Comparative Strategic Analysis of Tim Hortons And Starbucks

MGCR 653 MARKETS AND GLOBALIZATION
Comparative strategic analysis of
Tim Hortons & Starbucks
Prepared By: Ankit Balyan (260658486)
Natacha Engel (260153554)
Veronica Michiels (260676925)
Rodrigo Guizoni (260693487)
Odilon Hernandez (260693534)

Table of Contents
1.0 Executive Summary..............................................................................................................................2
2.0 Description of Organizations ...............................................................................................................3
2.1 Tim Hortons .............................................................................................................................3
2.2 Starbucks..................................................................................................................................4
3.0 Industry overview and analysis ...........................................................................................................5
3.1 Industry overview and analysis ..............................................................................................5
3.2 PESTEL analysis and industry key drivers...........................................................................6
3.3 Five Forces of Porter and Profitability Analysis...................................................................7
3.4 Macroeconomic outlook ........................................................................................................11
4.0 Internal Analysis.................................................................................................................................13
4.1 Tim Hortons ................................................................................................................................13
4.1.1 Core Competence................................................................................................................13
4.1.2 SWOT Analysis...................................................................................................................13
4.1.3 Value Chain.........................................................................................................................16
4.1.4. Growth of the organization...............................................................................................17
4.1.5 Branding Strategy...............................................................................................................18
4.2 Starbucks.....................................................................................................................................19
4.2.1 Core Competence................................................................................................................19
4.2.2 SWOT Analysis...................................................................................................................19
4.2.3 Value Chain.........................................................................................................................21
4.2.4 Growth of the organization................................................................................................22
4.2.5 Branding Strategy...............................................................................................................23
5.0 Conclusion ...........................................................................................................................................24
6.0 Appendix..............................................................................................................................................27

MGCR 653 Markets & Globalization: Comparative Strategic Analysis of Tim Hortons & Starbucks
2
1.0 Executive Summary
The focus of this report is the Coffee and Snack Shops Industry in Canada. There are mainly two
big competing players in the industry which together hold 87% of the market share. The major
products and services offered are coffee, other beverages, and food. This industry is in a mature
lifecycle, is highly concentrated, and has a high penetration rate. The two companies that will be
compared and contrasted are Tim Hortons and Starbucks. Tim Hortons has operated since 1964,
and is positioned as the main leader in this industry, Starbucks entered the Canadian market in
1987, and has established a strong position in a niche market.
The main success factors in the industry are: location, customer service, market segment, brand
reputation, and costs. Tim Hortons and Starbucks have different strategies, and focus on different
key factors to succeed. While Tim Hortons targets a broader range of customers by having an
“omni” presence through a great variety of locations, and by selling at an affordable price.
Starbucks focus is on a customer niche that is willing to pay more for a higher level of customer
service and a personalized experience. Both companies have used their brand reputation as a
differentiation element to succeed in the industry.
Based on the analysis we recommend Tim Hortons to follow a strategy that allows them to
increase the customers’ willingness to pay. They can achieve this by redesigning some of their
stores in order to attract higher end customers, and by expanding the assortment and quality of
their products in those stores, to high end and healthy products. In addition, we recommend to
leverage the existent technologies in order to attract new customers and implement cost reducing
measures.
Our analysis showed that Starbucks needs to follow an expansion strategy. We recommend to
extend its presence in medium size urban centers and high concurred highways, as well as to
expand their offerings of healthy products by developing additional partnerships. Additionally,
Starbucks needs to differentiate from one its main threats, the Third Wave coffee shops, by
taking advantage of technology to improve customer experience in a way that is difficult to
imitate by the third wave coffee shops.

3
2.0 Description of Organizations
2.1 Tim Hortons
Tim Hortons (“TH”) is the undisputed leader in the coffee and snacks industry in Canada with a
69.2% market share1
. They estimate that almost 8 of every 10 cups of coffee sold in the country
is TH2
. The company offers a broad range of products with a menu that includes premium-blend
coffee, espresso-based hot and cold specialty drinks, and a growing range of food options1
. TH
owns and operates only a small number of company restaurants, mainly in Ontario for training
purposes, preferring to franchise the majority of its locations3
. In April 2015, they had a total of
4,724 full-service restaurants and self-serve kiosks, with 3,773 in Canada, 892 in the United-
States and 59 in the Gulf Cooperation Council4
. Despite the increasing competition, the
company's total network sales are expected to reach $7.0 billion in Canada by the end of 2015,
representing a growth of 6.2% per year over the past five years1
.
The chain's first store opened in 1964 in Ontario and since then TH has grown to become an
iconic brand in Canada. The reasons for TH’ success are summarized in their guiding mission,
which is “to deliver superior quality products and services for our guests and communities
through leadership, innovation and partnerships”2
, and their vision “to be the quality leader in
everything we do”2
. In 2014, Burger King acquired TH by US$ 11.4 billion to become
Restaurant Brands International (RBI), “the world’s third-largest quick service restaurant
company with 18,000 restaurants in 100 countries and about $23 billion annually in system
sales”5
. The combination of companies is expected to significantly boost TH’ international
expansion.
1
Alvarez, Andrew. "Brewed Awakening: High Spending Will Boost Sales, but Industry Maturity Will Stifle Growth."
Www.ibisworld.com. September 1, 2015. Accessed November 30, 2015.
2
"Fresh Facts | Corporate." Tim Hortons. Accessed December 1, 2015.
http://www.timhortons.com/ca/en/corporate/fresh-facts.php#!open_flyout.
3
Tim Hortons, Annual Report For the quarterly period ended September 28, 2014. Accessed December 1, 2015.
https://timhortons.com/ca/en/pdf/THI_Q3_2014_10-Q.pdf
4
"Fresh Facts | Corporate." Tim Hortons. Accessed December 1, 2015.
http://www.timhortons.com/ca/en/corporate/fresh-facts.php#!open_flyout.
5
"Lexpert ® | Art of The Deal: Behind the Scenes of Burger King's Purchase of Tim Hortons." Lexpert ®. Accessed
December 3, 2015. http://lexpert.ca/article/art-of-the-deal-behind-the-scenes-of-burger-kings-purchase-of-tim-
hortons/.

4
2.2 Starbucks
Starbucks is the global leader in the coffee and snacks industry operating about 20,0006
stores
worldwide with about 15006
of those being in Canada. It operates a mix strategy with 52%6
being
company owned and operated stores while the remaining are run by external franchises that pay
annual royalty and license fees to them. Starbucks was established in 1971 and is strongly
identified with its core product i.e. coffee. As it grows into new markets and aims to differentiate
in its dominant markets, it is now entering other beverage markets like Tea and Wine. They
made a strategic acquisition of Teavana in 2012 for about $620 million in their bid to establish
their footprint in the tea business7
.
The company’s vision statement outlines the establishment of the brand as “the premier purveyor
of the finest coffee in the world” while stressing on growth8
. At its core, Starbucks stands for
quality. The quality of the coffee and the quality of the customer experience. Its stores are “a
place where you can meet with friends”9
. The company’s ability to evolve over time and connect
with a new generation of customers has helped drive its strong financial results. Their net
revenues have grown at an average rate of 11.28% over the past 5 year (FY’10 - FY’14) reaching
$16.4 billion10
.
6
Www.ibisworld.com. September 1, 2015. Accessed November 30, 2015.
7
"Starbucks Announces Agreement to Acquire Teavana to Globally Transform Tea Industry." Starbucks Newsroom.
November 14, 2012. Accessed December 2, 2015. https://news.starbucks.com/news/starbucks-announces-
agreement-to-acquire-teavana-to-globally-transform-tea-.
8
GREGORY, LAWRENCE. "Starbucks Coffee's Vision Statement & Mission Statement - Panmore Institute."
September 10, 2015. Accessed December 4, 2015. http://panmore.com/starbucks-coffee-vision-statement-
mission-statement.
9
"Mission Statement." Starbucks Coffee Company. Accessed December 5, 2015. http://www.starbucks.ca/about-
us/company-information/mission-statement.
10
"Starbucks FY14 Annual Report." Http://investor.starbucks.com/. September 1, 2014. Accessed December 4,
2015.

