As it closes in on 4,000 restaurants across Canada, Tim Hortons is looking to the U.S. to support new growth for the chain, CEO Paul House told a meeting of Wall Street analysts and retailers in New York City on Wednesday.
“We have gained a solid foothold in the U.S. market, which promises to be the next wave of growth for our company,” House said in his address, delivered at the Bank of America Merrill Lynch Consumer and Retail Conference.
Average annual restaurant sales at Tim Hortons restaurants in the U.S. are about half the sales at Canadian locations. But in older, more developed markets like Buffalo, sales are comparable, indicating opportunity for growth, said Cynthia Devine, chief financial officer.
“The opportunity is to move everybody up to those (sales figures), similar to Canada. It takes time. What we’re trying to do in the U.S. is accelerate what took us a really long time to build in Canada,” she said.
Tim Hortons has doubled its footprint in the U.S. in five years and now has 804 stores in 11 states in the Northeast and Midwest regions, with the largest presence concentrated in New York, Ohio and Michigan.
“Our strategy is to really focus our capital resources on our most developed markets where we already have a solid presence. A higher density of restaurants in a particular city increases the convenience for our guests and enables us to use our advertising spend more efficiently,” said Devine.
House also said Tim Hortons will continue to expand in the Gulf States, growing the business from 24 restaurants to 120 in the region by 2015. He said the company is also exploring other international markets, but the U.S. remains the best retail market in the world, despite the high level of competition.
“A lot of brands that are in the U.S. have been around for a while, some of their facilities are tired,” House said.
Same-store sales increased a disappointing 2.8 per cent at Tim Hortons restaurants in Canada in 2012, falling short of the targeted 3-5 per cent. Same-store sales at U.S. restaurants were a more robust 4.6 per cent.
At the end of 2012 there were 3,436 Tim Hortons restaurants in Canada. Tim Hortons research has shown there is room for about 4,000. It plans to build 160 to 180 new stores in Canada in 2013. At that rate, it will build to 4,000 in less than four years.
Tim Hortons is positioned as a bakery and café in the U.S. It plans to build an additional 70-90 full-service restaurants in the U.S. in 2013.
While Tim Hortons has produced positive same-store-sales growth for 21 consecutive years, rewarding investors handsomely along the way, analysts have lately been cooling slightly, in light of increased competition in the quick-serve restaurant sector and continuing adverse economic conditions affecting Tim Hortons core market, made up of consumers in the manufacturing sector.
“Those people are still coming to us, but they can’t afford to come to us as often as they had in the past,” said House.
“The U.S. seems to need a plan that could help it break through on operating profit,” according to a note to investors on Tim Hortons by analysts at CIBC World Markets, issued in February.
“Ongoing improvements in the U.S. segment remain critical to investor perception,” according to a note from RBC Dominion Securities Inc. analyst Irene Nattel.
Analysts are also waiting to see who will take over from House as CEO and what course will be set as a result.