TimHortons’ Strategic Analysis
Company overview 3
External analysis 4
Fall in consumer confidence 7
Political & legal 7
Strong regulatory framework and transparency 7
Natural environment 9
Global trends 10
Internal analysis 10
Five forces analysis 10
Power of buyers 10
Power of suppliers 11
Threat of new entrants 11
Threat of substitutes 11
Competitive rivalry 11
Porter’s generic strategies 11
Market segmentation 12
Product differentiation 12
Cost leadership 13
Core competencies 13
Value chain analysis 15
Strategic analysis summary 16
Balanced scorecard 16
Product pricing 17
Discussion and recommendations 17
Tim Hortorns is arguably the Starbucks of Canada. Currently, TimHortons is part and parcel of Canada’s history, culture andidentity defined by high quality produces, great value and service.The firm was established in 1964 in Hamilton Ontario by the one ofthe mane whose name the brand is named after, Tim Horton and hisfriend Jim Charade. Tim was a famous hockey player having played inover 24 seasons in the National Hockey League playing for teams suchas the New York Rangers, Pittsburgh Penguins and Toronto Maple Leafs.The outlets were named after the hockey player to take advantage ofhis brand name after years making a name in the national sport. Theoriginal Hortons restaurants only served coffee and doughnuts. Therewere two main variations in the doughnuts that popularized the brand,Apple Fritter and the Dutchie.
Needs for the brand to expand saw the two partners seek contributionof an investor, Ron Joyce. He became a full partner in 1967 afterCharade left in 1966. With the funds that he provided, Hortons movedthrough a rapid expansion phase that saw the firm open up new outletsall across Canada and the menu being expanded also. Unfortunately,Tim Horton died in 1974 through tragic road accident. However, thisdid not affect the expansion momentum at Hortons as the menu wasexpanded further with the brand “Timbits” being introduced in1974. By 1984, the first outlet in the US was opened in Tonawanda NewYork. This meant that the fact food chain was competing directly withestablished market players such as McDonalds and Starbucks. Tofurther cement it presence in the US, Tim Hortons purchased Wendy’sInternational Inc, another fast food chain of restaurant operatingboth in the US, Canada and other counties. By the turn of themillennium, there were over 100 outlets in the US and over 100outlets in Canada. Currently, there are about 5000 Tim Hortonsoutlets in the US, Canada and the UAE operating as café and bakeshops.
The firm’s expansion strategy worked in its favor as sales volumewent up. Buoyed by such performance, the firm enlisted at the TorontoStock Market on September 29 2006 before also enlisting in New Yorkstock exchange under the code THI. In the same year, the restaurantopened its 3000th outlet in Orchard Park New York. Allalong, the hotel relied on franchising as and mergers for expansion.Some of the firms that Hortons merged with include Wendy’s andKahala Corp. However, it is Wendy’s merger that was mostconspicuous as it saw the firm change owner temporarily from Canadianto American. However, in 2009, Wendy sold its stake in the Hortonsand thus the firm retained its Canadian identity. Today the firm’sheadquarters are located in Oakville, Ontario, Canada.
Currently, the firms restaurant franchises employ over 100 000employees both in the US and Canada. The parent company, TDL GroupCorp, employs over 1800 employees in headquarters and across allregional offices. There are several warehouses located in strategiclocations that distribute foods to the various franchises throughbranded trucks. About 95% of the stores are franchise owned andoperated. The franchise agreement requires franchisees to pay aninitial franchising fee in addition to setting up the stores and alsosubmit annual royalty fee as a percentage of their profit. This modelhas worked consistently with total revenues recorded in 2012 hittingover C$3.12 billion and the stock price at C$59.80 in TSX andUS$54.85 at the NYSE. However, all has not been rosy for the firm. In2010, the firm announced the closure of 36 stores and 18 kiosks inthe US which were deemed unprofitable.
Paul House is the current Chairman of the board having previouslyserved as president and CEO. Mr. House has a long history with thefirm having joined the team back in 1985. He rose through the ranksand was appointed CEO in 2006 before also being appointed as thechairman in 2013. Mr. House is assisted by the Lead Director, theHon. Franck Iacobucci. There are other eight directors. Marc Caira isthe current president and CEO. He oversees the day to day running ofthe group. He is also answerable to the board. He is assisted by ateam of eight executive officers.
Mission andvision statement
Our guidingmission is to deliver superior quality products and services for ourguests and communities through leadership, innovation andpartnerships. Our vision is to be the quality leader in everything wedo.
External analysis Economy
Globaleconomic fluctuations affect businesses everywhere. Leading economiessuch as US and Canada are largely vulnerable to such fluctuations dueto their high volume of international trade. Although, US economyapparently triggered the global financial crisis, her northernneighbor faired comparably well. In fact, Canada was the only G7country that did not have a government bank bailout. As a countrythat accounts for 2% of the global trade its stability remains veryimportant to the world. As of January 2006, the country was enjoyinga declining real GDP growth at 3.77%. By March 2007, the economy grewat only 1.82% before picking up again in October same year to hit2.97%. However, the economy changed course and the GDP shrunk by 2.8%in 2009 to correspond with the global financial crisis. This was atime when major economies around the world such as the UK and the USregistered the most devastating negative growth in GDP in recenttimes. As a major global trade actor, Canada’s economy wasaffected. However, towards the end of 2009, the economy wasrecovering owing to numerous economic stimulus packages rolled out bythe Canadian government and other governments affected by the globalrecession.