5
3.0 Industry overview and analysis
3.1 Industry overview and analysis
The Coffee and Snack Shops industry in Canada has grown strongly over the past years, annual
growth from 2010 to 2015 was of 5.1%, and it is forecasted that from 2015 to 2020 it will grow
2.8%11
. The industry is highly concentrated, with mainly two big players competing in it, TH and
Starbucks. Combined these two companies hold an estimated market share of 87%11
. Increasing
consumer spending and busier lifestyle have been the main factors boosting the industry growth.
Consumer spending has grown 2.4% on average over the past five years, and less time for
preparing meals in people’s day to day life have helped the industry resulting in revenues for the
industry of $10.2 billion11
.
The industry is in the mature phase of its lifecycle, the life cycle is determined by considering the
industry growth rate compared with GDP; the growth rate of the number of establishments; the
amount of change the industry’s products are undergoing; the rate of technological change; and
the level of customer acceptance of industry products and services. Coffee shops have a very
high penetration in Canada; the coffee shop concept is embedded in the Canadian culture, and in
many regions the industry has become saturated as a greater number of foodservices operators
compete to attract customers with a wide assortment of products. The increase usage of
technology has helped companies to engage with customers on a number of new levels, and the
industry revenue has grown consistently and has outpaced the broader foodservice sector.
11 Alvarez, Andrew. "Brewed Awakening: High Spending Will Boost Sales, but Industry Maturity Will Stifle Growth."
Http://www.ibisworld.com/. September 1, 2015. Accessed November 30, 2015.

6
3.2 PESTEL analysis and Industry key drivers
There are several key drivers of change in the business environment that will affect the industry
in the coming years; these key drivers have been analyzed through a PESTEL analysis
(Appendix 5). Some of these key drivers might be beneficial for the industry and may represent
opportunities of growth, since they have the potential to allow the industry to expand and reach
consumers in more innovative ways; others would represent a risk to the industry, which may
translate in direct threats to the industry players.
Potential benefits to the industry will come from key drivers such as technological factors; the
increasing usage of mobile applications and mobile payment capabilities, as well as the reduction
of wage costs through technology innovations can boost the penetration of the industry and help
connect in innovative ways to the customers. Within the social factors, the busy lifestyle may
play as an advantage for the industry, since this kind of life forces people to consume in a regular
basis on coffee shops as opposed to preparing coffee at their homes.
Some economic key drivers in the business environment that can be a threat to the industry
growth are the forecasted slowdown in consumer spending growth, the possible increase in
wages, and the saturation of the domestic market. Social key drivers that can also act as a threat
are the healthy lifestyle derived from the high rates of obesity, the consumers’ inclination
towards the third wave specialty coffee, and the fair trade trend. On the environmental side, key
drivers such as the effect of climate change in coffee production and consequently in the
volatility of prices have to be considered as potential threats.

7
Based on the key drivers of price and service, the industry players can be positioned in the
strategic group analysis matrix as below:
3.3 Five Forces of Porter and Profitability Analysis
In the Coffee and Snack Industry in Canada the threat of entry, the threat of substitutes, and the
power of buyers are strong. The intensity of rivalry is high. These factors influence and limit the
profitability of the industry and need to be taken into account to design a success strategy
(Appendix 6).
In the Coffee and Snack Industry in Canada the barriers to entry are low due to the low level of
capital required to enter12
, the low switching costs that buyers experienced, the medium level of
regulation and the medium level of control to distribution channels. Thanks to leases on premises
and equipment new entrants do not require a high level of capital. The level of regulation is
medium, including health and foodservice regulations, but they are not high enough to deter new
entrants. Even though the major chains have the control of the traditional distribution channels
12
IBISWorld estimates that for every $1.00 spent on wages, industry operators will spend $0.08 on the use and
replacement of capital.

8
with the technology advance this barrier has declined and will continue to decline in the future,
making more and more easy the promotion and distribution of the new entrants. Although the
importance of scale economies in terms of better conditions from suppliers and the high level of
concentration helped to increase the barriers to entry, the threat of entry is high for this industry,
the existing players are required to diminish their prices or boost their investment to deter new
competitors13
.
The power of buyers is high in this industry because they are price sensitive as coffee and related
goods are luxury products, and have a great variety of substitutes. Consumers have a high power
also as they face low switching costs in changing vendors and most of the products sold by the
coffee shops are undifferentiated. Consumers’ power constituted a serious threat to the
profitability of the industry since they can capture value by forcing down prices or demanding
better quality or more services.
The threat of substitutes is medium to high in this industry. There are two different types of
substitutes: independent coffee shops and homemade coffees. The first one has become a serious
threat as with the social change some consumers are looking for coffee shops that consider
coffee as an artisanal product rather than a commodity. The second one offers an attractive price-
performance trade–off to the industry´s product thanks to technological advance, consumers can
buy machines that make really good coffee and at a lower level of cost, reducing switching cost
to this type of substitutes. The relative value of homemade coffees increases on economic
downturn during which consumers tend to reduce the expenses on luxury goods like coffee. The
threat of substitutes is high in this industry and put a cap on its profit potential.
The power of suppliers is low. One of the most important inputs is the coffee. Even though the
price and the supply of the coffee as any soft commodity vary in time, the big players of the
industry managed these risks by developing a strong relationship with their suppliers and by
using financial instruments. These relationships combined with the scale of the big players
reduced the power of suppliers.
The intensity of rivalry among existing competitors in this industry is high. Most of the players
compete essentially on price and location, as customer´s switching costs are low and the majority
13
Porter, Michael. "The Five Competitive Forces That Shape Strategy." Https://hbr.org. 2008. Accessed December
4, 2015. https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy#.

9
of them have retained preference for lower-priced items. The price dimension on which
competition takes place is a threat for the profitability of the industry as it transfers profits
directly from the industry to its customers.
Taking into account the industry structure, we identified five key success factors for the Coffee
and Snack Industry in Canada: location, customer service, market segment, brand reputation and
costs. For this industry location is one key factor of success. As buyers have a high power and
the barriers to entry are low, a company that wants to be profitable in this industry must have a
superior network of stores.
Another key factor of success is customer service (delivery time, stores appearance, hospitality,
etc.). One way to offset the high buyer´s power that relied on the fact that most of them look for
lower- priced items that are undifferentiated, is to improve the customer service meeting
consumer expectations and thus, their willingness to pay. This factor helps also to reduce the
threat from the substitutes especially from the homemade coffee, improving value relative to this
substitute.
A third key of success for this industry is a defined market segment. The definition of a specific
market segment helps to increase industry´s profitability. When different companies targets
different customers groups and serves them with different mixes of price, products, services or
features that better meets their needs, it also raises the buyers’ switching costs and reduces the
threat of buyers’ power.
The fourth key success factor is related to the brand reputation. Since the power of buyers is
high, a way to differentiate from competitors is through branding. For instance, if someone had
to choose between an unknown coffee shop and a branded one, the latter would more likely be
preferred because of previews association with the brand. A strong brand improves the customer
journey experience, leading to an increase in the customer loyalty. As a consequence, reducing
power of buyers as the switching cost increases.
The last key factor of success given the industry´s structure is the effective control of costs. Due
to the high power of buyers and the threat of substitutes that restricted any increase on prices,
one important aspect that can help companies’ profitability is the effective management of the
costs, which includes the cost of coffee, of food products and of labor. The industry is labor
intensive since labor is required throughout every aspect of the supply chain from front-of-house

10
service to preparing and cooking food, among other tasks. In 2015 wages represented 28.2% of
the revenue of the industry14
. Despite the technological advance, the industry is service-
orientated and therefore personal interaction is important and cannot be substituted. The effective
control of the labor costs is really important for the profitability of the industry.
14

11
3.4 Macroeconomic outlook
According to “The Economist” forecast the Canadian economy growth will accelerate modestly
to 2% in 201615
, supported by consumer spending and exports. Consumer spending in Canada
has supported the industry’s growth, as consumers have been more willing to spend in luxury
goods such as coffee and donuts. Even though it is expected that the consumer growth will
expand steadily, it is not likely that it will reach the levels of 2013-14 of 2.6% in average.
Unemployment rate has risen to 7%, and it’s not expected to reduce since private investment fell
due to the extended period of oil prices that has impacted energy firms which stand for a
significant proportion of the economy, since Canada is the fourth largest oil exporter in the
world. The oil prices are not expected to recover, as a structural slowdown in the Chinese
economy will continue constraining global growth given its economy influence in the world
economy. Furthermore, consumer spending has been largely supported by the two interest rate
cuts of the Central Bank of Canada, and further reductions are not expected. The effect of these
factors will continue to limit the growth of the Canadian economy, which will restrict consumer
income, consumer confidence, and then industry demand.
In the other side, exports of goods and services in Q3 2015 rose at the fastest rate in more than a
year16
. It is expected that this growth trend will continue as the major trading partner, US (70%
15
"EIU Global Forecast - Readying for December Fed Move." Search.eiu.com. November 18, 2015. Accessed
December 7, 2015. http://country.eiu.com/article.aspx?articleid=1053690289.
16
"Canada Economy: Quick View - Economy Returns to Growth in the Third Quarter." Economist Intelligence Unit.
December 2, 2015. Accessed December 7, 2015.
http://viewswire.eiu.com/index.asp?layout=VWArticleVW3&article_id=463733830.

