OAKVILLE, ONTARIO-Nearly every Canadian knows Tim Hortons, and knows it well, since it’s among the most popular restaurant chains in the country, serving a variety of coffee, baked goods and sandwiches from about 3,300 locations throughout Canada. Moreover, the chain is still growing in its country of origin: more than 120 new Canadian stores were opened from the end of 3Q 2003 to the end of 3Q 2004, and Canadian comp-store sales were up a strong 8.4% in the company’s third fiscal quarter of this year, compared with 3Q 2003 (fourth quarter numbers will be out in January).

Not nearly as many residents of the United States know the brand, since there are only about 230 shops in this country. But Tim Hortons–which for about a decade now has been owned by Wendy’s International Inc., headquartered in Columbus, OH–has plans to more than double its presence in the United States in the next three years by adding perhaps as many as 300 more stores.

Currently, Tim Horton’s US stores are largely in the Northeast and Midwest, though a handful of them can be found as far afield as Kentucky and West Virginia, and they’re doing well. Comp stores sales in the U.S. Tim Hortons shops bested the growth of the Canadian shops by posting a 9.8% increase in the third quarter of this year, compared with 3Q 2003. Those Americans who know about Tim Hortons seem to be patronizing the brand.

“We see U.S. expansion as a major growth opportunity,” says Jack Schuessler, president and CEO of Wendy’s. “We have many competitive advantages in the northeast and Great Lakes regions, including 24-hour operations, drive-through windows, an expanded lunch offering, updated restaurants, and, most importantly, a great cup of coffee.”

The company kicked off its U.S. expansion efforts in a significant way earlier in 2004 when it acquired 42 former Bess Eaton coffee and doughnut shops in Connecticut, Massachusetts and Rhode Island, its first venture into those states. The deal was completed in the spring, and by mid-summer virtually all of the old Bess Eatons had been converted to the Tim Hortons concept.

Tim Hortons’ success is probably more than a testament to brand loyalty among Canadians. A resident of the United States, Arun K. Jain, puts it this way: “The coffee is the main thing. It’s very hot, very fresh, and cheaper than Starbuck’s.”

As Samuel P. Capen professor of marketing research and chairman of the marketing department at the University at Buffalo, State University of New York, Jain has watched closely as Tim Hortons came to the greater Buffalo market and essentially decimated the competition. “Dunkin’ Donuts is finished here, it’s gone, except for a few highway locations on the outskirts of the area,” he tells GSR. “It couldn’t compete with Tim Hortons, which became very popular very quickly here, especially among young people.”

He points out that coffee, as critical as it is to the chain’s business, isn’t the only thing Tim Hortons does well. “The doughnuts and other baked goods are high quality, and the chain does very well in finding locations, especially places that offer drive-through opportunities,” Jain says. “It’s a common sight here in Buffalo to see cars queued up in the morning at a Tim Hortons drive-through. They’re very popular places to swing by on the way to work in the morning.”

Though he hasn’t studied the company’s expansion plans in any detail, Jain did tell GSR that other brands facing competition from the Canadian chain “are in for trouble, unless they change. Not just the Dunkin’ Donuts of the world, but other kinds of shops, such as bagel shops in strip malls that don’t have drive-through access.”

Not content to rest on current successful product lines, Tim Hortons is also known for its steady introduction of new products, typically but not always extensions of popular existing offerings. Earlier this year, for example, it introduced a strawberry tart, a steeped tea made from orange pekoe leaves, and a hot chicken and roasted red pepper sandwich, which represented the brand’s first entry into hot sandwiches.

Tim Hortons also seems to be fending off a foray by Krispy Kreme into Canadian territory–or perhaps the North Carolina doughnut maker’s expectations for Canada were too optimistic in the first place. But in any case KK closed three of its dozen Canadian operations recently, compared with Tim Hortons steady expansion.

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