Serving Canada to the world

When Burger King merged with Tim Hortons in a US$12.5 billion buyout last December, it didn’t just take the reigns of a beloved Canadian fast food chain. It bought a national symbol. For Canadians, the quick-serve restaurant is just as much a part of their national identity as hockey and maple syrup. Politicians are even known to use it as a backdrop during campaign stops to show how they are meeting with ordinary Canadians. Tim Hortons holds such an emotional connection with Canadians that when the company announced the merger, it took out a two-page ad to assure people their coffee would remain the same before and after the deal. But they weren’t the only ones who needed reassurance. Before approving Brazilian investment firm 3G Capital’s takeover of the chain and its almost 4,600 outlets, Industry Canada delivered a strict set of guidelines aimed at helping Tim Hortons hold on to its Canadian identity. The demands Merged under Restaurant Brands International, the fast-food giants have 19,000 restaurants and approximately US$23 billion in sales, making it the third largest fast food company in the world. This isn’t the first time Tim Hortons has been under foreign ownership, as it belonged to Wendy’s until 2006. Nevertheless, Industry Canada secured several guarantees from Burger King before sealing the deal. Among them was that they were to keep a large part of employment levels at its corporate offices, and to ensure Canadians make up at least 50 per cent of the Tim Hortons board of directors. As part of its corporate reorganisation, former Tim Hortons Chief Executive Marc Caira has become Vice Chairman of the new company’s board of directors. Elias Diaz Sesé, a Burger King executive formerly in charge of the fast food chain’s expansion in Asia, will take over as president of Tim Hortons. Industry Canada also issued guidelines at the franchise level, including keeping 100 per cent of its employees as well as its charitable work. The rent and royalty structure is also to be kept the same for five years. In terms of branding, Tim Hortons is to remain a distinct brand, and cannot co-brand any locations in Canada or in the United States. Kenneth Wong, a Professor of Marketing at Queen’s University in Canada, tells GCR Magazine the Industry Canada demands regarding the company’s Canadian identity are not unusual, in a country conscious of getting too closely compared and absorbed into its powerful southern neighbour. “I don’t think (Industry Canada) is more protective of Tim Hortons’ identity than any other company,” he says. He explains the Government of Canada has several other measures and organisations in place to retain culture where possible, such as its Canadian content regulations for television and radio. Furthermore, Wong says he believes the regulation not to co-brand was an easy concession to make, because it wasn’t one at all. “I think it would have been sheer folly to do so,” he says. He explains that because Tim Hortons already has such a strong brand, co-branding would not work to its advantage. “If it ain’t broken, don’t fix it,” he says. “Tim Hortons is certainly not broken.” A Canadian icon Since it was co-founded in 1964 by the late Tim Horton, a Toronto Maple Leafs professional ice hockey player, the company has enmeshed itself in the Canadian psyche by combining two favourite pastimes – playing hockey and eating donuts. “Tim’s in Canada has become a broad cultural phenomenon,” Douglas Hunter, author of Double Double: How Tim Hortons Became a Canadian Way of Life, One Cup at a Time, tells GCR Magazine. “People associate their ‘Timmies’ with being Canadian. Hunter explains that its rise to success in Canada was in part due to good timing. Tim Hortons came into the franchise business at a time when donuts were not seen as a major growth area, and coffee was not a national drink of choice. But when Canadians started adopting coffee, he says, Tim Hortons was there. Hunter says being open around the clock, which catered to shift workers, also played an important role in the company’s early success. “Tim Hortons did a very good job of figuring out where their sights needed to be,” he says. “They could open a Tim Hortons right next to McDonald’s and it didn’t matter. There was no crossover to what they were selling.” Since then, Tim Hortons has established itself as a national icon just as likely to be found in the hands of a high ranking business executive as your everyday citizen. In fact, Interbrand Canada, a leading brand consultancy firm, ranked the company as the fifth strongest brand in Canada in 2014, and first in their top 25 retail brands. “They are the brand of the ‘everyman’ in