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Sat, 11 May 2013 14:15:00 GMT | By Deirdre McMurdy, MSN Money

Can Tim Hortons retain its ‘iconic’ status?

Tim Hortons’ new CEO faces challenge of growth and expectations.


Deirdre McMurdy

It seems that some companies are destined to get stuck with an adjective that’s tough to shake. For example, it’s hard to imagine reading about Nortel without seeing the word “beleaguered” in front of it. And when it comes to Tim Hortons, it’s inevitably “iconic.”

That’s a tough adjective for any new CEO to inherit. But it’s likely to be the least of Marc Caira’s challenges. The former Nestle executive takes over at the helm of the, yes, iconic quick service restaurant (QSR) chain in early July. At the same time, he also takes over some daunting issues on several fronts — including the soft quarterly results that accompanied his appointment announcement.

First, he has to overcome the investor impatience that has mounted under two years of interim leadership. While Tims has hardly languished in that period, there was an attempted class-action lawsuit by disgruntled franchisees last year (it was dismissed in court). It has also attracted the attention of least one “activist” shareholder — the corporate equivalent of a bed bug infestation.

The public “suggestions” recently made by U.S. hedge fund Highfields Capital will not kill the company, but it’s likely to lead to painful, inflamed bites if not treated aggressively.

Specifically, Highfields wants Tims’ U.S. expansion — which has been less than a spectacular success — to stop. It’s also applying pressure for Tims to do what another “iconic” Canadian company, Canadian Tire, has just done: spin off its property holdings into a real estate investment trust (REIT) and generate a bucket of cash. (Loblaw has also done the same.)

There’s no question that Tims has real estate to spin. The company’s relentless expansion has led to 4,288 system-wide restaurants, including 3,453 in Canada, 808 in the United States and 27 in the Gulf Cooperation Council region (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates).

But by its own admission, Canada can support about 4,000 Tims outlets. And that’s what’s driven the recent focus on the U.S. and less-than-encouraging results.

The company was forced to close 36 stores in the northeastern United States in 2010 due to poor performance. Same-store sales were down 0.5 per cent in the United States in the first quarter of 2013, compared with 0.3 per cent in Canada.

There’s little question that the Tim Hortons brand identity — particularly its Canadian iconography — doesn’t help it in the United States. There, it’s just another donut shop. And there are plenty of those in the U.S. already.

And it doesn’t stop there.

There’s also a relentless focus on developing and launching new products. On the one hand it broadens the scope and customer base, on the other hand it’s expensive and relatively low-margin — which was one of the issues that the litigious franchisees wanted to address in their class-action suit.

(Continued)
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