12
of the exports), will grow led by private consumption. The Canadian dollar will remain cheap
driven by divergence in the monetary policy. While it is expected that the Bank of Canada will
maintain its key policy rate on change, the Federal Reserve will start a gradual tightening cycle.
Consumer spending is expected to still show a growth due to the expansion of the Canadian
economy supported by the increase in exports.
During the past decade the price of coffee increased due to an increase in the demand from
countries such as China, Russia, and Germany. However, during 2015, the price decreased and
then stabilized. The price is not expected to increase since the economy downturn in China and
Russia will decrease the demand for coffee. However, there is a risk of a reduction in the global
supply of coffee, due to fact that producing countries, like Brazil, are in economic recession and
with currency devaluation. As a consequence, the cost to import fertilizers or pesticides will
increase and could impact the crops productivity.

13
4.0 Internal Analysis
4.1 Tim Hortons
4.1.1 Core Competence
TH is everywhere in Canada, operating both full-service restaurants and self-serve kiosks that are
available in offices, hospitals, colleges, airports and convenience stores17
. Among its main
competitors, TH offers some of the lowest prices in the market. To illustrate, in 2014 a muffin
was sold for $1.29 at TH and McCafé, $1.90 at Second Cup, and $2.00 at Starbucks17
. Since they
are easy to find anywhere and affordable, TH has become part of Canadians everyday life,
gaining an iconic status with almost 70% market share17
in the Coffee & Snack Shops Industry
with more than 3700 stores.
The brand success is driven by a strong customer loyalty17
that the company has been building
for over 50 years through innovative marketing campaigns, such as the legendary “Roll Up the
Rim to Win” customer reward program. They also developed a major presence in local
communities with, for example, the creation of the nonprofit TH Children’s Foundation18
. The
mix of an emotional link between the brand and the Canadian consumer, their “Omni” presence
in the country, and their affordable prices is very difficult for competitors to imitate.
4.1.2 SWOT Analysis
Strengths
TH’ main strengths rely on its core competences (Appendix 7), which are a combination of an
iconic brand, affordable prices, and “Omni” presence in Canada. These strengths allied with a
large diversity of products allow TH to reach a broad range of consumers. Practically, every
17
18
Kotler, Philip, and Kevin Keller. "Developing Marketing Strategies and Plans." In Marketing Management, 14/E.
Pearson Higher Ed, 2011.

14
Canadian can be attracted to go into a store. TH has shown consistent financial performance. In
2015 they expected to hit $7 billion in total sales, representing a growth of 6.2% per year over
the past five years, and only in the third quarter of 2015 they already made $737 million of
revenue19
. Considering the low sales price of their products, TH’ financial performance is only
possible because of its cost effective process and relationship with suppliers. TH optimizes its
costs through a vertically integrated supply chain, supplying paper, dry goods, frozen baked
goods and refrigerated products to a majority of its stores. They also have a Coffee Partnership20
to help the producers to improve productivity and quality of their coffee. This is a way for TH to
ensure enough supply to its demand in premium coffee.
Weaknesses
The low-cost of TH’ products and the “on-the-go” set up of their stores lead to one of their main
weaknesses. The average sale per costumer is lower in a TH’ store than in other stores in the
sector. Besides that, as with other fast food chains, TH is going against the health trend. Their
products are perceived as highly processed and unhealthy, which could result in a decreased
popularity mainly among “millennials”. This gap between the brand and the “millennials” can
become wider since TH isn’t sufficiently exploring contemporary channels such as social media
and mobile apps. Finally, the high market saturation due to TH’s aggressive expansion in Canada
leads to self-cannibalization and diminishes long term growth targets of TH.
19
Wright, Lisa. "Profits Roll in for Tim Hortons New Owner." Http://www.thestar.com/. October 27, 2015.
Accessed December 5, 2015. http://www.thestar.com/business/2015/10/27/tim-hortons-new-menu-burger-kings-
chicken-fries-take-owner-to-49m-profit.html.
20
"Tim Hortons Coffee Partnership." Tim Hortons. Accessed December 1, 2015.
http://www.timhortons.com/ca/en/corporate/coffee-partnership.php.

15
Opportunities
The main opportunities for TH in Canada are to correct as much as possible its weaknesses. For
example, in order to increase the average sale per costumer they could increase items per order
by focusing on product bundles, and evaluating size and premium options. Therefore, they create
value through increasing the customer willingness to pay. They can also use the emergence of
technology and data to increase their touchpoints with the consumers. This way they’ll drive
both, customized marketing, and menu insights to respond to “millennials” expectations. The
implementation of these opportunities can be facilitated with the acquisition of TH by Burger
King in 2014. TH can also benefit from the group’s knowledge of international expansion, as
well as their expertise on cost reduction through synergies. Since TH has low brand recognition
outside Canada, they can be introduced to Burger King’s consumers by offering cross-brand
bundles or coupons for example. To sum up, TH could reach its business strategy of expanding
internationally working with BK in the same way as McDonalds and McCafe.
Threats
TH has to be careful with the threats the industry is facing in Canada. Since there are low
barriers to enter the market, the competition is increasing and the market is becoming saturated.
The competition is not limited to well-established international brands, like McDonald’s McCafé
and Starbucks, but also there are small local coffee shops. These coffee shops could be an
important threat, because of their operation size. Since they are much smaller, they can adapt
faster to the changing consumer tastes and lifestyle choices. For example, they can offer organic
coffee or even coffee substitutes, such as tea, and healthy food, that attract “millennials”21
. Their
“cozy” environment also creates a unique costumer experience which TH doesn’t provide in its
stores. Another threat is the price volatility of key commodities that TH purchases in the ordinary
course of business such as coffee, wheat, edible oils and sugar. This can be accentuated in the
long term by the economic situation in some producing countries, like Brazil.
21
Strauss, William, and Neil Howe. Millennials Rising: The Next Great Generation.
The term was coined to describe the generation born from 1984 to 2004.