Theyear 2010 recorded the highest GDP growth rate of 3.2%. This however,dropped before dropping to 2.4% in 2011, 1.93% in 2012 and 1.96% in2013. The jump in the GDP was attributed to the generous stimuluspackage rolled out by the government that aimed at jump startingaggregate demand and derive the economy. In total, C$63 billion wasspent in over 30000 projects. Over 610, 000 jobs were created as aresult. Based on this robust growth, the employment opportunitieshave been growing an average of one million positions. The year 2014has witnessed slowed growth in GDP with the first quarter recording0.3%.
Thegrowth in GDP has been an important indicator in trends inunemployment, income levels and inflation. Data from StatisticsCanada show that consumer spending, supported by household incomeplayed the greatest role in supporting the GDP growth in 2013 asother industries faltered. This captures the interdependence betweenthe GDP and consumer confidence/income levels. However, the retailindustry is second to the construction industry in terms ofcontribution to the GDP. The other main industries are manufacturingand mining oil and gas.
Incomelevels in have remained relatively high compared to other OECDcountries. The median household income in the country as of 2011 datastood at C$72, 2140 which was a significant increase from theprevious year’s C$69,860. By 2013, the amount stood at C$76000Byregion, the Northwest Territories records the highest median atC$105,560 (2011) followed by Yukon with C$91,090. Nunavut and NewBrunswick record the lowest medan household income at C$65,280 and C$63,980 (2011). These income levels are affecting the purchasing powerof the people which is also affected by inflation.
Unemploymentlevels in the country have remain relatively stable at over 6.9-7.25% in the last one year. This is no cause of alarm in theeconomy given that the country has marinated an average of 7.75% inunemployment since 1966. Inflation rate has also remained relativelystable over the years. Given that inflation promises consumers thattheir investment will not lose value, it encourages consumption andinvestment. Since 1915, inflation has stabled at an average rate of3.21%. In 2011, inflation averaged 2.3% before dropping to 0.83% in2013 and 1.24% in 2013. For the current year, the rate hasremainedstable recording 0.32% in April.
Thecountry’s banking system was equal to the task owing to strongregulatory measures and practices as noted by a World Economic Forumreported which ranked the country the best out of 134 countries interms of sound banking systems. The US president himself, BarrackObama also acknowledged the supremacy of Canada in managing itseconomic system when he said “Canada has shown itself to be apretty good manager of the financial system and the economy in waysthat we haven’t always been” (Porter 2008, p. 1). This statementis a clear indication by the presidency that the cause of the crisisis largely attributable failure in managing the American financialsystem by the regulatory bodies appropriately and hence wasavoidable.
During therecession, the US recorded 8.7 million job cuts. However, thesituation was not this bad prior to the recession and economicindicators had not signaled any crisis ahead. In the first half of2006, the US economy was growing at an average of 3% dipping inmid-2007 hitting 1.4% before picking up again to stand at 2.7%October 2007. Afterwards, the economy dipped with the lowest beingJuly 2008 at -3.9%. GDP recorded a negative growth rate of 6% in thefourth quarter of 2008 and first quarter of 2009. Unemployment hitthe highest level since 1983 at 10.1% as of October 2009.
With the recession reportedly over, the US economy has not regainedits robustness. Over the years, the US economy has consistentlyperformed well in comparison to other developed countries.Nonetheless, high GDP growth rate is also associated with highinflation rates especially when aggregate demand increases at ahigher rate than aggregate supply which is often termed asunsustainable growth. Sustainable growth, as witnessed in 2000 toaround 2005, requires that AD and AS grow at an equal pace to avoidinflation. Current troubles facing the US economy and that of Canadais being directed towards the rise of China and its fellow BRICmembers. With Canada economy highly relying on the trade with hersouthern neighbor, any lapse in the American economy is likely toaffect the Canadian economy.
Canada’s population currently stands at 33 million people comparedto over 318 million people in the US. This means that the US marketsimply promises a larger market potential for marketers than Canadaby population size. The US also records a higher population growthrate with 13.9 births/1000 annually compared to Canada 11 births/1000as of 2011. This shows that the US population is growing at a fasterrate than that of Canada. The US is also a larger recipient ofimmigrants from all over the world with 80% of them being from LatinAmerica. Since 2001, the Canada has recorded over 220 000 immigrantsevery year while the US has recorded higher figures. In 2011 alone,Canada welcomed 248 permanent residents while the US naturalized over1 million people with hundreds of thousands are estimated to haveentered the country illegally over the same period. In fact, thereare approximately 11.7 million illegal immigrants in the US. Suchimmigrants provide cheap labor to the struggling industries and theirpresence in the US is a subject of debate. Experts argue that Canadais keen to copy the US model of encouraging immigration of a skilledworkforce to power the economy.
