International Business Expansion Strategy for Tim Hortons

This report analyzes the strategic context and options for Tim Hortons' international business expansion strategy, including market analysis, strengths and weaknesses, and recommendations for success.

Briefing Report 2 – Case Analysis
Name of the case: International business expansion strategy for Tim Hortons
Issue
Tim Hortons is aiming for international expansion. The brand is synonymous with Canadian
identity, however, the brand and the products are far less known outside Canada and some
parts of the United States. 3G Capital, the firm that owns Burger King, will acquire Tim
Hortons and will invest in its international expansion. To increase its business, it is important
for Tim Hortons to expand its operations internationally and it is expected that with the
global business experience of 3G Capital, the brand can expand successfully than what it
could do on its own. During the expansion, Tim Hortons will also address the issues like
inconsistent economic growth, increased competition and evolving consumer tastes and
making the menu innovative in accordance with the evolving consumer tastes. Thus,
achieving competitive advantage in the market is one of the primary concerns for Tim
Hortons while expanding its business.
The decisions that need to be made by the brand should be based on its strengths and
weaknesses and resources and capabilities. Thus, it should explore the opportunities and
threats of the business while gaining competitive advantage in the market. Thus, Tim Hortons
should focus on improving its service and product offerings along with competitive pricing for
a successful business expansion and growth. The major strategic decisions that should be
addressed are driving same store sales by targeting the specific segments of the day
category, increasing marketing opportunities, increasing investments to build up scales and
the brand in existing and new market, exploring new ways of growth, and leveraging the core
business strengths and the franchise systems.
Strategic Context
The strategic environment analysis has been performed to analyze the business growth
context for Tim Hortons. The internal and external environment of the brand along with its
market competition forces and core competencies are explored and analyzed to get an
overview of the business growth opportunities, threats and the capability of the brand in
regards to the strategy for business expansion. As the business is aiming for international
expansion, with a main focus on capturing the US market due to its huge growth potential,
the external environment analysis has been conducted in the context of the US market. For
external environment analysis, PESTLE analysis framework and five forces of market
competition have been used (Refer to Appendix 1). For analyzing the internal environment of
Tim Hortons and its competencies, SWOT analysis framework and VRIO framework are used
(Refer to Appendix 2).
External environment of a business refers to those elements that influence the business
performance of a firm significantly but cannot be controlled by the firm (Richelieu & Korai,
2014). Porter’s five forces of competition show the intensity of the competitive forces for Tim
Hortons. From the analysis, it is seen that the threat of substitutes, bargaining power of
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buyers and suppliers and industry rivalry is high for Tim Hortons. Only the threat of new
entrants is moderate as this industry has barriers such as, high start up cost, strong brand
name and strong supply and distribution chain. Thus, it can be said that Tim Hortons faces
high market competition from existing brands such as Starbucks, McDonalds, Krispy Crème
and Dunkin’ Donuts in the USA as well as in the Canada. All these provide similar fast food
products and variety of coffee and beverages and all have strong brand name in the US
market in comparison to Tim Hortons. Hence, threat of substitutes is quite high. Similarly, the
consumers as well as the suppliers have high bargaining power as the level of customer
satisfaction determines the level of demand and that influences business growth. Similarly, as
the competition is high, the suppliers can also move to other rivals if the business
relationship with Tim Hortons does not work.
From the PESTLE analysis, it is seen that as the company is focusing maximum on the USA
market, it will get a stable political and economic condition to take on the venture for
expansion. As the market for fast food is very large in the USA, Tim Hortons can utilize the
scope for expanding its business by addressing the demands of the customers in a precise
manner, such as, by addressing the healthy food options. The technological, legal and
environmental factors are also favorable for the company for expanding the business in a
profitable manner.
The internal environment analysis shows that Tim Hortons has innovative capability which
should be exploited to address the evolving tastes and preferences of the target market. It
has strong operational efficiency, quick customer service ability, and efficient supply chain
management and has been able to establish competitive pricing, quality and productivity in
the Canadian market, which has given the company a comparative parity in the market. The
Franchisee management is the business model adopted by Tim Hortons, which has given the
company a competitive advantage in the market. However, it is also seen that the company
has some weaknesses, such as, lack of proper marketing activities, resulting in decreasing
profitability for the store owners and franchisees. The annual same-store-sales growth in
both Canada and USA has been decreasing too, in which the lack of varieties in the coffee and
beverage products is also contributing.
Thus, the company should focus on more efficient and effective marketing activities to tap
the new target market and more innovations should be adopted in introducing new menu
including healthier food options. The pricing should be made more competitive to capture a
substantial market share, which would boost the sales and increase same-store-sales and
profit for the store owners and franchisees, which increase overall profitability of the
company.
Evaluate Options and Recommendation
Tim Hortons should focus on its weaknesses and the business threat options to gain a
comparative advantage in the new markets. By utilizing and enhancing its strength factors, it
should exploit the market opportunities and overcome the challenges. As found from the
environment analysis, Tim Hortons should explore the opportunities in the new and
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emerging markets and for that it should invest more in enhancing its strengths and
addressing the weaknesses so that it can increase its business with the help of 3G Capital and
make a sustainable profit.