16
4.1.3 Value Chain
Primary Activities
TH has significant levels of vertical integration in Canada22
(Appendix 9). Through these
integrated facilities TH can gain cost advantages such as purchasing in bulks ingredients like
flour and sugar. Where they are not able to leverage their scale or create warehousing or
transportation efficiencies, TH typically manage and control the supply chain, but use third-party
warehousing and transportation23
.
TH owns and operates only a small number of company restaurants, mainly in Ontario for
training purposes, preferring to franchise the majority of its locations. As the franchisor, TH
collects royalty revenue from franchised restaurant sales. Their business generates additional
revenues by controlling the underlying real estate of the franchised restaurants23
. In response to
the growing home coffee business24
, TH expanded its sales channel to grocery-stores and on-
line, offering traditional coffee as well as Keurig K-cup and Tassimo T-discs.
The inputs such as raw materials and service providers, where TH doesn’t have total control, are
managed through strong relationships25
. TH has created through many years of innovative
marketing campaigns “a brand that represents an idealized image of the Canadian national
character: friendly, neighborly, unpretentious, gently playful, frugal, trustworthy, and clean”26
.
This strategy was fruitful since TH in Canada has become an iconic brand. As a consequence,
investments in marketing activities are focused on maintaining brand awareness and eventually
promoting new products.
22
In 2014, Tim Hortons counted with five distribution centers located across the country that were in charge of
supplying paper, dry goods, and various combinations of dry, frozen and refrigerated products to most of their
restaurants. Tim Hortons’ operations also include coffee-roasting plants, a fondant and fills manufacturing facility,
as well as a fleet of branded trucks in charge of delivering food and supplies from their distribution centers to the
restaurants
23
Tim Hortons, Annual Report For the quarterly period ended September 28, 2014. Accessed December 1, 2015.
https://timhortons.com/ca/en/pdf/THI_Q3_2014_10-Q.pdf
24
Dunne, Melissa. "Tim Hortons vs the World: Canadian Coffee Wars | Metro News." Www.metronews.ca.
February 25, 2014. Accessed December 3, 2015. http://www.metronews.ca/life/food/2014/02/25/tim-hortons-vs-
the-world-canadian-coffee-wars.html.
25
Tim Hortons created their Coffee Partnership with around 4,000 small-scale coffee farmers from Brazil,
Colombia, Guatemala, and Honduras.
26
Kotler, Philip, and Kevin Keller. "Developing Marketing Strategies and Plans." In Marketing Management, 14/E.
Pearson Higher Ed, 2011

17
Support activities
TH employs more than 1,800 people distributed in various departments such as Legal,
Development/Real Estate, Franchising, HR, etc.27
. The corporate departments give support
services to the franchised restaurants and its staff of more than 96,000 people27
.
TH’s structure may change after the acquisition by Burger King. The 3G Capital Group is known
for acquiring new companies and make the necessary changes to improve their performance. A
first sign of change has already happened this year with the lay-off of approximately 350
employees, mainly at TH's headquarters and regional offices28
.
4.1.4. Growth of the organization
Founded in 1964 in Hamilton, the first stores only offered two products: coffee and donuts29
. In
1976, it introduced its Timbits, which had a lot of success. It is during the 1980’s that TH really
started expanding its food offerings30
. As it expanded its food offering, it decided to centralize its
baking facility to ensure consistency of quality31
.
Although it expanded its offer to a variety of products, TH has put a lot of emphasis on its
coffee’s special blend and quality. Thus, it made available its coffee blend in packages so that
consumers can also enjoy it at home. TH also expended geographically in a great variety of
locations from stand-alone stores, to shopping malls, highway outlets including drive-through
services, universities, hotels, hospitals, airports and so on.
27
"Company Facts." Tim Hortons. Accessed December 3, 2015.
http://www.timhortons.com/ca/en/about/company-facts.php.
28
Harris, Sophia. "Tim Hortons Confirms 350 Layoffs as Workers Say They Were Blindsided." CBC news. January 29,
2015. Accessed December 5, 2015. http://www.cbc.ca/news/business/tim-hortons-confirms-350-layoffs-as-
workers-say-they-were-blindsided-1.2935454.
29
"Business Economics." Http://course.academyoflearning.com/. Accessed December 6, 2015.
http://course.academyoflearning.com/courses/bec04e1(new)/L3-PE1-1.pdf.
30
Growth of Offerings at Tim Hortons stores : Muffins and cakes (1981), pies (1982), croissants (1983), cookies
(1984), soups and chili (1985), sandwiches, bagels and other beverages introducing flavored cappuccinos, Mochas
and Iced Cappuccinos (1990’s), more sophisticated products like Yogurt with berries, Smoothies, Turkey bacon club
sandwich, maple pecan Danish, chicken salad wrap and breakfast sandwiches
31
"The Evolution of Tim Hortons : Make Mine a Double Double." Accessed December 6, 2015.
http://calabash.ca/mct2009/evolutiontims-v02-p.pdf.

18
In 1995, TH merged with Wendy’s International Inc., a US company, but it then decided to split
up in 1996. TH was taking a lot of expansion in the lunch and dinner sector (versus previously
being focused on breakfast) which started cannibalizing Wendy’s business32
.
In 2012, TH partnered with Kraft Food to offer TH coffee with the Tassimo system of single-
served coffee at home. Thus, TH expansion did not focus on mergers and acquisitions, but in
expanding its products offerings and multiplying its geographic scope and location points.
4.1.5 Branding Strategy
TH is one of the best ranked brand in Canada33 34
. Its branding has been focusing on the quality
of its coffee, but also generally on top quality, fresh product, value, great service and community
leadership.35
One of TH branding strategy having a significant impact on the way consumers perceived the
brand was to cultivate an image of goodwill by getting involved in the community and cultivate
an association of authenticity. Thus, TH engaged itself in a great variety of charitable
foundations and campaigns36
. TH strong value of authenticity and involvement in its local
community helped them in developing faithful customers that could feel that TH is really part of
their local community. TH put a great importance in having every owner and franchisee engaged
in the everyday of their community and considerers this is how they can build trust and true
loyalty from their customers37
.
32
"The Evolution of Tim Hortons : Make Mine a Double Double." Accessed December 6, 2015.
http://calabash.ca/mct2009/evolutiontims-v02-p.pdf.
33
"Canada 50 2013." Best Global Brands. Accessed December 6, 2015.
http://brandirectory.com/league_tables/table/canada-50-2013.
34
In 2014, Tim Hortons was ranked number 1 in Canada and number 2 in the world by Canadian Business
35
"Business Economics." Http://course.academyoflearning.com/. Accessed December 6, 2015.
http://course.academyoflearning.com/courses/bec04e1(new)/L3-PE1-1.pdf.
36
"Canada's Best Loved Brand: How Tim Hortons Won Canadian Hearts & Minds." Momentology. September 11,
2014. Accessed December 6, 2015. http://www.momentology.com/747-canadas-best-loved-brand-how-tim-
hortons-won-canadian-hearts-minds/.
37
Philip, Bruce. "How Tim Hortons' New CEO Plans to Make Canada's Best Brand Better." Canadian Business Your
Source For Business News. May 14, 2014. Accessed December 6, 2015. http://www.canadianbusiness.com/lists-
and-rankings/best-brands/2014-tim-hortons-marc-caira-interview/.

19
4.2 Starbucks
4.2.1 Core Competence
Starbucks is the Global leader in the Coffee industry and it has established this position by its
ability to provide an assortment of “high quality” coffee, specialty coffee and related products.
However, the main product that makes Starbucks so unique is the “Starbucks experience”38
. It’s
about providing a highly personalized customer experience that allows it to secure customer
loyalty and to grow and sustain the business. Its location in the business districts or near to
universities makes it an easy choice for consumers looking to get work done over a cup of
coffee. This is the core idea on which the Starbucks brand has been built and sustained over time.
Another core competence has been the ability of Starbucks to grow by continuously innovating
both in terms of its offering and its means of interaction with its consumers. The Starbucks menu
has evolved over time expanding its product offerings through strategic partnerships and
acquisitions. Starbucks has also led the market in the way it engages with the community through
the use of technology such as its mobile payment solutions39
, its social media campaigns and its
CSR initiatives40
. All these engagements make it easier for consumers to know about the
company, transact with ease at its stores and associate themselves proudly with the brand.
4.2.2 SWOT Analysis
Strengths
The three main pillars of Starbucks growth are its Global brand recognition, its premium
customer experience and the location of its stores (Appendix 8). For those who can enjoy it,
Starbucks brand is an extension of their personality while those who cannot, aspire to be able to
do it. Starbucks has built this strong brand equity over a period of approx. 30 years that it has
operated in Canada bringing its successful US business model to the Canadian market. In a
38
Michelli, Joseph. The Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary. McGraw Hill
Professional, 2006.
39
"Mobile Payment: Starbucks | Credit Card Processing | Merchant Services." Century Business Solutions. January
2, 2014. Accessed December 5, 2015. https://centurybizsolutions.net/software-integrations/starbucks-mobile-
payments/.
40
"Global Responsibility Report Goals & Progress 2014." Starbucks Coffee Company. Accessed December 5, 2015.
http://www.starbucks.com/responsibility/global-report.

