Canadian coffee leader joining single-serve competition

by Eric Schroeder
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OAKVILLE, ONT. — Count Canada’s Tim Hortons Inc. as the latest North American restaurant chain to take its coffee to the supermarket. In announcing its fiscal 2013 full-year results on Feb. 20, Tim Hortons said it will begin selling its single-serve coffee through the grocery channel this summer.

“As the coffee leader, we believe fundamentally that we need to position our brand when and where consumers wish to purchase coffee,” Marc Caira, president and chief executive officer, said during a Feb. 20 conference call with analysts. “The grocery segment represents approximately 40% of the overall single-serve market dollars.”

Tim Hortons currently sells its coffee in the Tassimo and Tim Hortons RealCup formats exclusively through its network of nearly 4,500 restaurants, on-line through its web site, and in the United States through select other channels. The company also currently offers canned coffee in grocery channels.

“By extending our participation to the grocery channel, we are meeting unmet needs for loyal Tim Horton guests, and we believe we can grow our share of the overall grocery coffee sales, benefiting our restaurant owners and the company,” Mr. Caira said. “This is consistent with the position I stated very early that we will take the Tim Hortons brand into new channels of distribution so that it becomes available to consumers whenever and wherever they want to enjoy a Tim Hortons product. Asserting our coffee leadership and having a different mindset on these types of opportunities such as the dark roast pilot and expanding single-serve into the grocery channel is consistent with our strategic direction.”

When asked by an analyst how the company was able to convince its franchisees to accept the roll-out of a single-serve product — a sticking point in the past — Mr. Caira responded that the product has become a “phenomenon” in North America.

“As a coffee leader in this country, we have a responsibility to ensure that in these types of trends that we are at the forefront,” he said. “We are clearly in the single-serve in our restaurants. We are very, very happy with the results. But we also can’t be naive, and more importantly we need to be realistic. There are people that will go into supermarkets to buy coffee, and when they go into the supermarket to buy coffee, why shouldn’t they be buying Tim Hortons, that’s the question.

“When you have a discussion with your franchisees who have been our partners for 49 years and you lay out the logic, it’s not that difficult to see — that as the leading coffee brand, Tim Hortons needs to be where the consumer is.”

He continued, “This is not about dictating anything. This is about looking at the business in a rational manner, looking at the growth opportunities, looking at our leadership position, and the conclusion was very evident by everybody that we will be there.”

Cynthia Devine, chief financial officer, added as Tim Hortons moves forward in the single-serve market it will use a revenue sharing program with its franchisees that is similar to one currently in place for canned coffee sales at retail.

“We have aligned our interest on growth in that area, which I think is absolutely fair in the type of relationship that we have with our restaurant owners,” Ms. Devine said.

Earlier this month, Krispy Kreme Doughnuts, Inc. said it would make its coffee available in single-serve pods for Keurig brewers by the end of 2014. Both Starbucks and Dunkin’ Donuts brand coffee have been available for the Keurig system since 2011, and Panera-branded product joined the lineup last fall. Meanwhile, Kraft Foods Group, Inc., which makes the Tassimo Brewing system, last fall began a partnership with McDonald’s for its coffee products.
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