Tim Horton's Aggressive U.S. Expansion: Fueled by Cheap Real Estate
Not many restaurant chains have 900-store expansion plans on the table right now. An exception is iconic Canadian doughnut chain Tim Horton's (THI), which has a savvy rebranding strategy it'll use to add 300 upscale bakery-cafes in the United States. The company is flush with more than $100 million in cash, so it's ready to roll out and take advantage of the bakery sector's continued strength through the downturn.
As it kicks off the expansion, Horton's plans to pilot a new format -- branded Tim Horton's Cafe & Bake Shop -- in 10 initial markets, taking its brand beyond the doughnut-shop concept. While the original Horton's concept screamed "fast food," the bakery cafes will put the baking backstage, unbolt the chairs from the floor and invite lingering.
It's not that Horton's hasn't been successful in American with its doughnut shops -- it's quietly grown to more than 500 locations here, mostly in border states where American travelers have gotten to know the Horton's brand. Horton's plans to stick to that geographic area. The chain is smart to rebrand before this big expansion push to avoid going head-to-head with archnemesis Dunkin' Donuts and getting caught in a price war. Horton's has also helped American diners get used to its brand by teaming up with better-known Cold Stone Creamery in stores in 10 states.
The U.S. Web site is already moving the brand in an upscale direction, promoting items such as pomegranate-cheese Danish rather than simple crullers. Expect initial units in the expansion to crop up in Ohio, New York and Michigan, but don't be surprised if you see Horton's slowly roll south as Americans get hooked.
The company joins a raft of other international chains -- Phillipine giant Jollibee, South African entry Nando's, and Canadian compatriots Teriyaki Experience and Extreme Pita, among others -- in planning aggressive moves on U.S. markets now, while real estate is cheap. Landlords are desperate to sign tenants, and chains can lock in lease deals now that will pay off in low overhead when the economy turns and sales ramp up. These big players in other markets have been less affected by the global recession, and have the capital to move now.