The US is a highly urbanized country with majority of the population(over 80%) living in urban areas as of 2010 (Pensfold, 2008). Thiscould be a case of uneven population distribution with large citieshaving dense population but low population densities in smaller townsand far flung areas. In realization of this, Hilderth (2006) exploresthe role of small and medium cities in spurring growth in the US. Theauthor noted that large cities in given states that play multipleroles such as New York, Toronto, Los Angeles carry with them diversemarkets and hence are most preferred by multinationals targeting anextensive market. He notes that such large cities act as cultural,government, fashion, entertainment and knowledge headquarters. Suchcities are also favored by many firms because they simplifydistribution and logistics issues. Hortons benefits through this highdensity population areas through setting up outlets in malls,colleges and universities.
The Canadian population is aging faster than that of the US. Theaverage median age in Canada is 40.6 years (male-39.6 years, female-41.5 years) compared to that of US of 36.9 years (male-36.5, female-38.1 years). Average life expectancy in Canada is 81.7 (male: 78.98years female: 84.31 years) while in the US it is 78.64 years (male-75.65 years, female- 80.69 years). The provinces of New Brunswick,Nova Scotia and New Foundland and Labrador have the highest medianage at over 43.0 years. The number of males in the US is smaller at151.4 million while females stand at 158.6 while in Canada, the ratiostands at 1:06 male/female. Given that coffee is one of the key itemsthat Hortons sells, it is interesting to note that coffee consumptionincreases by age with the 40-59 and over 60 years age brackets beingthe highest consumers. True to this figures, a report by Charts Binshow that Canadians on average consume 2.5 cups of coffee dailycompared to 1.6 cup in US which can be attributed to the highermedian age in Canada.
Unemployment is the number of persons in the labor force who are notparticipants of active employment due to number of reasons expressedas a percentage. Labor in this context pertains to persons who areabove the legally recognized adult age and are not hospitalized or inschool and have not yet reached the retirement age. Following theglobal economic recession, the US registered high unemployment levelsof over 10%. The number of full time employees reduced where many ofthem have resulted in part time jobs. The number of permanent/fulltime employees fell significantly. Consequently, part time employeesand the number of unemployed people increased sporadically. Thisimpacted on consumer confidence and reduced the amount of disposableincome available to the population. For firms such as Hortons and itscompetitors, there was a marked decrease in sales.
Fall in consumerconfidence
As of the 2008 global financial crisis, consumer confidence in NorthAmerica hit an all-time low. The financial credit crisis that alsoaffected large multinationals such as GM pointed to a very trickysituation. Higher inflation rates also contributed to the pessimismtowards the economy (PriceWaterHouseCoopers 2014). Towards the end of2009, consumer confidence was restored as households believed thatthe stimulus package enacted by the government would salvage theeconomy from the recession which had seen GDP growth fall by 5.1%.Fast forward into 2010, consumer confidence faltered still with theeconomy far from recovering. A section of economic experts haveindicated that more than five years on, the economy has notrecovered. This is despite the fact the economy has recovered themore than eight million jobs lost during the recession. Consumers areuncertain that about the ability of the economy to surge forwardwithout financial stimulus which is evident in a sluggish consumerconfidence.
Other measures such as a looming VAT hike and tax reviews which hadbeen lowered during the recession to spur growth are seen as otherlikely causes in the fall in consumer confidence. Thirty four percent of consumers interviewed in May believe that the economicsituation would improve in the next six months as opposed to 41% ofconsumers interviewed November last year who believed that theeconomy would improve in the next six months. Expectations ofemployment have also disappointed a number of employees who have notyet found job positions. The house market has also not yet fullyrecovered leading to indecisiveness among consumers as the confidencelevels in this sector remained unchanged (Bureau of Statistics 2010).
Political & legal
The US and Canadafollow different firms of governments. In the US, state governmentshave the freedom to set sales tax on products and services, propertytax and use tax also applicable to land and properties. This meansthat in some states, Hortons may incur varying costs of doingbusiness which might affect the pricing strategy adapted by the firmto apply in the US. This in recognition of the fact taxation regimesbetween Canada and the US are significantly differently. This alsoposes significant challenges for the firm in harmonizing itsfinancial information and accounts as the firm seeks to meetdifferent financial requirements set in each country.
Strong regulatoryframework and transparency
Adverting is one industry that cuts across many other industries andhas an impact in them. For Tim Hortons, advertising is an importantprocess of the organization that informs and persuades consumers andpotential consumers about its products, offers and promotions.However, advertising is subject to control by governments. In the US,advertising is regulated by the Federal Trade Commission whichcreates, reviews and enforces various broadcast and non-broadcastadvertising regulations and also ensures fair competition amongstplayers. New firms seeking to ply the US market have to seekauthorization and approval from this body. This agency has been atthe fore front in controlling advertising targeting childrenespecially where unhealthy foods are concerned. As a firm thatmarkets coffee and baked products such as doughnuts, Hotorns isaffected by the commission’s laws on advertising targeting childrenand also locating outlets close to elementary schools. Stategovernment also have authority in advertising in term of charged tosignage and placement of advertising boards.
