Tim Hortons COO Details Plans for Continued U.S. Expansion

OAKVILLE, Ont. -- Tim Hortons, with its 600 U.S. doughnuts-and-more locations, is now the second-fastest-growing chain in the U.S., according to a report by TheStreet.com.

While Tim Hortons opened its first U.S. location in Buffalo in 1985, recent efforts led by David Clanachan -- who was named chief operations officer, U.S. and international, in May 2008 -- have helped the chain expand in traditional markets such as western New York, Ohio and Michigan, as well as into Manhattan, on base at Fort Knox in Kentucky and Naval Station Norfolk in Virginia, and throughout various sporting venues in cold-weather cities.

This growth has boosted Tim Hortons' market cap to nearly $6.6 billion, making it the fourth-largest publicly traded restaurant chain behind Starbucks Corp. ($23 billion), Yum Brands Inc. (also at $23 billion), and McDonalds Corp. ($83 billion), the report stated.

And Tim Hortons is planning continued U.S. expansion. The company intends to add another 300 U.S. locations in the next three years, as well as expand its cafe-based concept stores beyond trial locations in Ohio, and enhance its commercial offerings in grocery stores and online.

Below are excerpts from TheStreet's recent interview with Clanachan:

Tim Horton's U.S. expansion plans call for 300 more stores over the next three years, with 70 percent growth in existing markets and 30 percent in "contiguous markets." How has Tim Horton's approached those contiguous markets before, and have the Cold Stone Creamery partnership and embrace of nontraditional locations such as hospitals and military bases helped your cause?

Clanachan: "Absolutely. If you look at our plans, we're firmly entrenched in building those stores over the next three years through that strategic plan. We think that there's a number of different ways to do it through the non-traditional locations like hospitals, universities, college campuses, sports stadiums, those types of things, as well as traditional stores and being able to do it with or without our Cold Stone partners.

As we go into markets that are adjacent to markets that we're already in, there already is a bit of a brand presence starting to be established. It's not as simple, because the whole Designated Marketing Area approach to marketing in the U.S. is somewhat complex compared to the rest of the world, but that brand awareness is there because, in that non-traditional audience, people travel around quite a bit, so it gives you that exposure."

Your company has already established a sponsor presence in the U.S. through partnerships with the NHL's Buffalo Sabres, Detroit Red Wings and Columbus Blue Jackets, the NBA's Detroit Pistons, the NFL's Buffalo Bills and the University of Michigan football team. How do sports sponsorships factor into expansion plans, and how does recent expansion into traditional, cold-weather hockey markets in Pittsburgh and Long Island benefit a company inherently tied to NHL hockey?

Clanachan: "The whole sports thing plays into our culture of what we've done for years through kids sports. More importantly, as we go into new markets and as we develop our brands in the U.S., partnering with local professional sports teams or teams on any level within the community is a big deal.

First of all, it allows you to get exposure to your brand. That's what everyone wishes for: 'Just try my product and I'll impress you with my execution, my quality and my value and all of the things I bring to the table.' Secondly, in the U.S. especially, we love our sports teams. The consumer today realizes that corporate partnerships are required for these sports franchises to be funded within the marketplace. You hear so often about teams that are doing really well or barely doing it, but the key thing is these partnerships drive loyalty at the local level and allows branding play that lets your brand act bigger than what it is in the new market you're entering.

I call it the win-win-win. We win, the team wins and the customers in those marketplaces win on both accounts: Both for the team and, hopefully, for the product that we offer."

Tim Horton's recently opened concept stores featuring fireplaces, televisions, an expanded gourmet coffee selection and comfort foods such as Panini and macaroni and cheese. With U.S. coffee competitors such as Starbucks and McDonalds' McCafe brand also drifting toward the cafe concept, is this approach vital to Tim Horton's success in the U.S. marketplace?

Clanachan: "We see the U.S. consumer changing. In the research that we've done, consumers don't want their cafe, their bakery, their bake shop or their coffeehouse to feel like a quick- service restaurant. They want it to be a little more comfortable and take that time to themselves.

If you watch the way people eat today, it's not the three traditional meals anymore. There's a lot of snacking going on and it's about quick stops, but it doesn't mean they shouldn't be comfortable stops. Having said that, they still want the speed, convenience and accuracy of a drive-through, but they want to be able to check out for 15 to 20 minutes and do so in comfort.

It's more being driven by the consumer and what they want. Whether it's 2010, 2015 or the year 2000, you always have to adapt to what the consumer is looking for and how it fits your brand. That's one of the things we understand how to do, and that's something that's being led by the U.S. consumer right now. We see such great opportunities for us not only because of the ballparks we play in, but because of the products that we offer."

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