouging and false and misleading representation.
Specifically, the suit alleged that the plaintiff never saw the anticipated income that Tim
Hortons’s financial disclosures showed “because those numbers were flawed, incomplete and
lacked crucial variables.”10 The second lawsuit was not filed by a small franchisee, but by a
master franchisor with no previous experience in the business who had committed to developing
280 restaurants in Minnesota.11
China
In 2019, China’s fast-food industry was expected to post revenues of $177.6 billion, with annual
growth of 6% through 2024.12 The coffee and tea restaurant segment was expected to post
revenues of $2.5 billion in 2019, with annual growth of 4.7% through 2023.13 Industry analysts
predicted the entry of new international players, leading to increased competition and a growing
number of players reaching less saturated regions of China (i.e., second-tier and third-tier
cities).14 Industry
1
Ibid.
2
Ibid.
3
Ibid.
4
The Canadian Press, “Tim Hortons says it needs to think like an American to sell to U.S. customers”, CBC News, May 8, 2014.
5
Ibid.
6
Tim Hortons, Nutritional Information: How Bowls, n.d., retrieved September 2019 from
https://www.timhortons.com/us/en/menu/hot-bowls.php
7
Maze, op. cit., May 16, 2019.
8
Tim Hortons, Tim Hortons: All U.S. locations, n.d., retrieved September 2019 from https://locations.timhortons.com/us.html
9
Jonathan Maze, “U.S. franchisees sue Tim Hortons”, Restaurant Business, July 25, 2018.
10
Aleksandra Sagan, “Tim Hortons sued by U.S. franchisee over alleged price gouging”, BNN Bloomberg, February 20, 2019.
11
Ibid.
12
IBISWorld, IBISWorld Industry Report 6720: Fast Food Restaurants in China, p. 4, July 2019. Retrieved September 2019.
13
IBISWorld, IBISWorld Industry Report 6730: Cafes, Bars & Other Drinking Establishments in China, p. 4, July 2019. Retrieved
September 2019.
14
Ibid., p. 10.
© HEC 16
Montréal
reports described the Chinese market as characterized by difficulties accessing high-quality real
estate1 and providing consistent service throughout the country.
Historically, Chinese consumers preferred tea to coffee. In 2019, the average Chinese person still
drank just five cups of coffee per year – or 1.3% the amount consumed by the average Japanese
person or American.2 Although coffee consumption was becoming fashionable among the middle
class and the young, with consumption increasing at an average of 16% per year since 2010,3
coffee shops in China still offered other beverages, including teas, and food choices adapted to
local tastes, such as salted egg yolks and congee, a classic Chinese breakfast dish. Teahouses and
coffeeshops also tended to have different customer bases. Teahouses catered to older people, who
enjoyed spending hours playing mahjong with friends, while coffeehouses focused on attracting
the under- forty crowd, who saw coffee shops as places to socialize. The younger crowd tended
to post on- line pictures of their beverages or of the chic coffee shop interiors designed to attract
young, urban Chinese consumers on their way to work, on their lunch break, or after hours.
The competitive landscape of China’s coffee and tea quick-service restaurants was populated by
international brands that already occupied space in the consumer’s mind. The main players 4
included the following:
1. Starbucks: With 3,400 establishments in more than 140 cities and plans to nearly double
that number by 2022, Starbucks was China’s dominant coffee player, with over 65%
market share. Starbucks was positioned as a premium brand providing a high-end
experience to demanding Chinese consumers.
2. Luckin Coffee: A Beijing-based startup established in late 2017. Over
3,000 establishments. Guo Jinyi, one of its co-founders, had loudly proclaimed the
company’s goal of surpassing Starbucks, which it accused of monopolistic practices (e.g.,
pressuring suppliers). Luckin Coffee had focused on developing an efficient digital
platform for orders and payments while offering major discounts on its products.
3. McCafé: With over 2,500 outlets, the McDonald’s McCafé sub-brand was expected to