In Canada, advertising is regulated by Advertising Standard Canada.This body is guided by the need to maintain truth, fairness andaccuracy in advertising in order to protect consumers and alsomaintain a level playing field amongst players. The body is alsoconcerned with observation or moral and social standards inadvertising such as use of children in advertising and depiction ofgender. Another issue that the body regulates pertains to frequencyand length of adverts which is limited to 12 minutes per hour inspecialty services. For CBC Espace Musique and Radio, advertising islimited to two sessions lasting 4 minutes each every single hour.There are no limits on advertising time on private TV and radiostations.
Immigration both in the US and Canada has been heavily linked withincrease in population as the immigration figures grow. Statisticiansproject that 70% of the population increment in the US in the next 20years will be from immigration. Currently, over 19% of the Canadianpopulation was born out of Canada which points out to the growingimportance of immigration in powering population and economic growthin the county. For Hortons, growth in population accompanied by astable economy that supports such growth increases the market for thebrand. However, influx of immigrants in the Americas does notautomatically translate to a larger market for Hortosn. This isbecause these people bring with them new cultures and traditions thatmay not identify with consumption of coffee or other mainstreamproducts that the firm has to offer. This is especially so in Canadawhere Hortons is a piece of national identity. However, someimmigrants may avoid such products in a move to retain their nationalidentify from their home countries.
Americans have for a long time identified with symbols of Americanidentity. Market analysts have often defined Hortons as the Starbucksof Canada and not that of the US. This shows that despite the brandmaking an impressive mark in the US market, it has a long way to goto in appealing to American consumers who feel that the brand doesnot belong with them. The firm should explore methods and ways ofengaging the American identity and culture in Hortons brand.
Advances made inthe retailing industry both in the US, Canada and other markets havea direct influence in the operations of Tim Hortons. The mostsignificant aspect relates to the internet and ecommerce. In thecurrent age of multi-channel retailing and ecommerce, Tim Hortons haslagged behind. The firm just launched its mobile application onlyrecently while its competitors launched such technologies way back.Such technologies offer industry players new opportunities andplatforms to interact with their customers and even receive marketfeedback in a more convenient and timely manner.
Multi-channelretailing has been adapted by consumers all over the world to combinethe benefits on in-store shopping and online shopping. While Hortonshas embraced online shopping for a significant range of its products,the online store has yet to be harmonized with its various stores.Multi-channel retaining allows shoppers to order and make purchasesonline and pick the goods in person at a chosen store nearby. Globalretail outlets such Australia’s Coles supermarket have adopted thismodel which has increased sales significantly and also promotesonline sales. For the food retail industry, the multichannelretailing approach can enable consumers to order their meals from themenu and pick it when it is ready and in effect save the waiting timebefore a meal is prepared. In the case of Hortons, the maximum time aclient should wait for coffee is 20 minutes which is hinged onpromoting the ‘fresh coffee always’ concept. This potential incombining online stores and physical stores in fast food is yet to beadapted by any of the industry players in the US, Canada or even theUAE. Nonetheless, this is the future of fast food retailing thatpromises to reduce the waiting time once an order is placed. This isbecause consumers can place such orders even on their mobile phonesusing customized mobile applications.
Changes in the natural environment have changed the ways thatorganizations do business. Sustainability, climate change, carbonfootprints and green production are some of the common terms thathave defined organizations’ concerns over the natural environment. Scientists shave amicably shown that the changes in the naturalenvironment such as climate change and global warming are directlyattributable to human activities. Increased emission of harmfulgasses and compounds into the environment from organizationalpractices and processes such as combustion of coal and fossil fuelsare responsible for the current erratic climate, droughts in someparts of the world, rise in seas levels, disruption of majorecological systems, extinction of some species, death , diseases andincreased cost of doing business among others. Therefore,organizations are mandated by law and ethics to utilize theenvironment in a sustainable way and also to give back to thecommunity in ways that empower the community to utilize resources ina more sustainable way and preserve life on planet earth.
Organizations are ethically mandated to conserve the environment.This can be done through change organizational processes to ensurethat they meet ethically acceptable standards. Various industrieshave initiated a code of ethics to guide players in given industries.Such self-regulation has seen some firms developed funds win whichthey contribute towards to jointly for environment sustainabilitypurposes. Such practices can affect change in some business processessuch as a use of green energy which includes solar and wind amongothers. This can imply increases in costs to firms or change inorganizational structures and business processes.
Governments have created bodies that enact statues to guideorganization in their operations in regard to environmental concerns.The Canadian Environmental Protection Act of 1999 wasenacted to offer guidelines and set regulations to guideorganizations in environment management. The Environment Canada isresponsible for implementing and overseeing these guidelines. In2013, Environment Canada adapted the US Tier 3 standard on vehicleemission which makes it easier for organizations operating vehiclesacross the border.