20
market with an established brand like TH, Starbucks has been able to carve a niche for itself by
providing the same rich customer experience that made it a leader in the US market. Its stores are
conveniently located at prime business centers and near to major universities in Canadian cities
making it a preferred choice for the business or students looking to a place where they can have a
coffee while doing work41
. Beyond these strong factors, Starbucks also relies on its strong
bargaining position with the suppliers to ensure a stable supply of its coffee beans and other raw
materials to keep its costs in check42
.
Weakness
Starbucks entered the Canadian market in 1987 meaning that they had lost the first mover
advantage to the likes of TH that had an established presence in the Canadian market.
Consequently, they were always playing a catch-up to the incumbent and carve a market for
them by breaking the customer’s habit loop. In terms of market share, they are still far behind the
32% that they enjoy in the US market43
. Another potential weakness is the association of
Starbucks with high prices. While this allows them to position themselves as the obvious choice
for a high end consumer but this also puts them at risk of losing customers in times of economic
slowdowns like the one that Canada is experiencing currently with the decline in oil prices.
Opportunities
In Canada, the Starbucks stores are largely limited to the major cities allowing its competitors to
capture the rest of the market uncontested. Growing beyond the cities presents a major growth
opportunity for Starbucks to expand its business and get new customers onboard41
. In a
saturating market like the coffee and snack industry in Canada44
, Starbucks also has the potential
to expand its product mixes and offerings to meet new customer demands. This will again allow
the brand to connect with a new generation of customers and grow its operations to meet investor
expectations. Starbucks is known as a brand that can deploy technological solutions to enhance
41
Wolfe-Wylie, William. "Starbucks Owns the City, Tim Hortons Owns the Highways." Http://o.canada.com/.
February 21, 2013. Accessed December 6, 2015. http://o.canada.com/business/tim-hortons-might-control-the-
highways-but-starbucks-rules-the-city.
42
"Starbucks FY14 Annual Report." Http://investor.starbucks.com/. September 1, 2014. Accessed December 4,
2015.
43
"Market Share of Major U.S. Coffee Chains, 2011 | Statistic." Statista. Accessed December 4, 2015.
http://www.statista.com/statistics/250166/market-share-of-major-us-coffee-shops/.
44

21
its customer reach and improve the overall customer experience. These innovations are largely
confined to areas like San Francisco where they are tested for some time before being rolled out
elsewhere. Implementation of these innovations in Canada will give a competitive advantage that
can help them grow their customer base especially among the tech savvy millennials45
.
Threats
The entry of a large number of third wave coffee shops that are seen as providing a comparable if
not better experience than Starbucks while also originating from the local communities, poses the
biggest challenge to Starbucks46
. This threatens their core customer who has been with them for
some time and maybe willing to try new alternatives. A growing trend in the world today is that
of consuming healthy products47
and coffee is largely seen as an unhealthy offering.
Increasingly, more and more medical professionals are advising people against consumption of
high quantities of caffeine, a major ingredient in coffee. Starbucks must respond to these
challenges and provide more offerings that cater to the health focused consumers.
4.2.3 Value Chain
Primary Activities
Starbucks operates over 1500 locations in Canada, one among the 65 countries where it has a
presence (Appendix 10). It sources its coffee and other raw materials from coffee producers in
Latin America, Africa and Asia. Its procurement is largely done in-house to ensure that the
standard of the coffee is consistent and of the highest quality. Starbucks excels at providing
excellent service to the end users that allows them to create value by building strong brand
loyalties among the majority of their consumers. Starbucks also creates value along its
distribution network by removing intermediaries and largely selling their products through their
own stores Starbucks has also taken a conscious decision to not invest a lot in advertising and
instead focus on superior quality product and higher customer experience than their competitors
45
Strauss, William, and Neil Howe. Millennials Rising: The Next Great Generation.
The term was coined to describe the generation born from 1984 to 2004.
46
47
Gagliardi, Nancy. "Consumers Want Healthy Foods--And Will Pay More For Them." Forbes. February 18, 2015.
Accessed December 4, 2015. http://www.forbes.com/sites/nancygagliardi/2015/02/18/consumers-want-healthy-
foods-and-will-pay-more-for-them/.

22
to build a loyal customer base. However, it does indulge in CSR related advertising campaigns
that enhance the brand association of Starbucks in the minds of the consumers.
Support Activities
Starbucks has well designed, aesthetically pleasing stores that invite the customer to a great
experience and keeps them firmly rooted with the brand. These stores are designed to give them
a comfortable atmosphere in which to engage in a productive conversation with a friend or just
get some work done on their computer. Starbucks has also deployed innovative technologies like
its mobile app which automatically senses when a user is near a Starbucks store and prompts
him/her to order with just a few taps on their phone. These innovations keeps them far ahead of
their competition and allows them to capture a larger chunk of the millennials. Despite growing
to a large number of countries, the organization functions like HR, Finance, legal etc. are all
aligned with each other thus providing a more efficient organization capable of quickly
responding to the changing market.
4.2.4 Growth of the organization
Starbucks opened in 1971 in the U.S. and it was in 1987 that it first opened in Canada in
Vancouver. Its growth was exponential in Canada, particularly since it opened in Toronto in
1997. Since its opening in Canada, it went through numerous mergers and acquisitions. Mostly,
these mergers and acquisitions participated in the evolution of its products offerings48
.
In 2004, Starbucks started to offer its coffee in supermarkets to reach consumers that drink
coffee at home49
.
In 2005 it partnered with RBC to launch a credit card in Canada, “Duetto Visa”, including a
Starbucks reward card50
. That same year, Starbucks acquires Ethos water51
. In 2011, Starbucks
48
In 1996 it started selling bottled Frappuccino coffee drinks through the North American Partnership with Pepsi-
Cola. In 1999 Starbucks acquired a tea company, Tazo Tea, to expand its offerings to tea. Then, Starbucks decided
to expand to Quebec and the Atlantic Canada. Thus, in 2000, it concluded an agreement. The Eastern Canada
Master Licensing Agreement with Café Vision International for them to open stores in Quebec and the Atlantic
Regions. However, 8 years later, Starbucks decided to gain full ownership of Café Vision International’s Starbucks
Licensed stores in Quebec and Atlantic markets. In 2003, Starbucks merged horizontally with Seattle’s Best Coffee
and Torrefazione Italia coffee to have a new blend.
49
STRAUSS, MARINA. "Starbucks Tries to Build Bridge from Café to Grocery Store." August 23, 2012. Accessed
December 5, 2015. http://www.theglobeandmail.com/globe-investor/starbucks-tries-to-build-bridge-from-cafe-to-
grocery-store/article577847/.

23
acquired Evolution Fresh and started offering fresh press fruits and vegetables juices which gave
Starbucks the opportunity to put forward its brand as associated to a healthy lifestyle52
.
In 2015, Starbucks launches Teavana Hot Brewed Teas in the US and in Canada. Thus, starting
with coffee, Starbucks continued to expand its offerings as much in the beverage category as in
the food category to diversify it’s offering through acquisitions and development of partnerships.
4.2.5 Branding Strategy
The logo of Starbucks is very well-known and the offerings expanding to other beverages than
coffee and to food, Starbucks decided to simplify its logo to drop the name Starbucks Coffee and
only keep the design of the mermaid. It also has various brands due to its numerous acquisitions.
Its branding strategy focuses on high quality, giving a unique experience and a nice environment
to the consumer, creating a community and social responsibility. The unique experience to the
customer goes from the customer service, from the design of the coffee shops and the product
offering that looks sophisticated, and offering a whole lifestyle more than just a coffee shop.
With its acquisition of Evolution Fresh, it is also associating its brand with healthy lifestyle.
Regarding coffee, its branding focuses on offering high quality specialty coffees53
. Social
responsibility becomes part of its branding. For instance, its Ethos water launch brings them to
collect money to give clean water to kids.
Moreover, Starbucks really entered and adapted efficiently to the technology evolution and the
digital world, being present on social media to engage its customers, developing a user friendly
app to reach and enhance its customers’ experience and solutions for mobile payments.
50
"RBC Royal Bank & Starbucks Coffee Company Change the Canadian Credit Card Rewards World." Accessed
December 6, 2015. http://www.prnewswire.com/news-releases/rbc-royal-bank--starbucks-coffee-company-
change-the-canadian-credit-card-rewards-world-54086417.html.
51
"Starbucks Company Timeline." Accessed December 6, 2015.
http://globalassets.starbucks.com/assets/0e40b1ea48b34b82ae0a987175f1df25.pdf.
52
BAERTLEIN, LISA, and MARTINNE GELLER. "Starbucks Buying Teavana, Eyes Repeat of Coffee Success." Reuters.
November 14, 2012. Accessed December 6, 2015. http://www.reuters.com/article/us-teavana-starbucks-
idUSBRE8AD1JW20121115#etzvbdB6sI7MGyu7.97.
53
THOMPSON, ANDREW. "Starbucks Coffee's Generic and Intensive Growth Strategies - Panmore Institute."
September 10, 2015. Accessed December 6, 2015. http://panmore.com/starbucks-coffee-generic-strategy-
intensive-growth-strategies.