grow to 4,500 by the end of 2022. The outlets were located either inside or next to a
McDonald’s restaurant. The chain focused on stylish dessert displays and marketed their
premium coffee as comparable to, but more reasonably priced than, Starbucks’ coffee.
4. Costa Coffee: A British multinational sold to the Coca-Cola Company in 2019, Costa
Coffee was the world’s second-largest coffee chain after Starbucks. Facing a saturated
British market, it had made penetrating the Chinese market a priority. With over 450
outlets across China, it offered customers comfortable seating and an attractive interior
design.
5. Dunkin’ Donuts: 37 outlets in China. Its efforts to penetrate China had been hampered
from the beginning by a menu poorly tailored to the tastes of local consumers (e.g.,
desserts that were too sweet).
1
Ben Cavender, China Market Research Group.
2
The Economist, “China is a nation of tea-drinkers, but coffee is taking off”, The Economist, May 23, 2019.
3
Xinhua, “China’s coffee consumption upgrading speeds up industrial layout”, China Daily, April 15, 2020.
4
The profiles of all major coffee and tea chains in the Chinese market was adapted from April Fong, “Why China may be Tim
Hortons’ most challenging global expansion yet”, BNN Bloomberg, August 3, 2018.
© HEC 17
Montréal
In 2018, Tim Hortons signed a master franchisor agreement with Cartesian Capital, a New York-
based private equity firm, to enter the Chinese market. 1 3G had a long history with Cartesian
Capital, with which it had first partnered in 2012 to develop Burger King in China. The
partnership had been so successful that, by 2019, Burger King had more than 900 restaurants in
that country.2 The new agreement, which gave Cartesian Capital exclusive rights over the entire
Chinese territory, resulted in a commitment to open more than 1,500 Tim Hortons restaurants
over the next decade.3 Cartesian Capital would be responsible for overseeing local operations and
identifying growth opportunities. Tim Hortons would initially supply the master franchisor with
ingredients imported from Canada (e.g., coffee), but would increasingly rely on local sources as
the brand expanded in China.4
In China, Tim Hortons’s restaurant design highlighted the company’s “Canadianness,” with floor
tiles evoking colourful maple leaves scattered on the ground, hockey stick door handles evoking
Canada’s national sport, and employees dressed as lumberjacks. 5 As explained by Macedo, the
goal was to create an atmosphere where customers felt free to spend as much time as they liked, a
custom popular with Tim Hortons regulars in Canada. “We want our team members to be the
most welcoming staff in China […] We want people to be able to sit in our restaurants for ten
hours if they want with only one cup of coffee if they want to, or not ordering a cup of coffee at
all,” he added.6
The menu was adapted to appeal to local tastes by offering an assortment of beverages and foods
unique to China. Coffee and doughnuts were on the menu, but also products featuring matcha – a
bright green tea-based powder – and congee – an Asian-style rice porridge. 7 There were also
variations of Tim Hortons’s bakery classics, which for the Chinese market were offered in
flavours such as salted egg yolk. While many coffee chains in China sold baked goods but did not
have kitchens, Tim Hortons offered more complete breakfast and lunch menus, including wraps,
sandwiches, and salads.8
Other countries
Although the United States was Tim Hortons’s largest international market, and China
represented its biggest expansion opportunity, the company also had smaller operations in several
other countries. (See Exhibit 3 for the geographic distribution of Tim Hortons restaurants in
2019.)
Middle East: Tim Hortons’s entry into the Gulf Council Countries (GCC) was its first
international venture outside North America. The Canadian chain entered the GCC market in
2011 via a master
1
Aleksandra Sagan, “More than 1,500 Tim Hortons restaurants to open in China”, CTV News, July 11, 2018.
2
Ibid.
3
Ibid.
4
Shane McNeil, “‘We took our time’: Tim Hortons president on the company’s long road to China”, BNN Bloomberg, February
