Tim Hortons brand has ‘no limit,’ CEO says
Philippines expansion seen as entry point to Asian market
Tim Hortons is using the Philippines as a launch pad for Asian expansion in its quest to become as globally prevalent as its sister fast-food chain, Burger King.
“There’s really no limit to how far the Tims brand can travel,” Daniel Schwartz, CEO of parent company Restaurant Brands International, said on a conference call Thursday to discuss second-quarter earnings.
The multinational corporation has a presence in more than 100 countries, but that’s largely due to the ubiquity of Burger King. The iconic Canadian coffee shop is largely limited to Canada, the U.S. and the Middle East. The company announced Tims first foray into Asia last month, with a franchise partnership agreement in the Philippines. No date has been set for its opening.
Restaurant Brands chose to start with the small Southeast Asian nation because there is growing demand for quick-service restaurants, and people there have an affinity for coffee and doughnuts, said chief financial officer Josh Kobza.
“We view the Philippines as a natural gateway as we look to expand into Asia and, as such, we see it as an excellent entry point for the region,” he said. “It’s the first step in replicating the success we’ve had all around the world with Burger King, and we’re going to apply that model to take Tims around the world.”
Restaurant Brands, which has made worldwide expansion of Tim Hortons a priority since the 2014 merger with Burger King, hinted that it would be making more international partnership announcements in “the near future.”
At the time of the merger, Tims management cited help with an international expansion strategy as one of the key benefits of new ownership. The company is wise to focus Tims expansion efforts in Asia and the Middle East, where coffee shops are still a new concept, so taste standards in those regions are lower than in more mature coffee markets such as the U.S. or Europe, said Douglas Fisher, president of food consultancy firm FHG International.
“In Asia, the population is so huge, coffee is becoming more and more of a staple and still no one knows what good coffee is yet,” he said.
The Philippines market is an ideal experiment because it is so small, Fisher noted.
“If it doesn’t do well like they’ve experienced in the U.S., it’s not going to have a negative brand impact.” The company also announced a major partnership agreement to spread Tim Hortons in the Minneapolis area, its fourth U.S. joint venture agreement since the merger.
Tims has previously struggled to make inroads in the highly-saturated U.S. market, shuttering some stores in New England last year.
The recent Asian expansion efforts come even as international comparable sales growth shrunk by 3.3 per cent. The company said the Islamic holiday of Ramadan, which requires fasting and fell earlier this year, was the primary factor for the decline.
Restaurant Brands reported a big jump in second-quarter profits, thanks in part to cost-cutting. Net income was $90.9 million (U.S.), or 38 cents per share, in the three months ended June 30. That’s up from $11 million, or five cents per share, in the second quarter of 2015.
Revenue was little-changed and slightly less than analysts expected, at $1.04 billion, partially due to currency fluctuations. Comparable restaurant sales growth slowed to 2.7 per cent at Tim Hortons, from the 5.5 per cent reported a year earlier and to 0.6 per cent at Burger King, much lower than the 6.7 per cent reported in the year-ago period.
The company reported softness in the market and slower growth due to challenging macroeconomic conditions. Quick-service competitors such as McDonalds also reported slower growth during the quarter.
Restaurant Brands said it remains focused on expansion despite the recent softness. As the company expands, it will cater to local tastes as it does in the Middle East but remain true to Tims classics, Schwartz said.
“I assure you you’ll still be able to get a double-double and as many Timbits as you want wherever our Tims are going to be popping up around the world.”