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This article was published 17/9/2013 (1130 days ago), so information in it may no longer be current.
OAKVILLE, Ont. -- Tim Hortons Inc. chief executive officer Marc Caira says Canada's largest coffee-and-doughnut chain must succeed in the U.S. as competition brings slower growth at home.
"The U.S. for me is what I call a must-win battle," Caira, 59, said this week at a Tim Hortons coffee shop near the company's Oakville headquarters.
Caira took over as CEO in July.
In Canada, "my view is this battle is in a new reality, and that this new reality is lower growth, more consumers being value-conscious, more competitive intensity," Caira said.
Everything from cup sizes to doughnut selection is under the microscope at Tim Hortons as Caira settles into his role and begins a widespread review of the chain's operations.
Caira is looking for ways to boost the reputation of the already iconic company, and he wants to improve how customers feel about their experience at the counter, which he calls "the moment of truth" for any quick-service restaurant.
"If you make a mistake there, then you're impacting the consumer, and today's new reality (is) you can't afford to do that," he said.
"You cannot give consumers permission to go somewhere else."
Tim Hortons' U.S. growth strategy has been criticized by Highfields Capital Management of Boston and New York-based Scout Capital Management, which have said there hasn't been sufficient return on the $664 million the company invested in the past decade. The investors own 2.6 per cent and 5.7 per cent of Tim Hortons shares respectively, data compiled by Bloomberg show.
Caira said his "capital light" growth strategy in the U.S. will rely on franchisees being able to hold multiple restaurants in a small area and buy advertising in local media as he tries to revive growth in a chain approaching saturation at home.
Tim Hortons had 3,468 restaurants in Canada at the end of June, nearing the 4,000 restaurants past management flagged as the maximum the country can handle.
Caira said he will reevaluate the 4,000 number to see if it's still appropriate. The current focus is boosting profitability at existing restaurants facing more competition as Starbucks and McDonald's expand in the country, he said.
Tim Hortons shares closed at $59.27 Tuesday. The shares have gained 22 per cent this year compared with a 3.1 per cent advance in the Standard & Poor's/TSX Composite Index.
Tim Hortons, which claims to sell eight out of 10 cups of coffee in Canada, is already a leader among quick-service restaurants for breakfast and is catching up to the leader in lunch, Caira said, declining to name the competition.
"We'll get to dinner," Caira said. He did not say when or what the menu could look like.
Sales grew 9.4 per cent last year compared with 12.5 per cent in 2011 and 14.2 per cent in 2004, data compiled by Bloomberg News show.
Caira, who came out of retirement to take the top job at Tim Hortons after his previous post as an executive at Nestl©, the world's biggest food maker, said he saw other revenue opportunities attaching the Tim Hortons brand to consumer products for sale in stores, like it does with single-serve coffee.
"If you work in an office, why should you not have some Tim Hortons' products in your office?" he said. "I come from an industry where from a technology standpoint, vending machines have come a long way. Why can't you have Tim Hortons in vending machines?" Such moves would add incremental sales and value, he said.
The company said sales at stores open at least 12 months would end the year below target when it announced Aug. 8 second-quarter earnings rose 14 per cent to 81 cents a share from a year earlier, above analysts' estimates compiled by Bloomberg.
New beverages to appeal to younger customers, such as milk-based and juice-based drinks, along with marketing focused on health and wellness are other ways Caira says he can boost revenue. The U.S., however, is still the company's best hope for growth, he said.
"The U.S. will grow faster than Canada," the CEO said.
With 807 locations, Tim Hortons' U.S business made up about 18.8 per cent of its total store network in the second quarter and accounted for 32.6 per cent of capital expenditures, while bringing in only 6.1 per cent of revenue, data compiled by Bloomberg show.
"We are going to invest capital in the U.S., but we're going to do it in a different way," he said. "We'll be looking for partners that not only have the capital, but more importantly understand the market, and have access to things we don't have access to, ie. real estate, ie. media."
-- Bloomberg News, with files from The Canadian Press