24
5.0 Conclusion
The growth observed in the Coffee and Snack Shops industry in Canada in the last years is
expected to continue in the future, at a lower rate. The industry is highly concentrated and
dominated by two big players, TH and Starbucks, which represent together 87% market share.
The key drivers that could potentially benefit the industry are the use of technology, the increase
in households’ income and the busy lifestyle. On the other hand, the key drivers that would
represent a risk to the industry are the economic downturn, the saturation of the market, the price
volatility of commodities, the consumers’ inclination towards the third wave specialty coffee and
the health trend. In this industry the intensity of rivalry, the threat of entry, the threat of
substitutes, and the power of buyers are high. Taken into account these forces, the key success
factors for this industry are: location, customer service, market segment, brand reputation and
costs.
The big players, TH and Starbucks, have different strategies and focus on different key factors to
succeed. While TH target a broad range of customers by disposing stores everywhere and selling
at an affordable price, Starbucks focus on a customer niche that is willing to pay more for a
higher level of customer service and a unique experience. Both companies have used their brand
reputation as a differentiation element to succeed in this industry.
For the last fifth years TH has been growing in Canada thanks to a strategy that consists on
location, good price-quality ratio, community relations, strong brand, and a sense of Canadian
appealing. Their strategy paid-off and today TH represents almost 70% of the market in the
country, then TH’s objective is to defend that market share. We think that TH’s strategy has two
flaws. Since the market is saturated, location is not an option anymore, and then TH needs to
increase the average spending per customer in the stores. The actual brand image associated with
“on the go” makes it difficult for TH to attract customers to spend time in the stores and to
consume higher end products. Another flaw of their strategy is their lack of response to the new
social trends, related to health and the use of technology that put in risk their leader position. As
a result we think that TH need to adapt their strategy tackling these flaws.
Since the market is getting saturated, our first recommendation for TH is to selectively redesign
certain stores and brand them as "TH Loundge". These stores would target and attract higher end
customers, offering higher end and healthy products, such as salads, fruits, and healthy shakes.

25
These products could be offered at a higher price with higher margins since a higher quality of
products will increase the willingness to pay of the customer. The combination of these factors
will create value as they would lead to a higher average spending per customer in the stores.
Moreover, offering healthy products will allow them to take advantage of the new social trend to
have a healthier lifestyle and to differentiate from their other stores and offerings to attract those
higher end customers.
In order to attract the digital native generation and give sustainability to the business, TH should
take advantage from the existing technologies available to develop a functional and attractive
app. This will increase the touchpoints and enhance the customer journey during the connection
phase. Besides, through these channel TH can get customer insights that would allow them to
customize advertisings and adapt their menu to new trends. The technology could also be a direct
source of revenue by enhancing the buying experience online.
Because we recommend TH to invest in developing technology and better quality products, the
total costs may increase. Also, since we expect a slowdown in the consumer spending growth,
these investments may not lead to high returns on the short term basis. Therefore, we think that
they might need to reduce costs by expanding online sales that removes intermediaries and by
sharing the distribution costs with their new partner, Burger King.
Starbucks’ strategy has been to target a specific niche by offering a unique experience to the
users through a highly personalized customer experience, high-end locations, high end products,
and a strong branding. In a saturating market facing an economic downturn, this strategy limits
the customers that they can reach and hence proves to be a barrier in reaching their goal of
growing their market share which has capped at 17% after about 30 years of operations. This
focus has resulted in limited locations within the urban centers leaving the rest of the market for
their competitors. Also, their limited assortment of food and failure to respond to the emergence
of the third wave coffee shops has meant that they risk losing some of their existing customers.
Starbucks should follow an expansion strategy to rural areas; medium size urban centers, and to
concurred highways that have the most traffic of professionals, as well as highways to vacation
resorts and holiday destinations (ski resorts, lakes, cottages). Added to this Starbucks should
follow an expansion strategy; first by expanding to new areas outside the main urban centers, and
second by creating a brand awareness through partnerships with Air Canada, which is perceived

26
as an iconic Canadian brand; this will give a strong association to the brand with a Canadian
company. By putting in place a reward system where the customer could accumulate points on
an Air Canada card and then spend it on travels with Air Canada. As any reward system, this
would create an incentive to customers to spend more at Starbucks. It could also be a two way
partnership in which Air Canada would offer Starbucks coffee and snacks to its customers.
Since Starbucks targets a niche with a high sensitivity towards health trends, they need to expand
its assortments of food, including a wider variety satisfying the health trend. By including
organic products in their assortment they would address the need to a wider and healthier
assortment of food. They can do this through different partnerships with companies offering
organic products, or by acquiring the companies.
Starbucks needs to differentiate from the third wave coffee shops, the proposed way to do so is
by leveraging the technological opportunities at hand. By offering a customized experience that
will enable the customers to prepare in advance and customize their beverages through their app,
and allowing them to pick it up several minutes later.

27
6.0 Appendix

28

29
Appendix 5 – PESTEL Analysis
Political factors
 Canada, offers a stable political situation, which will benefit the business
environment in the coming years.
 Government policies towards buying healthier, natural, and ecofriendly products.
This could be a threat for companies that don’t have this kind of practices.
 For the first time in history Canada has a Ministry of Environment and Climate
Change, which emphasis the attitudes and values towards environmental friendly
practices.
 This country sentiment has driven the politics, and it may cause new laws and
regulations, which companies need to be aware off.
 Other countries will follow environmental oriented regulations, thus triggering a
reaction form coffee producers, which affect either rather supply or the demand.
Economical
factors
 Recent and persistent economic stagnation in the Canadian (effect consumer
confidence and overall spending).
 The world price of coffee has risen sharply during much of the past decade as
growing global demand for coffee from countries such as Russia, Germany and
China has led to supply shortages.
 Potential growth in its price and a possible increase in wages represent an ongoing
potential threat to the industry.
 The consumer price index for food is expected to increase in 2015.
 The saturation of the domestic market with coffee shops and other foodservices
companies serving coffee.
 Favourable forecast of the rise in consumer spending and household income.
Social factors
 The increase on urban population with a busy lifestyle will benefit the industry.
 The health trend and the obesity problem in Canada are causing that a bigger
segment of the population switches towards a healthier lifestyle, thus reducing
their consumption in coffee, donuts, and fast food.
 The growing trend towards environmental consciousness, and the reaction of
companies to address this new consumer sentiment is forcing companies to
reposition their brands.
 Majority of coffee consumption still occurs inside the Canadian homes.
Technological
factors
 Larger operators are implementing a number of initiatives to boost profit, such as
using technology to reduce wage costs.
 Mobile application and mobile payment capabilities are increasing the connection
between consumers and brands, and collecting consumer insight through mobile
applications.
 Home coffee makers that can produce high quality coffee at a lower price
(majority of coffee consumption still occurs inside the home).
 Increase of labour productivity due to technological advances.
 Improvement in customer service derived from the reduction in waiting time due
to new technologies.
Environmental
factors
 Production of coffee is subject to the climate change.
 Volatility of coffee prices due to weather and climate change factors.
 The growing trend of green and organic products, the demand for products with
these characteristics will grow.
Legal factors  New laws and regulations may emerge in order to satisfy consumers’ demands
regarding healthier and more environmental friendly products.

