Donuts To Dollars

Hmmmm ... donuts .....
Tim Hortons donuts
Tim Hortons

Americans are about to be dragged into an international food fight … and it's our friendly neighbors in Canada who are throwing down the gauntlet. Jeff Glor reports our Cover Story:

What comes to mind when you think about Canada? Hockey? The Mounties? Moose?

Well, maybe, you should be thinking of a donut, but then not just any donut ...

A Tim Hortons donut.

Canadians consume more donuts per capita than any other country in the world. That's thanks in large part to one chain.

Tim Horton, the aforementioned hockey player, was an all-star Toronto Maple Leaf who opened a modest donut shop in Ontario in 1964 that turned into a goldmine.

In the 45 years since, more than 3,000 Tim Hortons have sprung up over the Canadian landscape making it as much a cultural icon as it is a donut shop.

"Do you know what Tim Hortons is?" Glor asked one woman.


"Is that a dumb question?"

"Well, it is a dumb question if you're Canadian, yeah."

"It's sort of like the place that the Seinfeld gang used to meet at," describes actor-comedian Colin Mochrie, "but Canadian, very Canadian. I mean, it's the best of all Canadian worlds. It's named after a hockey player. You get donuts, you get a coffee, and the help is very polite."

The company sponsors youth hockey leagues. It set up shop in Kandahar to give Canadian troops stationed in Afghanistan a taste of home. It is so beloved, even hardened Canadian news commentators have been known to gush, as witness the CBC's Rex Murphy:

"Unlike Americans, we don't have a written pledge which guarantees our pursuit of happiness. But over time I think we've evolved. I think it is generally agreed that where the founders of the Canadian state were a little slack when spelling things out, ordinary Canadians have determined that a morning visit to Tim Hortons and the prospect of that first fresh Boston Creme donut makes up for any defects in the constitution."

Tim Hortons CEO Don Schroeder describes the donut shop as a "modern day pub" with a loyal following.

"We have people, wedding parties that wanna visit Tim Hortons the day of the wedding because that's where they met. We even had a funeral go through the drive-thru once. That, that was the last request. But, it's amazing the stories."

But don't let all this folksiness fool you. This is business, big business. Revenues in 2008 exceeded $2 billion. That's lot of Boston Cremes, and it makes Tim Hortons the fast food king in Canada.

"Yeah, there are more Tim Hortons than McDonalds," said Schroeder. "Our total sales are greater than McDonalds. And McDonalds does a great job, but they look at Tim Hortons in Canada as a unique competitor."

Okay, you get it: Tim Hortons is huge … in Canada. Of course in the United States, it hardly amounts to a hill of coffee beans.

"You say Tim Hortons to anyone, anywhere in America, you just get a baffled stare," said Mochrie.

David Clanachan is in charge of international development for Tim Hortons. He sees that untapped U.S. market as "fantastic."

"It's just the greatest nation in the world from a consumer perspective," he said. "I mean, it's the big stage. And so there's a huge opportunity in the United States to really succeed."

Tim Hortons is gaining a foothold - or skate hold - in the U.S. In Buffalo where I grew up, and where a Tim Hortons jersey hangs in the rafters of the city's hockey arena, the company is just about as big as it is in Canada.

There are about 100 Tim Hortons stores in the Buffalo area alone - and more than 500 overall in the U.S. Of course, that pales in comparison to well-established U.S. brands for breakfast and coffee. There are nearly 14,000 McDonald's in the U.S., more than 11,000 Starbucks, and more than 6,000 Dunkin' Donuts.

Of the three chains, Dunkin' Donuts is most similar to Tim Hortons. The first Dunkin' opened in 1950 in Massachusetts. Like Tim Hortons, they serve a selection of coffee, donuts and sandwiches.

At their headquarters outside Boston, executive chairman of the board Jon Luther explained that Dunkin' Donuts has big expansion plans - doubling its 6,400 U.S. stores in about ten years. And yet he seems unfazed by the Canadian invasion. He calls their wish to be as big in the States as they are in Canada "admirable."

"Is that possible?" Glor asked.

"I hardly, it's hard for me to believe that," Luthor said. "Our goal is to make sure that we continue our growth. We wanna protect home plate, wanna make sure our franchisees do well. AndI think we're up to the task."

There's a secret about these donut wars. It's not really about donuts. To paraphrase, it's the coffee, stupid.

"It's rituals, and coffee becomes a ritual," Luthor said. "People drink two and three cups a day. And we become their rest stop, become a place for them to go."

Dunkin' says it serves a billion cups of coffee a year, while up in Canada ...

"In Canada, at retail, seven out of every ten cups of coffee that are sold at retail are sold at Tim Hortons," said Schroeder.

"That's a staggering number," said Glor.

"Oh, it is. It's huge!"

Despite their success in Western New York, Tim Hortons has struggled in New England - Dunkin's backyard - and even had to close a few stores in the U.S.

Challenging, Glor asked.

"Oh, absolutely," said Schroeder. "We opened some stores in New England, and they were underperforming, so that was a tough thing for us to do. We're not used to having to do that."

Who is better positioned to win this battle?

"Dunkin Donuts is in a much better position to win the battle to the extent that they're the american brand," said market analyst Tom Forte.

"Tim Hortons is in about 11 states, Dunkin Donuts is in more than 30. So on a state basis, they have three times the states as Tim Hortons.

So, it may be a while before Tim Hortons is a household name in the States. Colin Mochrie says, Canadians are used to it ...

"In Canada, we like to think that Americans don't really know anything about Canada anyway," he said. "So it's just another thing they don't know. If you ask an American how many provinces does Canada have, the first question usually is, 'What's a province?'"

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