For Tim Hortons, the Environment Canada requirements form the basisof its environment management and sustainability policy. The firm’ssustainability policy recognizes the impact of its operations on theenvironment and thus aligns its operations to set standards. Thispolicy is visible from the highest level to the lowest comprising ofits suppliers especially in coffee which is largely sourced fromBrazil and other South American countries. As such, the firm sponsorsfarmers’ training on the use of acceptable pesticides and chemicalsin the faming process to ensure that Tim Horton’s products arebased on an acceptable carbon footprint.
Coffee consumption has emerged as one of the most common beveragesaround the world. Previously, coffee consumption was viewed asbeverage for a few. However, global consumption of coffee hasincreased steadily over the years. Ready to drink coffees have beenhighly associated and favored by increased urbanization. As aconsequence, the world most highly developed counties top the chartsin consumption. Nonetheless, coffee has to be embraced by the cultureand social trends of the people. In Canada, coffee is one of the mostcommon beverages with studies showing that 51% of Canadians drinks atleast one cup of coffee at home daily and another 65% consumingcoffee daily (Canadian Coffee Association, 2014). Such highacceptance levels of coffee predict high sales to the populationwhile away from home. Statistics also show that Canadians consumerelatively higher amounts of coffee than Americas.
Health concerns also impact consumption of coffee and fast foods. Theamount of sugar, fat and salt in some foods have been associated withill health such diabetes, cardiovascular diseases and obesity. Thishas forced major fast food firms to respond to these health concernsby developing a special healthy line of products. Apart from that,such health concerns have resulted into a slight decrease in themarket as some consumers choose to stay away from fast foodsaltogether by eating more home-prepared meals. While some playerssuch as McDonalds have chosen to reduce the amount of calories andsugar in some of their meals, Tim Hortons is yet to respond to theconcerns raised over the calorie and sugar content in some of itsmeals on offer. However, the introduction of Tim Hortons brandedcoffee making machines seems to hand over more control to consumerson the amount of sugar in their coffee by enabling them to preparecoffee at home. On the other hand, some studies have also suggestedthat moderate coffee consumption is beneficial to the body.
Internal analysis Five forces analysisPower of buyers
Hortons increasedits range of products from just coffee and doughnuts to includejuices, specialty teas and sandwiches among other snacks andbeverages. This has been effective in reducing buyers bargainingpower as they have a wide variety of products to choose from. Anarrow range of products allows buyers to wield power against firmsas they demand more specifications from products.
Power of suppliers
Suppliers of keycommodities to Hortons such as coffee, wheat, tea and other juices.These suppliers have a key influence on the quality of products thatHortons supplies. The competence of these supplies can also affectthe relationship between the firm and its franchisees given that thefirm distributes key ingredients to its franchises in order to have afirm control on the quality. To manage the power of suppliers,Hortons binds the suppliers through contracts so that they do notengage in business with competing firms.
Threat of newentrants
Contracts withsuppliers and the high brand equity and strong brand names possessedby major industry players such as Starbucks, Hortons and McDonaldskeeps new entrants at bay. New entrants that take the risk have tooperate at low capacity and contrite on smaller niche markets.
Threat of substitutes
Hortons facesintense competition from other players such as McDonalds, Java andStarbucks. These players operate in the same market and thus competefor the same market base. Other substitute drinks and beverages suchas alcohol, Pepsi, water and Coke all combine to reduce the company’smarket share. On the other hand, the company competes for allocationof disposable income by households who have to cater for other needs.As such, the budget is a constraint to the products and encouragessubstitution of the products.
Market reviewershave often called identified Hortons as a fast food restaurant. Thishas unfairly categorized the brand in the same category of otherbrands associated with unhealthy foods or unhealthy eating habitssuch as McDonalds. Consequently, such players have positionedthemselves in the market as perfect substitutes for Starbucks andthereby exposing it to unnecessary competition. The entry of the firmto new markets such as the UAE also exposes the firm to competitionfrom local established players.
This strategy byMichael Porter compares the firms strategic strength to its strategicscope. In his research he identified three strategies that are easierto implement.
Marketsegmentation refers to partitioning or differentiation of markets onvarious grounds namely product based, demographics, geography,channel, psychographics and customer needs (Pensfold, 2008). In thecase of Hortons, there are several approaches evident on how the firmhas differentiated its markets. Market segmentation offers a uniquemix of benefits and challenges to marketers. For Hortons, it canbenefit from segmentation by increased ability to match consumerneeds in a given market, increased sales and profits for the firm,offers opportunities for growth, grow market reach and enable thefirm to be more focused.
The most obvioussegmentation approach use by Hortons is geographic marketsegmentation. As an international firm, the firm has segmented itsmarket on national boundaries, Canada, US and UAE. The main reasonbehind this approach is to enable the firm to cope with differentnational laws governing these counties. For instance the firm servespork and its derivatives freely in the US and Canada market but thereis a different approach in handling pork sale in the UAE in light ofthe rule of the land. In the UAE, the law requires that pork and itsderivatives which are viewed as unholy or Haram by Islam as areligion is not served or prepared using the same utensils used toserve Muslims. In some extreme cases, Muslims cannot be served in astore that stocks pork. Where store shave to serve pork, it must belabeled “non-Muslim” to inform the people.