 The company should adopt more effective marketing strategies in the new markets to
promote its brand name and value that it has established in its Canadian market. Various
marketing strategies can be adopted, such as, discount pricing, coupons, promotional
prices in the new store opening, and for drive thru customers.
 It should focus and invest on research and development of new menu with innovative
items. As the tastes and preferences of the customers are evolving, Tim Hortons should
conduct market study and take measures accordingly. Based on the findings, the new
menu and food items should be developed. For example, it must include low calorie and
healthy food options to cater to the health conscious customers and children.
 The pricing should be made more competitive to capture the new markets. Tim Hortons
can adopt cost focus strategy for entering the new markets in new locations. That would
help it to draw a substantial amount of customers and with improved and quicker
customer service, it is expected to grow the business. It would also help to grow their
same-store-sales for Tim Hortons.
 Tim Hortons should also invest to develop infrastructure for the franchisees to improve
the look and feel of the stores.
Implementation
Tim Hortons should make an implementation plan to design and implement the measures
accordingly to get the maximum benefits. The implementation plan for the new strategies
should include the following:
 Market research (3 months): to understand the consumer behavior pattern and tastes
and preferences of the target market
 Innovation in menu (4 months): based on the market research findings, Tim Hortons
must redesign its menu and food items and introduce healthy food items
 Opening up new franchisees (3 months): it should open up new franchise stores in the
targeted locations
 Promotions (4 months): rigorous marketing activities will be undertaken, such as,
advertisements in television, radio, and social media, discount pricing in stores, new
branch opening promotional pricing, coupons, and special offers during festivals etc.
 Training employees (2 months): the new and existing employees should be trained in
enhancing the customer services and to earn customer loyalty.
 Sales evaluation in every 3 months: Tim Hortons should be making sales comparison
across the stores and also take customer feedback to understand their growth and
popularity.
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APPENDICES
Appendix 1
Five forces of competition
Threat of substitutes It is quite high as there are many competitors in the fast food
industry providing similar food and beverages
Threat of new entrants It is moderate as the entry barriers are high due to high start
up cost and time required to establish a brand name
Bargaining power of buyers Buyers have quite high bargaining powers as the business
growth depends on the demand by consumers and level of
customer satisfaction provided by Tim Hortons
Bargaining power of suppliers Premium quality raw materials are sourced from various
places to provide high quality food and beverage. Thus,
suppliers have a high bargaining power as they can move to
other service providers in the competitive market for their
profitability.
Industry rivalry Industry rivalry for Tim Hortons is high and the major
competitors are Starbucks, McDonalds, Dunkin’ Donuts and
Krispy Kreme.
PESTLE analysis of Tim Hortons for the US market
Political  Stable political situation in the USA supporting international
businesses for investment and achieving growth
Economic  USA is an economically growing country with a moderate
unemployment and inflation rate
 Disposable income of average American is high and hence, level of
consumer spending in the fast food industry is high too
 Fluctuating exchange rate affecting supply prices
Social  Massive and growing number of consumers for the fast food industry
 Increase in the demand for healthy food
Technological  Innovation in fast food
 Convenience of drive through
 Online ordering
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Legal  Health and safety laws to be strictly followed
 Intellectual property rights are maintained to protect innovations
Environmental  Carbon footprint should be reduced
 Sustainable activities should be undertaken for the benefit of the
environment.
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Appendix 2
SWOT analysis of Tim Hortons
Strengths  One of the biggest fast food brands of Canada
 Excellent quick service
 Affordable pricing compared to major rival Starbucks
 Steady financial growth
 Sustainable and strong supply chain
Weaknesses  Marketing activities are not strong enough to capture the global
market, leading to fall in sales and closure of many stores in the
United States
 Decreasing profitability for the store owners and franchisees
 The expansion in the US has been sluggish resulting in closure of
many stores
 Decrease in the annual same-store-sales growth in both Canada and
USA
 Number of varieties of coffees are less
Opportunities  Innovation in the fast food and quick service industry is a great
opportunity to pull the crowd and Tim Hortons has already been
investing in making an innovative menu for evolving tastes of the
customers
 Opening up of new and emerging markets
 Existing brand image can be boosted with more effective marketing
Threats  Increasing competition
 Higher cost of raw materials
Key competencies of Tim Hortons
Key
competencies
Valuable Rare Inimitable Organized Competitive
advantage
Operational
efficiency
Yes Yes Yes Yes Relative
comparative
advantage
Brand
management
Yes No Yes Yes Comparative
parity
Efficient supply
chain
management
Yes No Yes Yes Comparative
parity
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Quality,
competitive
pricing and
productivity
Yes Yes No Yes Comparative
parity
Strong
franchise
management
Yes Yes No Yes Comparative
parity
Innovation Yes No No Yes Competitive
advantage
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NABU470: North American Business Policy and Strategy