30
Appendix 6 - Five Forces of Porter
Barriers to entry - (Low)
 Low regulations (low barrier)
 Easy access to suppliers (low barrier)
 Easy access to distribution channels (low barrier)
 Technological advances (low barrier)
 Low level of capital required (low barrier)
 Economies of scale are easy to achieve (low barrier)
 Highly concentrated (high barrier)
 Brand name and reputation (high barrier)
 Favorable locations are needed, and are scarce (high barrier)
Bargaining power of buyers -(High)
 Low switching cost, locations are very close to consumers (high power)
 The main product, coffee, is standard and undifferentiated products (high power)
 Buyers have full information about the product (high power)
Threats of substitutes - (High)
 Growth of the Third Wave Coffee trend, local coffee shops (high threat)
 Cultural trend of a high segment of the population consuming coffee at their homes (high
threat)
 Coffee machines that produce the same quality of coffee and can be installed at home (high
threat)
 Due to healthy trends tea and other more healthy beverages can become a threat (high threat)
Bargaining power of suppliers - (Low to medium)
 There exists a lot of medium and small suppliers scattered worldwide, which don’t have the
capability to forward integrate (low supplier power)
 These industry is the most important customer for the suppliers (low supplier power)
 The supplier offers a very important input for the buyers business (high supplier power)
 The suppliers are undifferentiated (low supplier power)
 The suppliers have not build credible switching costs (low supplier power)
Rivalry among existing competitors - (High)
 There is a lack of differentiation and very low switching costs (high rivalry)
 Numerous and almost equal competitors in the industry (high rivalry)
 Fixed cost related from real estate are high (high rivalry)

31
Appendix 7 – SWOT Analysis – Tim Hortons
Strengths
• Strong Market Position and Brand Recognition in Canada: Tim Hortons
has a significant presence in Canada with a 69.2% market share, which
means almost 8 of every 10 cups of coffee sold. In April 2015, Tim
Hortons had 3,773 restaurants in Canada, 892 in the United-States and 59
in the Gulf Cooperation Council.
• Products of High Quality at an affordable price: Tim Hortons’ products
aren’t for the elitist, they are for the wholesome person who just wants a
cup of coffee or a snack but doesn’t want to spend too much. Competitive
advantage.
• Diverse Product Mix: Tim Horton portfolio of products.
• Location of its Stores: Tim Hortons is your neighborhood coffee shop.
From their convenient drive-through, their modest décor, they really
understand what matters most, which is getting people in and out with a
coffee in hand. Tim Hortons has stores everywhere in Canada, from the
most prime and strategic location to remote locations.
• Strong relationship with Suppliers: for example Tim Hortons Coffee
Partnership
• Historical consistence in financial performance and profitability: Tim
Hortons added more than 722 locations between 2010 and 2015 and the
company's total network sales (which includes revenue earned by both
franchises and company-operated locations) is anticipated to hit $7.0
billion in 2015, representing annualized growth of 6.2% over the past five
years.
• Tim Hortons' strategy of expansion through Burger King expertise: the
company's business strategy aims to expand internationally, while
defending its favorable position in Canada and aggressively competing in
the saturated US market. The company plans on doing this through
significant menu overhauls, introducing premium products and extending
its brand reach in urban areas through nontraditional formats.
Weakness
• Low brand recognition outside Canada
• Self-Cannibalization through overcrowding: By aggressive expansion in
Canada and high saturation due to overcrowding in the market leads to
self-cannibalization and diminishes long term growth targets of Tim
Hortons.
• Negative large corporation image: Like any large corporation, Starbucks
does come under increased scrutiny and have to invest in corporate social
responsibility activates and maintain tight control over labour practices.
• Canadian coffee culture clash with that of other countries: Tim Hortons
coffee culture may not widely accepted in some countries as part of their
international expansion strategy.
Opportunities
• Expansion into other Markets: They can leverage their experience,
financial health and efficiencies to make new market share. Besides, they
can use Burger King expertise to leverage their expansion strategy.
• Expanding Product mix and offerings: Tim Hortons revealed their plan of

32
doing significant menu overhauls, introducing premium products.
• Technological advances: leverage the use of mobile applications.
• New distribution channels: Omni - channel
• Attract Burger King consumers: Burger King and Tim Hortons together
can work in the same way as McDonalds and McCafe.
Threats
• Increased Competition: low barriers to enter this mature market increase
the pressure on Tim Hortons.
• Price Volatility in the Global Coffee Market: Since Coffee is a
commodity; Tim Hortons suffers the fluctuation in the market prices of
high quality coffee beans.
• Developed Countries Market Saturation: Due to the high saturation of
Tim Hortons stores in Canada, the market is saturating and the sales per
store has been decreasing resulting in a decrease in sales per store.
• Changing Consumer tastes and lifestyle choices: The shift of consumers
toward more healthy products and the risk of coffee culture being just a fad
represent a threat for Tim Hortons going into the future.

33
Appendix 8 – SWOT Analysis – Starbucks
Strengths
• Global Brand Recognition: Starbucks has a significant geographical presence
across the globe and is the most recognized brand in the coffeehouse segment.
Such strong brand recognition has allowed Starbucks to compete with a strong
incumbent in Tim Hortons and make significant gains especially on the west
coast in areas like Vancouver, BC.
• Economies of Scale: Its vast network of resources across the globe allows
Starbucks to have significant economies of scale and it can summon upon these
attributes to bring about major changes like introduction of new products fairly
quickly and at much lesser marginal costs. This empowers them to constantly
adapt to the changing market demands and respond quicker than the competition.
• Strong and Reliable supplier relationships: Starbucks has significant bargaining
power over its suppliers. A position, which allows them to dictate the terms of
agreements and maintain stable supply chain dynamics, another factor that helps
to keep marginal costs in check. They can also negotiate favorable terms for
purchasing of new products because an agreement with Starbucks gives the
suppliers access to a huge market.
• Products of the Highest Quality: They give the highest importance to the quality
of their products and avoid standardization of their quality even for higher
production output.
• Location and Aesthetic appeal of its Stores: Starbucks has stores in some of the
most prime and strategic location across the Canadian cities. They target
premium, high-traffic, high-visibility locations near a variety of settings,
including downtown and suburban retail centers, office buildings, university
campuses, and in select rural and off-highway locations across the world. Their
stores are visually appealing and have a ‘cool’ factor attached to it. They provide
free Wi-Fi, great music and great service that forms a wider part of the
‘Starbucks Experience’. The main aim for the firm is to make their stores a ‘third
place’ besides home and work.
• Goodwill among consumers due to Social Responsibly Initiatives: Their stores
are community friendly, focused on recycling and reducing waste. They build
goodwill among communities where they operate.
• Diverse Product Mix: The assortment of products caters to all demographic
factors. They can constantly update and respond to changing consumer needs,
which always keeps them relevant.
• Use of Technology and Mobile Outlets: Starbucks efficiently leverages
technology with its mobile application. This is particularly appealing to the
Younger demographic like the millennials who have want quick and convenient
service.
Weakness
• Expensive Products: Starbucks is known for its premium customer experience.
But in times of economic recessions, they risk losing the customers to its
competitors, which offer cheaper alternatives.
• No First mover advantage: Starbucks does not have the first mover advantage in
Canada that Tim Hortons enjoys. As a result, it has had to compete for market
share and Tim Hortons has been able to have more stores and reach more
populations to capture a larger market share.
• Negative large corporation image: Like any large corporation, Starbucks does