Product-basedmarket segmentation is evident at Tim Hortons through the growingrange of products. Having started out as a coffee and doughnutsoutlet, the introduction of tea and other beverages allow the firm totarget other markets. The marketing, handling and preparation ofthese products allow the firm to create a value chain that optimizesthe product for the specific market that it targets.
Tim Hortons hasalso used demographic segmentation to reach out to variousdemographic units. One of the most conspicuous segment is thatidentifies the market as comprising of adults and children. As such,the firm has identified specific products as suitable to adults andothers suitable to children and markets them specifically to thesegroups or both. For instance, coffee is viewed as a stimulant by manypeople due to its caffeine content and hence not suitable forchildren. In recognition of this, Tim Hortons hot Chocolate which isviewed as more acceptable t of children and adults alike. By servingthe different products as the same outlets, it allows adults to beaccompanied by children on their trips to any of the stores. Anotherdemographic market segmentation is apparent in the manner that storesare located. Some Tim Hortons stores are located in hospitals,colleges and universities and thus they specifically target personsfrequenting those areas.
Marketsegmentation is also referred to as market focus. This entails thefirm identifying a niche market and choosing to concentrate on thatparticular market. This is based on the fact that a business entitycannot satisfy all consumer needs. For it to remain competitive, itmust identify a particular niche market and seek to satisfy its needsin a certain way.
Tim Hortonsdifferentiation of its products and services in their outlets makesit stand out in the market. The firm positions its products andservice in the market as icon of Canadian culture and all that isgood about Canadian culture such as famed friendliness. As such, TimHortons stores are depicted as the friendly store down the blockselling homely products. This differs strongly to competition whichlargely positions itself in the market as corporate giants and iconsof efficiency.
Cost leadershipentails firms applying the best method that received the cost ofproduction and distribution to a level lower than competition butwithout compromising on quality. Where firms pursue cost leadership,the same must not be reflected in the pricing of product which isbetter determined by the pricing strategy adapted by the firm. Costleadership ensures that firms retain a healthy profit margin. TimHortons pursues cost leadership by supplying souring its rawmaterials as single entity and distributing the same to variousfranchises through centrally located warehouses. This enables thefirm to enjoy economies of scale through supply.
Tim Hortons corecompetence lies in the ability of the firm to position the brandaround Canadian culture and national character. The Canadian nationalcharacter and identity revolves around neighborliness, trustworthy,friendly, unpretentious and gently playful. The firm uses thesevalues in orienting its strategy. Cathy Whelan Molly, the firm’svice-president of brand advertising and merchandising indicates that“In everything we do, we’ve always focused on the concept ofbeing that friendly, unpretentious, good neighbor you’d want livingdown the block from you.” Such ideals are communicated and effectedthrough marketing product development and customer service.
The firm hasachieved this through years of innovation and reinvention. To start,the firm first utilized the name Tim Hortons to identify with aCanadian icon and hero who had excelled in Hockey, the Canadiannational sport. Despite venturing in new markets such as US and theUAE, the firm has retained this Canadian identity as the core market.This association with Hockey was not by name only but also by initialcolors of blue and white associated with Marple Leafs, the team thatTim Horton played for. In modern times, the firm has been involved insponsoring children in under-privileged children in junior hockeyleagues through the Tim Hortons Children’s Foundation.
• Tim Hortons has a long history with the Canadian people starting way back in 1964 thus making it not only a fast food restaurant but also part and parcel of Canadian history
• The firm has a wide reach in the Americas and is establishing its presence in the UAE enabling it to protect itself from changes in the domestic market.
• It has penetrated the market exhaustively and has been able to establish a reputation for its business through high quality products and services
• Has introduced a wide product of product to cater to a wider market and also grow its sales
• The company is the leader in the Canadian fast food and coffee industry in terms of value, products variety, number of outlets and most importantly customer satisfaction. The firm is actively increasing its number of outlets in the US
• Hortons has a broad customer base as it supplies individuals consumers and targets corporate entities
• The company has liaised with Canadian and American animal welfare programs to ensure that the firm obtains its supplies from farms that treat animals humanely
• Has invested in famer education in countries where it sources its coffees to ensure reliable and steady supply of high quality beans
• The firm actively pursues a sustainability policy that reduces the carbon footprints of its products in order to cut costs and appeal environment-conscious consumers
• Wider market reach into the international market exposes the firm to higher competition
• Little brand awareness in the US affecting sales and market reach
• Heavy investment in the firms infrastructure in terms of warehouses and distribution networks increases costs to the firm
• The firm has failed to vertically integrate thus awarding suppliers more bargaining power than is necessary
• Market cannibalism as a result of the introduction of the Hortons coffee making machines that tend to encourage consumers to make coffee at home and stay away from Hortons stores.
• Majority of Hortons store are operating at full capacity currently leaving no room for growth
The firm relies on opening of new stores alone as its key growth strategy with value addition taking a back seat
• It has several upcoming stores a potential to increase the number of clients with most of the current stores operating at full capacity
• The company has promising market expansion opportunities in other parts of the US, Asia, India and China.