26, 2019.
5
Chloe Hatzitolios, “Tim Hortons just opened in China and their menu is way cooler than ours”, The Loop. February 27, 2019.
6
Tara Deschamps, “Tim Hortons says its China expansion will include menu with congee, matcha”, National Post, August 17,
2018.
7
Ibid.
© HEC 18
Montréal
8
Ibid.
© HEC 19
Montréal
franchise model, granting a master license to the Dubai-based lifestyle and fashion retailer
Apparel Group.1 Apparel was given primary responsibility for the capital investment and real
estate development required to open new restaurants as well as for operations and marketing. 2 By
late 2019, 141 stores had been opened throughout the GCC market. 3 Tim Hortons’s menu in the
GCC market was similar to that in Canada;4 however, the company had a higher-end brand image
in the Gulf compared to its domestic image.5
Europe: In 2007, in a bid to enter the European market, Tim Hortons signed an agreement with
SPAR – a Dutch multinational franchise active throughout Europe – to set up self-serve kiosks in
SPAR locations in the United Kingdom and Ireland.6 By 2013, the strategy had resulted in the
roll out of over 196 Tim Hortons kiosks in Ireland and 59 in the United Kingdom. As the brand
gained traction in the region, Tim Hortons shifted its focus to the opening of regular outlets in the
United Kingdom. In 2017, the company opened its first U.K. store in Glasgow. By 2020, Tim
Hortons had 23 full-service locations in the United Kingdom, 7 but had yet to open its first full-
service coffee shop in Ireland.8
Southeast Asia: Tim Hortons’s Southeast Asia operations were concentrated in the Philippines
and Thailand, with its first restaurant opened in 2017.9 By 2020, the company had
expanded to 27 locations in the Philippines.10 Operations in Thailand were launched in 2019,
when Tim Hortons announced a master franchise and development agreement with a local partner
to take the chain into the country.11 As of September 2020, Tim Hortons had 7 locations in
Thailand, all in Bangkok.12 Much as it had done in the Middle East, Tim Hortons positioned itself
as a higher-end brand in Southeast Asia, with premium offerings and prices that were much
closer to those of Starbucks.13, 14 This contrasted with its strategy in North America, where the
company had a greater focus on affordable pricing.
1
2
Ibid.
3
Hadeel Al Sayegh and Saeed Azhar, “Gateway Partners invests $50 million in Tim Hortons Gulf franchise: sources”, Reuters,
April 7, 2020.
4
Apparel Group, Tim Hortons [About], n.d., retrieved September 2020 from https://www.appareluae.com/tim-hortons/
5
Daily Hive. (2017, March 27). “Tim Hortons is one of Dubai’s best-rated cafes and the reviews are hilarious”, Daily Hive,
March 27, 2017.
6
Sharon Lynch, “Self-service coffee kiosks give perk as Hortons sees profits rise”, Independent, August 9, 2008.
7
Ben Upton, “Tim Hortons: Iconic Canadian coffee and doughnut chain is launching first UK branch later this spring”, The
Independent, April 10, 2017.
8
Eul Basa, “Tim Hortons is opening a new store in Northern Ireland and Northern Irish people are obsessing over it”, Narcity,
May 24, 2018.
9
PinoyCanada, “Tim Hortons Philippines expands beyond 20 stores, 3 years since launch”, PinoyCanada, February 17, 2020.
10
Tim Hortons Philippines, Locations, n.d., retrieved September 2020 from https://timhortons.ph/locations
11
QSR Magazine, “Tim Hortons signs deal to grow in Thailand”, QSR Magazine, June 6, 2019.
12
Tim Hortons Thailand, op. cit.
13
Pitsinee Jitpleecheep, “WeEat to open Tim Hortons branches”, Bangkok Post, January 14, 2020.
14
PinoyCanada, op. cit.
© HEC 20
Montréal
Latin America: Tim Hortons entered Latin America in 2017, when it signed a joint venture
agreement with local investors to take the brand into Mexico.1 By 2020, the company had
33 locations in the country,2 where it offered a combination of traditional menu items, such as
doughnuts and Timbits, and local items, including Mexican hot chocolate and sweet pastries. As
of 2020, Tim Hortons was not present in any other Latin American country.
The path forward

