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FDD Talk 2019: Tim Hortons Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

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Tim Hortons Photo by Mark 2400Tim Hortons Photo by Mark 2400

In this FDD Talk post, you’ll learn the following:

  • Section I – Background information on the Tim Hortons franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Tim Hortons franchise, based on Item 7 of the company’s 2019 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Tim Hortons franchise, based on Items 5 and 6 of the company’s 2019 FDD
  • Section IV – Number of franchised and company-owned Tim Hortons outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
  • Section V – Presentation and analysis of Tim Hortons’ financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
  • 2018 average gross sales for all franchised standard Tim Hortons shops that were open and operating for at least one year as of December 31, 2018, in Michigan, Ohio, New York, Pennsylvania, West Virginia, Maine, Indiana, New Jersey, North Dakota, Kentucky, and Minnesota, respectively

Section I – Background Information

23 Things You Need to Know About the Tim Hortons Franchise

Makes Improvements to Elevate Coffee Experience for Customers

1.  In mid-May 2019, Tim Hortons announced the introduction of its custom Tims FreshBrewer™ Technology to optimize coffee consistency, a new and improved lid that reduces spills, and a commitment to transforming consumer behavior to decrease the use of single-use paper cups.

2.  While Tim Hortons continues to use the same coffee beans it has been using since it first opened in 1964, the company has recently made changes to the way it brews its coffee. Tim Hortons’ in-house coffee experts conducted market tests with restaurant owners and guests and worked closely with engineers to develop a better and more consistent brewing technology, while maintaining the original secret recipe and its “always 20 minutes fresh” promise.

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3.  After three years of testing and developing the new custom brewing technology, Tim Hortons restaurants across Canada have started to roll out Tims FreshBrewer Technology.

4.  According to Kevin West, head of coffee excellence for 20 years at Tim Hortons, “Extensive research shows guests love Tim Hortons coffee, but it needs to be served more consistently. We’re excited to evolve our coffee brewing technology keeping our ‘always brewed fresh every 20 minutes’ promise to guests and delivering our iconic taste in every cup. From the coffee in a guest’s cup, to the cup and lid itself, we are working to ensure that every single element of the coffee experience at Tim Hortons is superior across our almost 4,000 restaurants in Canada.”

5.  According to Tim Hortons, there are three dimensions to coffee packaging: design, function, and sustainability. Tim Hortons’ brand teams have designed a beautiful, modern, and instantly recognizable new cup to align with the brand’s updated visual identity.

6.  The lids, too, have been completely redesigned in both function and design with a raised dome, tabbed closure, an improved flow of coffee from the cup, and an iconic maple leaf embossed in the lid. The new lid is made from polypropylene, a material that is 100% recyclable. Polypropylene will be accepted in all of Tim Hortons’ restaurants and is a material type accepted in 95% of curbside recycling programs across Canada.

7.  Alex Macedo, president of Tim Hortons, said, “We took more than two years to develop the new lid – conducting 12 research studies, serving over 30 million beverages and working with thousands of guests to help us design it. Our guests have been asking for a better lid for years and we took the time to research and develop an improved lid that not just reduces spills but has a reduced carbon footprint. Guest feedback on our new lid is overwhelmingly positive with a nine to one preference over our old lid.”

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8.  As the leader in coffee in Canada, Tim Hortons is taking a firm position on single-use paper cups and will execute a substantial marketing effort to support this stance. This decade-long commitment to sustained marketing and advertising will help transform consumer behavior in more ways than one. Tims will help to educate a new generation of consumers who could never imagine using a cup just once, as well as introduce a new reusable cup that will be available for purchase at a low price point in restaurants this summer, starting at $1.99.

9.  Other coffee packaging sustainability initiatives in 2019 include testing a more environmentally-friendly paper cup, testing a new strawless lid for iced coffee, and rolling out wooden stir sticks.

Launches Loyalty Program in the United States

10.  In early April 2019, Tim Hortons rolled out a loyalty program for its stores in the United States. With the new rewards program, customers will be eligible for any size hot brew coffee, hot tea, or baked good (except for Timbits and bagels) after every seventh visit.

11.  To use Tims Rewards, customers can:

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  • Visit any eligible Tim Hortons restaurant in the United States to receive a reusable loyalty card; or
  • Download Tims Rewards to a digital wallet on an iPhone or Android device and use it the same way as a reusable loyalty card; or
  • Download the updated Tim Hortons mobile app, which allows users to track their status, scan for rewards, and order directly through the app to earn visits and redeem rewards.

12.  For a limited time after the rewards program rolled out, new users received a free reward following their first purchase greater than $1.50. In the coming months, Tim Hortons will also be unveiling new personalized mobile offers and discounts.

13.  Shawn Thompson, president of Tim Hortons U.S., said, “Our guests deserve a rewards program as a thank you for their loyalty. We’re offering both a reusable card and a digital friendly card on the Tim Hortons app so that it’s extremely easy for our guests to use over and over again.”

Company History

14.  Tim Hortons was founded in 1964 by Canadian businessman Jim Charade and Canadian hockey
legend Tim Horton in Hamilton, Ontario. The year before, Charade and Horton had formed Timanjim Ltd. and opened Tim Horton Drive-In, which served burgers and chicken. In a separate deal, Charade also licensed Horton’s name for his other business, a donut shop originally called Your Do-nut. Charade changed the shop’s name to Tim Hortons and it became the first donut store to bear Horton’s name.