• The firm should enable online shopping for some of its products especially when purchased in bulk
• Hortons should offer promotion and offers to its clients to counter the influence of its competitors in the market
• sponsor reality baking shows and competitions for its consumers to maximize on the buzz of reality shows.
• Increased awareness of healthy eating has opened a new marketing opportunity for the firm to introduce a line of new healthy dishes and meals
• High technology in ovens and other machines facilitates innovation in new products and improvement on existing products that increases the quality of products and ensures increased safety of employees and customers
• Stiff competition from small local baking outfits
• Competition from established players such as Starbucks, Subway, and McDonalds.
• McDonalds has launched frequent free coffee promotions at their outlets in Canada targeting Hortons consumers
• Fluctuations in the global economy will affect how the company performs in the international market
• Fluctuation in the global prices of coffee and sugar
• Global warming and climate change has adversely affected the supply of wheat, coffee and other raw ingredients and subsequently the price of Hortons products.
• Continued condemnation of fast foods and snacks over their role in unhealthy eating habits especially in young children
• Increased health awareness among consumers on the need to eat healthy home-made meals
Imposition of Carbon Tax by some local government such as British Columbia increases operating costs for the firm
Value chain analysis
Primary activitiesinclude sourcing from suppliers, baking and processing coffee(operations), distributing these through the various warehouses toindividual stores (outbound logistics), marketing and sale andfinally customer service. Secondary activities or support activitiesat Tim Hortons include procurement, technology development anddeployment, human resource development, research and development andfirm infrastructure. The firm is thus involved in optimizing theactivity in each of the value creating activity.
One of the waysthat Tim Hortons has excelled in creating value has been throughcreating strategic partnerships with suppliers from all over theworld. This is done in order to guarantee the product quality byensuring high quality raw materials. The firm has also bound thesesuppliers through contractual agreements with farmers. These farmersreceive training on modern farming method that guarantees highquality. Additionally, the firm ensures that it owns the distributionprocess through strategically located warehouses that ensures timelyand rapid supply of raw materials to ensure that the various outletsoperate without fail.
The story of TimHortons proves that small organizations can achieve a lot throughstrategic organization and position in the market. Tim Hortosn hasmanaged to challenge McDonalds in Canada has achieved considerablepenetration in the American market in various ways. The shift from acoffee and doughnuts only to bake coffee and bake shop that offers awide range of products.
The Balanced Scorecard process is essential for companies andorganizations in order to increase profits (Cobbold & Lawrie,2002). It is a chain process that has four management steps. To startwith, there is the assessment of the business which involves knowingan organization’s value disciplines and knowing the organization’sstrengths, opportunities and weaknesses. Secondly, the processinvolves the development of a business strategy. The strategyinvolves identification of objectives and goals that must be reachedby the management of an organization in order to achieve success.Thirdly, the management should operationalize the business strategy.The fourth and last step is the improvement of the operations. Thisis done through project-management tools and cross-functional teamsthat make advanced changes to the operations.
The most significant features of the Tim Hortons approach tostrategic human resource management are the six stigma programs andthe Balanced Scorecard (Feldenkirchen et al, 2005). Competition inthe fast food business is getting bigger and the Tim Hortons has hadto step up its operations too. The six stigma programs were importantfor the Tim Hortons in that they have helped improve the operationsin the company. Besides, the six stigma programs were headed by anexpert that helped in the implementation and construction of thescorecard.
The balanced scorecard was important for the company as it was a toolfor strengthening the connections between strategy and every dayoperational activities, as well as, for giving employees themuch-needed sense of direction (Sisodia et al, 2007). The developmentand implementation of the scorecard approach involves variousmanagement steps. To begin with, before implementing the approach,assessment of the business is done. This helps the management to beaware of the value disciplines, the environment, strengths,weaknesses and opportunities of the organization. The firm hasmaintained a strong value that guides it interactions with allemployees and between the corporate entity and its stakeholders. Thesecond step is the development of a business strategy. This will helpthe organization in achieving its goals. The other step is theoperationalization of the business strategy that has been put inplace. This will involve the identification of performance measuresand targets. The final step is the improvement of the operationswhich involves making changes to the operations of the organizationthrough project management tools and cross functional teams(Norreklit, 2000).
Tracing of performance is also healthy for organizations. It can beenhanced through ensuring on time delivery, ensuring unbrokensupplies, ensuring transparency of the supply chain, establishing amirror of delivery performance and putting in place cost ofnonconformance in the organization.
However, if the Balanced Scorecard process would have beenimplemented with my former employer, it would have imposed severaladvantages and disadvantages to the employees. Among the advantagesare that it would have strengthened the connections betweenstrategies and every day operations in the organization. Besides, itwould have given the employees a sense of direction for betterresults. The weakness accompanying the scorecard is that the cost ofmaintaining it would be very high. It would also increase competitionamong companies and organizations (Kaplan & Norton, 2000).