In early 2019, despite setbacks encountered in the U.S., the company still expressed high hopes
for Tim Hortons’s expansion into that country. Macedo said this: “I still believe the U.S. is our
biggest potential market” […]. “We didn’t grow as fast as we would have liked, but we’re
working very hard on adjusting the model, taking our time so that when we start expanding again
in the U.S., we can have all the success we deserve to have for the brand and that country.”3
The company was equally optimistic about its prospects in China: “It’s a huge consumer market,
where per capita coffee consumption is growing about 15 per cent a year.” 4 Referring to the
company’s first foray into China in early 2019, RBI’s CEO said this: “We’ve seen a lot of
success in China with the recent openings that are, I think, somewhere in the neighborhood
of 15 to 16 restaurants in Shanghai.”5 These statements, however, did not convince some
industry analysts, who were beginning to question whether the company’s decision to expand
internationally was sound. With fewer than 100 new net restaurants opened outside Canada since
3G’s acquisition in 2014,6 some wondered whether the company should focus on restoring Tim
Hortons’s reputation and defending its leadership position in Canada.7
In September 2019, in the midst of Tim Hortons’s international expansion, 3G Capital sold
41 million shares of Restaurant Brands International, reducing its stake in Burger King and Tim
Hortons from 41% to 32.1%:8 a transaction valued at an estimated $1.3 billion. By late
September, RBI’s share price had fallen more than 10% (see Exhibit 4 for RBI’s historic stock
performance). Industry analysts speculated that this could be a signal that 3G Capital was exiting
the business, likely because their business model, based on aggressive cost-cutting, was
antagonizing franchisees. When questioned about the sale of shares, the firm replied that “nine
years [since the initial investment] is a good run, and [we] want to take some profits.”9 It was also
suggested that 3G Capital could use the proceeds for yet another acquisition.
1
Jeromy Lloyd, “Tim Hortons is heading to Mexico”, strategy, January 27, 2017.
2
Tim Hortons Mexico, Locations, n.d., retrieved September 2020 from http://www.timhortons.com.mx/es/sucursales.php
3
McNeil, op. cit.
4
Aleksandra Sagan, “Tim Hortons parent company RBI wants to have 40,000 restaurants worldwide”, CTV News, May 15, 2019.
5
Shane McNeil, “Tim Hortons parent eyes global growth, despite trade uncertainty”, BNN Bloomberg. August 19, 2019.
6
RBI, Restaurant Brands International Investor Day, pp. 59-65, May 15, 2019.
7
Arwa Mahdawi, “What happened to Tim Hortons? The downfall of Canada’s brand”, The Guardian, July 9, 2018.
8
Arathy S Nair, Lance Tupper and Saumyadeb Chakrabarty, “3G Capital selling $3 billion shares in Burger King owner”,
Reuters, September 4, 2019.
9
Paige Ellis, “3G affiliate cuts stake in Tim Hortons’ parent for second time in one month”, BNN Bloomberg, September 4, 2019.
© HEC 21
Montréal
In yet another surprising turn of events, RBI announced in December 2019 that Tim Hortons’s
president Alex Macedo, who had been a driving force in its international expansion, had decided
to leave the company in March 2020.1 In future, rather than having a single executive accountable
for internationalization, Macedo’s responsibilities would be handled by a global leadership team. 2
Although the reasons for Macedo’s departure were not disclosed, his leaving did nothing to
mitigate the uncertainty surrounding Tim Hortons’s internationalization plans. On top of the cold
reception extended to Tim Hortons’s restaurants in the U.S. market and their late arrival in the
Chinese market, some questioned whether the timing for international expansion was right given
that political tensions between Canada and China were at an all-time high3 and the Canadian and
U.S. administrations were on the verge of launching a trade war. The question of whether Tim
Hortons should focus on growing its brand internationally was pushed to the forefront when
domestic sales plummeted in the fourth quarter of 2019, 4 and the company announced that the
Canadian market had now become its top priority.
2021-01-11
1
Canadian Investor, “Tim Hortons parent company says president Alex Macedo has ‘chosen to leave’”, December 28, 2019.
2
Axel Schwan, promoted to regional president of Tim Hortons for the U.S. and Canada in October 2019, would also be in charge
of Latin America. The other international efforts would be overseen by RBI’s existing global management team.
3
Tensions between the two countries were heightened in December 2018, when Canada arrested Meng Wanzhou, the chief
financial officer of Chinese telecommunications giant Huawei Technologies, at the request of the United States, a decision that
was sharply criticized by the Chinese government. See Maham Abedi, “Canada-China tensions: Why they began and what’s
happened since”, Global News, June 27, 2019.
4
Michael Lewis, “Tim Hortons announces back-to-basics plan to reinvigorate the brand after weak sales”, The Star, February 10,
2020.
© HEC 22
Montréal
Exhibit 1
Select data on Burger King’s performance pre-acquisition and three years
post-acquisition
Key metric Burger King Burger King
(2010) (2013)
Systemwide sales (US$ million)a 13,100 16,078
Revenue (US$ million) b 2,502 1,146
Net income (US$ million) 186 327
Net profit margin 7% 20%
Number of restaurants 12,174 13,667
Number of corporate-operated restaurants 1,387 52
Percentage of franchised restaurants 90% 99.6%
Number of employees – excluding franchisee employees) 38,884 2,420
International presence – number of countries 76 97
Percentage of revenue from foreign operations 38.0% 47%
Average sales per restaurant (US$ millions) 1,070 1,170
Source: Annual reports
a
Systemwide sales refers to total sales in all franchised and corporate-operated restaurants worldwide. Systemwide
sales from franchised restaurants are not counted as revenue for the company, although they impact the revenue
generated from franchising royalties, rental fees, and distribution sales.
b
The significant decline in revenue can be attributed to 3G Capital’s strategy of moving Burger King to a fully
franchised business model. After the refranchising of over 1,000 corporate-operated restaurants, the sales from those
restaurants were no longer counted as revenue for Burger King.
© HEC 23
Montréal
Exhibit 2
Select data on Burger King and Tim Hortons (2013)
Company Burger King Tim Hortons