34
come under increased scrutiny and have to invest in corporate social
responsibility activates and maintain tight control over labour practices. The
recent controversy in the US over its newly designed red cups is an excellent
example of such risks, which also apply to the Canadian market.
Opportunities
• Expanding Product mix and offerings: Starbucks is trying to grow its image
beyond just the coffee giant. By dropping the word “coffee” from its corporate
name, it has made its intent public. They are now trying to capture a significant
market in the tea and wine business.
• Expansion of retail operations: Starbucks currently sell its packed coffee
products, iced beverages and merchandizes through large box retailers. This
market’s potential is yet to be fully realized and this provides Starbucks great
opportunities for the future to monetize their brand.
• Technological advances: Starbucks is one of the world’s best companies at
leveraging technology to enhance their customer reach. Mobile payment
solutions that are currently being used in San Francisco and other US markets
have a promising future in a developed market like Canada and they would like
to leverage their strong understanding of this technology to further differentiate
their offering from Tim Hortons. This is a growing field and would drive more
business to their stores as technology advances as more millennials enter the
economy.
• Brand extension: In a saturating market like Canada, Starbucks must use its
brand reputation to extend its brand to complementary offerings that would help
it grow its business beyond the current ceiling. The growth in the segment has
outpaced the economy for the past few years and with the economic slowdown,
it is likely to experience adverse effects on its business. A brand extension
would compensate for the losses incurred due to this.
• Connect with millennials: Brand extension through the use of technology also
allows them to connect better with millennials who are more connected with
technology and want more choices in products and services.
Threats
• Increased Competition: In a saturating market, Starbucks faces the biggest
threat of competition from the third wave coffee chains who can snatch away
the customers by positioning themselves as local alternatives. The increased
sales of home coffee machines, which can match professional quality, are also a
major concern for the industry in general and Starbucks in particular. The entry
of quality third wave coffee shops, which serve good quality coffee, is
impacting the customers’ willingness to pay.
• Price Volatility in the Global Coffee Market: There has be significant
fluctuations in the market prices of high quality coffee beans, which Starbucks
can’t control.
• Threat of Economic Recessions: In an increasingly economically integrated
world, an economic crisis in one country can impact the operations of a global
player like Starbucks which gives some advantage to more localized competitors
like Tim Hortons and third wave coffee.
• Changing Consumer tastes and lifestyle choices: The shift of consumers
toward more healthy products and the risk of coffee culture being just a fad
represent a threat for Starbucks going into the future.

35
Appendix 9 – Value Chain – Tim Hortons
Primary Activities
Inbound Logistics – Tim Hortons’ main inputs are raw materials such as coffee. These commodities
are sourced from producer countries in Latin America, Africa and Asia. Once in Canada, the
production and distribution are largely made in-house to control quality and cost.
Operations – Tim Hortons has significant levels of vertical integration in Canada. In 2014, they
counted with five distribution centers located across the country that were in charge of supplying
paper, dry goods, and various combinations of dry, frozen and refrigerated products to most of their
restaurants. Tim Hortons’ operations also include coffee-roasting plants, a fondant and fills
manufacturing facility, as well as a fleet of branded trucks in charge of delivering food and supplies
from their distribution centers to the restaurants. Through these integrated facilities Tim Hortons can
gain cost advantages such as purchasing in bulks ingredients like flour and sugar. Where they are not
able to leverage their scale or create warehousing or transportation efficiencies, Tim Hortons
typically manage and control the supply chain, but use third-party warehousing and transportation.
Outbound Logistics – Tim Hortons owns and operates only a small number of company restaurants,
mainly in Ontario for training purposes, preferring to franchise the majority of its locations. As the
franchisor, Tim Hortons collects royalty revenue from franchised restaurant sales. Their business
generates additional revenues by controlling the underlying real estate of the franchised restaurants.

36
Besides the full-service restaurants and self-serve kiosks, Tim Hortons is also focusing on the at-
home market. According to McAlpine, more than half of Canadians make their coffee at home daily,
while only 24 per cent buy takeout. In response, Tim Hortons expanded its sales channel to grocery-
stores and on-line, offering traditional coffee as well as Keurig K-cup and Tassimo T-discs.
Marketing & Sales – Tim Hortons has created through many years of innovative marketing
campaigns “a brand that represents an idealized image of the Canadian national character: friendly,
neighborly, unpretentious, gently playful, frugal, trustworthy, and clean”. This strategy was fruitful
since Tim Hortons in Canada has become an iconic brand, having almost 70% market share in the
coffee and snacks industry with more than 3700 stores. As a consequence, investments in marketing
activities are focused on maintaining brand awareness and eventually promoting new products.
Service – The stores design is not completely standardized, but Tim Hortons always offers the same
products and services. They are known for their fast service and the cleanliness of their facilities.
Support Activities
Firm Infrastructure – Tim Hortons employs more than 1,800 people distributed in various
departments such as Legal, Development/Real Estate, Franchising, HR, Operations, R&D,
Purchasing, Distribution, Finance, Information Technology, and Marketing & Corporate
Communications. The corporate departments give support services to the franchised restaurants and
its staff of more than 96,000 people. The interaction between Tim Hortons’ managers and the
restaurant owners happens through a Franchisee Advisory Board made up of 16 people. They meet
four times a year to provide input on issues that the industry and chain are facing such as company
policy, major marketing programs, and expenditures.
Human Resource Management – The Company’s structure may change after the acquisition by
Burger King. The 3G Capital Group is known for acquiring new companies and make the necessary
changes to improve their performance. A first sign of change has already happened this year with the
lay-off of approximately 350 employees, mainly at the company's headquarters and regional offices.
3G Capital’s other companies, such as InBev and Burger King, are also known for having a result-
based reward system which leads to a fast-paced environment. As a consequence, these companies
attract talent focused on quick career progression.
Technology Development – Compared to other companies, like Starbucks, Tim Hortons still has a
long way to go in terms of technology. They are limited to online sales of some products on their
website and a simple mobile app with low added value for the costumer.
Procurement – The inputs such as raw materials and service providers, where Tim Hortons doesn’t
have total control, are managed through strong relationships. For example, Tim Hortons created their
Coffee Partnership with around 4,000 small-scale coffee farmers from Brazil, Colombia, Guatemala,
and Honduras.

37
Appendix 10 – Value Chain – Starbucks
Primary Activities
Inbound Logistics – Starbucks procurement is largely in-house to control quality and cost. They
source their coffee and raw materials from Latin America, Africa and Asia.
Operations – Starbucks operates in all the major cities of Canada and have a dominant position in
Vancouver. Their total number of stores in Canada is 1500 and they are targeting to expand these
over the next few years by aggressively adding more stores near universities. Globally, they have
20,000+ stores and 52% of those stores are directly owned while the remaining ones are operated on
a franchise model.
Outbound Logistics – Starbucks distribution is mostly confined to its own stores. This allows them to
reduce intermediary stores costs as well as keep tabs on demand and supply. However, they have
started selling Starbucks coffee K-cup coffee pods through their partnerships with retailers like
Canadian Tire etc. including their online channels. This allows them to exploit the effects of the long
tail and aggregate demand for these products.
Marketing & Sales – Starbucks does not invest much in traditional marketing channels and relies
more on the location of its stores to gain loyalty. However, they do advertise on their CSR initiatives

38
and on holiday specific promotions. Their social media campaigns also generate a significant
publicity.
Service – Service is the main differentiator for Starbucks and they spend a lot in ensuring that the
quality of service remains consistent over all their stores.
Support Activities
Firm Infrastructure – Starbucks stores are located at convenient locations in all major cities and are
known for being aesthetically pleasing.
Human Resource Management – Starbucks employee resource has consistently been recognized as a
key resource in the success of the brand around the world. It has a highly motivated workforce that
helps deliver a good experience to the customers and this is reflected in their recruitment practices
and their retention strategies. On Glass door, Starbucks has an average rating of 3.8 out of 5
compared to 2.7 for Restaurants Brands International, the parent company of Tim Hortons.
Technology Development – Starbucks has always deployed leading technology products to increase
customer engagement and improve the customer experience at their stores. This includes investing in
best of class mobile apps as well as partnerships with leading banks like RBC to provide convenient
payment options.
Procurement – Starbucks procures its products from different suppliers in Latin America, Africa and
Asia and relies on its strong bargaining power to have fixed contracts and keep a check on coffee
prices.

39
Appendix 11 – Tim Hortons Menu

40
Appendix 12 – Starbucks Menu

Comparative Strategic Analysis of Tim Hortons And Starbucks

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Comparative Strategic Analysis of Tim Hortons And Starbucks

Similar to Comparative Strategic Analysis of Tim Hortons And Starbucks (20)

Comparative Strategic Analysis of Tim Hortons And Starbucks