The relationship between sales and prices is totally different fromthe relationship between profits and sales. Though lower prices arealways expected to increase sales the same may not apply to profits.On the other hand higher prices may result in a fall in sales volumebut fetch higher profits. The sooner the management understands therelationship between these three factors and how they apply in aparticular market as theoretical findings may not hold at all times.In the current case of Tim Hortons, some stores have reported a fallin profits which is being blamed on a fall in sales volume resultingfrom increased competition and a deteriorating economy that isdecreasing consumption spending among consumers. Research isnecessary at this point to determine the results of consumer fears inspending that may be connected to the economic slump trends andthereby increase consumer confidence in consumption of Tim Hortonsproducts. Doing so, the company might have to forego sales forprofit. But as a profit making company, foregoing sales volumes forprofits is the most rational idea at the moment so as to ensurereturn on investment.
Thecurrent situation facing Tim Hortons provides a very promising futureif the firm can utilize the opportunities that the industry providesand make necessary amendments to manage its weaknesses. One of mostpressing weaknesses of the fir that is impacting on its sales and hasresulted to closure of several outlets in the US is poor brandawareness in the US. The success of the firm in Canada has beenachieved by exploiting Canadian patriotism and positioning the brandas an icon of Canadian nationality, heritage and culture. The resultshave been impressive and have allowed the firm to surpass McDonaldsin Canada as the fast food outlet of choice in the country. However,this same strategy is not applicable in the US and other foreignmarkets such as the UAE. Although other countries have successfullymanaged to export national cuisines such as Indian, Mexican andChinese food, the same is impossible in the case of fast foot becausethe recipe is basically the same. In that regard, the firm needs todevelop a different strategy that will appeal to American market.American s are patriot and recognize other brands such as McDonaldsand Starbucks as more representative of the American culture andidentity.
Tim Hortons has adapted opening of new franchise stores as its keyexpansion strategies. The results have worked in Canada as the firmhas managed to dominate the fast food market. However, the samestrategy has not worked in the US as some stores have ended upclosing business due to poor sales and persistent losses.Furthermore, the increase in the number of stores has not enabled thefirm to increase sales per store. While the number of consumersserved in particular stores has remained stable, the amount of moneyconsumers spend in each visit has not shown impressive growth.Increasing the amount of money each consumers spends increases salesfor the firm but at the same time keeps costs lower and keeps trafficin stores at manageable levels. In short, it increases efficiencyenables the firm to be sustainable in its operations.
Tim Hortonsshould consider introducing multichannel retailing to capitalize onthe rise in online shopping. The idea of enabling customers to placetheir orders online either on the mobile app TimmyMe or through theonline platform will reduce the waiting time before orders areprocessed. This in the process increase efficiency in the outlets,reduces congestion of consumers and enables consumers to reach awider market.
Tim Hortons should introduce a line of healthy foods with loweramounts of calories, reduced sugar and fat content to address ahealthy conscious market. In the developed, the number of people whoare more aware of their health in terms of calorie and sugar intakeis rapidly increasing. To target this market, Tim Hortons needs tointroduce a new line of healthy products to expand its market. Thesame approach has been taken by other fast food and soft drinkmanufactures players such as McDonalds and soft drink makerCoca-Cola. Eating healthy is a new trend in the developed world thatcan only grow larger as health awareness courtesy of government andcorporate initiatives grows stronger.
Competition from established players and new entrants in the marketare threatening Tim Hortons market share. There is need for the firmto change its approach towards competition from the other players inthe industry to preserve and even grow its market share. Currently,McDonalds has upped its game in Canada by offering frequent freecoffees to its clients. Such activities are directly targeted at TimHortons consumers with the intention of encouraging them to return tothe McDonalds store. Tim Hortons thus needs to engage in moreintensive marketing campaigns to address the threat of substitution from competition.
Marketing is the most important tool in ensuring that customers areaware of what company products are in store and what makes themdifferent from already existing products. It is also responsible ofintroducing new products in the market and informing potentialcustomers of the possible use of the product to the consumers. Forthe case of Tim Hortons, consumers are already aware of the company`sproduct and probably know how to locate the nearest store. Then itwould be correct to say that the existing marketing strategy hasalready served the purpose and a new one effective in handling thecurrent issues afflicting the company should be put in place as timesand market dynamics have changed. A possible strategy should be tobrand the stores outside of Canada differently and tie the brandaround the American identity of other identities in whatever marketsthe firms operates in.
Tim Hortons still commands the market and as such should use itsposition to establish a more involving relationship between thecompany and the market that should be aimed at locking out thecompetitors. A good way of doing so would according to me be bycreating a forum through which consumers could narrate their firstTim Hortons experience. This will create a longing feeling for theconsumers of Tim Hortons products who have already switched toconsuming coffee from other coffee makers and houses. This will makethe customer feel like he is cheating on Tim Hortons as suggested byproduct and brand loyalty.
The threat of climate change can affect the supply and quality ofsome of the firm’s raw materials that include coffee and wheat.Erratic weather patterns around the world including drought affectsthe price of these products in the global market which passes on thecost to Tim Hortons, for the firm to fully cushion itself from suchprice fluctuations resulting in climate change, the firms should seekto sponsor sustainable farming methods among its core supplierfarmers. This can entail funding irrigation schemes together with thehost governments in order to ensure a stable supply of its productsregardless of the climatic conditions.
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