Date of acquisition September 2010 August 2014
Foundation 1954 1964
Value of acquisitiona $4 billion $11.4 billion
Systemwide sales (US$ million)b 16,078 5,130
Revenue (US$ million) 1,146 2,484
Net profit margin 20% 13%
Revenue CAGR 4 years pre-acquisition 5.14% 6.50%
Number of restaurants 13,667 4,485
Number of corporate-operated restaurants 52 13
Number of employees (excluding franchisee employees) 2,420 2,558
International presence (number of countries) 97 5
International presence (percentage of revenue) 47.0% 5.8%
Average sales per restaurant (US$ million)c 1,170 1,260
Average number of restaurants per franchiseed 9 units 3.5 units
Note: Starting in 2014, the financial metrics for Burger King and Tim Hortons were consolidated as a result of the creation
of Restaurant Brands International, their new parent company. We therefore use FY 2013 to compare key metrics for both
companies prior to their consolidation under the same holding company.
a
Value of acquisition includes debt
b
Systemwide sales refers to total sales for both franchised and corporate-operated restaurants worldwide. Systemwide sales
from franchised restaurants are not counted as revenue for the company, although they impact the amount of revenue
generated from franchising royalties, rental fees, and distribution sales.
c
For Tim Hortons, average sales per restaurant reflects a weighted average of sales for both standard (full-size restaurants
with a drive-thru) and non-standard (sub-1,000 sq. ft restaurants, self-serve kiosks, and concession stands) restaurants. In
2014, standard restaurants comprised 68.7% of the Tim Hortons system, with non-standard restaurants comprising the
remaining 31.3%.
d
Figure for Burger King refers to North America as of 2010, last year for which this metric was available.
© HEC 24
Montréal
This document is authorized for educator review use only by TRANG Nguyen, Other (University not listed) until Sep 2022. Copying or posting is an infringement of copyright.
Exhibit 3
Tim Hortons restaurant distribution by major geographies (2019)
Permissions@hbsp.harvard.edu or 617.783.7860
Source: Authors’ compilation based on annual reports and news articles
Note: RBI stopped reporting restaurant count and growth by country after 2016. Figures referring to the geographic distribution of Tim Hortons restaurants are
estimates based on the latest available data from RBI annual reports, news reports, and company presentations.
© HEC 25
Montréal
Exhibit 4
Restaurant Brands International (RBI) stock performance (December 15, 2014, to September 1, 2019)
Source: TMX Money. Restaurant Brands International Inc. Stock Quotes. TMX Money [database]. Retrieved October 2019 from
https://web.tmxmoney.com/quote.php?qm_symbol=QSR
Note: RBI began trading on the Toronto Stock Exchange on December 15, 2014. Prices are in Canadian Dollars (Can$)
© HEC 26
Montréal
Exhibit 5
Select data on Tim Hortons pre-acquisition (2006-2013)
Selected data 2006 2007 2008 2009 2010 2011 2012 2013
Revenue breakdown1 (Can$ million)
Sales 1,249 1,405 1,542 1,704 1,755 2,012 2,226 2,266
Rents and royalties 499 547 593 645 687 733 781 821
Franchise fees 84 94 94 90 94 108 114 168
Total revenue
1,832 2,046 2,229 2,439 2,536 2,853 3,121 3,255
(Can$ million)
Number of restaurants 3,047 3,221 3,437 3,578 3,750 4,014 4,264 4,485
International restaurants (% of total
11% 12.4% 15.1% 15.7% 16.1% 17.9% 19.4% 20.0%
restaurants)
Net income
285 298 309 320 647 386 408 429
(Can$ million)
Same-store sales growth – Canada 7.7% 6.1% 4.4% 2.9% 4.9% 4.0% 2.8% 1.1%
Same-store sales growth – United States 8.9% 4.1% 0.8% 3.2% 3.9% 6.3% 4.6% 1.8%
Long-term debt
399 401 405 412 437 457 531 982
(Can$ million)
Total assets
1,853 1,902 2,098 2,094 2,482 2,204 2,284 2,434
(Can$ million)
Net profit margin 15.6% 14.5% 13.8% 13.1% 25.5% 13.5% 13.1% 13.2%