Canada,” says Carolyn Ray, Managing Director of Interbrand Canada. Ray tells GCR Magazine the brand’s grassroots level involvement in communities, such as their sponsorship of Timbits sports programs and other charitable work, has helped it integrate into the everyday lives of Canadians. She says the other aspect that has helped the brand is its customer focus and authenticity. “(Authenticity) is about leveraging your heritage, your values, really being true to who you are and exhibiting that throughout your brand,” she says. “It’s just having a clear idea of what your brand stands for and how to express that through customer focus, product innovation and demonstrating the brand’s connection to Canada’s cultural fabric.” Trimming the fat While Tim Hortons has the kind of brand success that makes most other Canadian companies drool, corporate changes were widely anticipated after the takeover. 3G upheld its reputation for slashing budgets and reducing staff, axing an estimated 350 employees across Tim Hortons corporate offices just six weeks after the deal. “We have had to make some tough but necessary decisions as we reorganised our company for future growth and serving our guests,” Alexandra Cygal, Vice President of Corporate Affairs at Tim Hortons, tells GCR Magazine. Cygal affirmed Tim Hortons’ intention to keep headquarters in Canada, and its commitment to charitable and sustainability programs. “We are confident the new organisation will be faster and better positioned to grow and respond to our guests’ needs,” she says. While the cutbacks came as a blow to those affected, the corporate cutbacks may be coming at the right time. A new study from NPD Research Group shows quick-serve restaurants will have an added challenge in coming years as Canadians scale back on eating out. The study expects Canada’s food services industry will grow by less than one per cent annually over the next five years. But while Canadians may be nickle-and-diming where they spend their fast food dollars, Tim Hortons has already proven it can weather through tough economic climates. Hunter said that during Canada’s recession in the early 2000s, Tim Hortons held its ground while many competitors didn’t survive the financial trouble. “After the recession, (Tim Hortons) steamrolled past those competitors and became the coffee shop of the whole country,” he says. Outward bound While Tim Hortons is not likely to loose ground in Canada with the recent takeover, experts are divided on whether the world is ready to embrace fast food staples such as the ‘double double’ (Canadian slang for a coffee with two cream and two sugar) and ‘Timbits’ (bite-size donuts). One of Industry Canada’s conditions was to accelerate the opening of new Tim Hortons restaurants in the United States and internationally. The company has already attempted expansion in the US with mixed success, tending to see more success among communities around the Canada-US border. Wong believes that with US competitors such as Dunkin Donuts, who have a virtually identical product offering, Tim Hortons has no competitive advantage. “For Tim Hortons to compete in the US they will have to match Dunkin Donuts in advertising spend,” he says. He explains that there is no competitive advantage in going abroad either, as the coffee itself is not even Canadian. “I don’t think there is any equity in the Tim Hortons brand name outside Canada,” he says. “You have to ask yourself why does Tim Hortons win in Canada? And are those conditions available outside Canada?” Ray says for Tim Hortons to succeed internationally, the opportunity is to define what it means to be the ‘everyman’ in new markets. How will they engender awareness and loyalty through community involvement? “I think they will need to elevate their brand and probably adapt it to a new customer set,” she said. “The challenge will be maintaining the ‘what’s Canada’ (about the brand.)” She explains that US company Target, that recently shut down its doors in Canada, didn’t do well because it didn’t deliver on the anticipated brand experience that was set so high in its stores south of the border. “Expectations were set high at the US stores,” she says. “There were many operational issues in the Canadian stores that stood in the way of delivering that experience.” And while we won’t be seeing any co-branded restaurants in North America, it doesn’t mean Tim Hortons coffee can’t be served in Burger King restaurants. In fact, Wong believes it may provide a win-win situation: “If Burger King used the Tim Hortons coffee brand as part of a strategy response to McDonald’s and its repositioning with coffee, that exposure can be gained at minimal cost for Tim Hortons.” GCR