15.  While the burger restaurant was struggling, Charade decided that it would be better to focus on the donut shop and franchise the concept. At this time, Horton was still only licensing the use of his name to Charade, but Horton joined the business as an equal partner in 1965.

16.  Charade had sold two franchises, but things didn’t work out with the franchise owners. The third Tim Hortons franchise was owned by Ron Joyce, a former police officer, who was running a Dairy Queen at the time. Joyce was a good businessman, but butted heads with Charade.

17.  After briefly leaving Tim Hortons, Joyce came back at the request of Horton, but only on the condition that Joyce was made an equal partner in the company. Following Joyce’s return, Charade left the company in 1966 and Joyce is largely credited with turning Tim Hortons into the successful chain it is today.

18.  Joyce and Horton, who was still in the NHL, spent the next few years growing Tim Hortons across Canada. After Horton’s unexpected death in 1974, Joyce purchased the Horton family’s shares of the company for $1 million and took over sole ownership of Tim Hortons.

19.  Over the next few decades, Joyce aggressively expanded Tim Hortons and by 1991, there were 500 locations. In 1995, Joyce sold Tim Hortons in a merger with American fast-food chain Wendy’s. The merger allowed Joyce to open Tim Hortons stores in the northeastern United States while continuing to expand in Canada. Joyce remained with Tim Hortons for several more years until he retired in 2001.

20.  Under pressure from shareholders, who felt that Tim Hortons’ success was overshadowing Wendy’s struggles, Wendy’s divested its Tim Hortons ownership in 2006. By the end of the early 2000s, Tim Hortons had grown to 3,000 locations in Canada and 600 stores in the United States.

21.  Tim Hortons continued its growth into the next decade and in 2014, Tim Hortons was acquired by 3G Capital, a Brazilian private equity firm that also owns Burger King. The deal was approved by Canadian Minister of Industry James Moore under the condition that the Burger King and Tim Hortons chains retain separate operations and not combine locations, maintain “significant employment levels” at the Oakville headquarters, and ensure that Canadians make up at least 30% of Tim Hortons’ board of directors.

22.  Today, in addition to the U.S. and Canada, there are Tim Hortons stores in the Philippines, Mexico, Spain, the United Kingdom, and China.

Entrepreneur’s Franchise 500

23.  Tim Hortons did not rank on Entrepreneur’s 2019 Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of Tim Hortons franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on Tim Hortons’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

  • Outlets at the Start of the Year:  758
  • Outlets at the End of the Year:  788
  • Net Change:  +30

2017

  • Outlets at the Start of the Year:  788
  • Outlets at the End of the Year:  738
  • Net Change:  -50

2018

  • Outlets at the Start of the Year:  738
  • Outlets at the End of the Year:  727
  • Net Change:  -11

Company-Owned

2016

  • Outlets at the Start of the Year:  0
  • Outlets at the End of the Year:  0
  • Net Change:  0

2017

  • Outlets at the Start of the Year:  0
  • Outlets at the End of the Year:  0
  • Net Change:  0

2018

  • Outlets at the Start of the Year:  0
  • Outlets at the End of the Year:  0
  • Net Change:  0

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

  • The following table describes the average and median Gross Sales in 2018 for all franchised Standard Shops that were open and operating for at least one year as of December 31, 2018.
  • Gross Sales include all revenues received by the Shop, less refunds and sales taxes.
  • A Standard Shop is the typical Tim Hortons restaurant. It produces, merchandises, and sells a variety of baked goods, such as donuts, cookies, muffins, tarts, as well as coffee and other beverages. Most Standard Shops also offer a variety of soups, chili, and sandwiches. The Standard Shop generally ranges in size from 1,000 to 2,300 square feet, and contains a seating area for customers. The Standard Shop also typically includes a drive-thru facility and may be a stand-alone or an in-line Shop.
  • The table reflects the results of 515 franchised Standard Shops (which includes Shops operating under a Franchise Agreement and under an Operator Agreement), or 71% of all franchised Shops. The remaining franchised Shops were not included because they opened or closed after January 1, 2018 (3%), they were not Standard Shops (25%), or they did not report actual sales for all 12 months in 2018 (1%).
  • 20 of the Shops that were excluded closed during 2018. Tim Hortons had one Shop close in 2018 after being open less than 12 months.
  • In preparing this table, Tim Hortons relied on the data contained in the unaudited reports submitted to it by its franchisees and operators.
  • As of December 31, 2018, 72% of the Tim Hortons System operated a Standard Shop.
  • The information appearing in this table reflects the aggregate Gross Sales results of individual Standard Shops. The information does not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the Gross Sales figures to reflect net income or profit. Moreover, this information should not not be considered as the actual or probable sales results that will be realized by any franchisee or Shop.
  • Actual results vary from Shop to Shop and Tim Hortons cannot estimate the results of any specific Shop. A new franchisee’s Shop results are likely to differ from those of established Shops.

Average Gross Sales in 2018 for All Franchised Standard Shops That Were Open and Operating for At Least One Year as of December 31, 2018

Michigan

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