1
“Sales” refers to “distribution sales” (revenue generated from the manufacture and distribution of supplies to franchisees), “franchise sales” (revenue generated from
sales at company-operated restaurants), and other sales attributable to Tim Hortons due to partial ownership of third-party companies (“variable interest entities’ sales”).
“Franchise fees” refers to revenue generated from fees paid by new franchisees, fees paid by existing franchisees renewing their franchise agreement, fees paid due to
restaurant renovations, and fees paid at the time of franchise resale.
Note: The period between 2006 and 2013 covers all the years during which Tim Hortons was an independent company, from its initial spin-off from Wendy’s (October
2006) to its acquisition by 3G Capital (August 2014). Financial data after 2013 is not included because Tim Hortons was no longer an independent company at the end of
fiscal year 2014 – by then, it had been rolled up, together with Burger King, into a new parent company (Restaurant Brands International – RBI).
© HEC 27
Montréal

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Tim Horton's

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HBP# HEC275

The International Expansion of Tim Hortons

The quick-service restaurant industry

Acquisition of Tim Hortons

In early 2018, the company implemented three courses of corrective action.

The path forward

Company Burger King Tim Hortons

Source: Authors’ compilation based on annual reports and news articles

Source: Annual reports

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Tim Horton&#39;s

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Tim Horton&#39;s

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Copyright:

Available Formats

HBP# HEC275

The International Expansion of Tim Hortons

The quick-service restaurant industry

Acquisition of Tim Hortons

In early 2018, the company implemented three courses of corrective action.

The path forward

Company Burger King Tim Hortons

Source: Authors’ compilation based on annual reports and news articles

Source: Annual reports

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Tim Horton's

Tim Horton's