Dunkin Donuts Canadian Counterpart Moves in on its Home Turf


Sep 11, 2006

As it fights for business with other American chains, Dunkin Donuts is also hearing the heavy footsteps of top Canadian franchise Tim Hortons. Most accounts of Dunkin Donuts'''''' aspirations to blanket the nation with its pink-and-orange logo focus on its battle with established powerhouses like Starbucks and McDonald's.

But as he moves westward, Dunkin CEO Jon Luther better not lose sight of a growing threat in his own backyard - Canadian coffee-and-doughnuts franchise Tim Hortons, flush with cash from its recent IPO and eager to do battle with Dunkin' on its home soil in the U.S

Created by pro hockey legend Tim Horton 42 years ago, Toronto-based Tim Hortons dominates the fast-food scene in Canada generating more than $1.3 billion in sales from over 2,600 locations and a 23 percent share of the $14 billion Canadian quick-service market, more than McDonald's, according to the Canadian Restaurant and Foodservices Association.

Tim Hortons' vibe, just like Dunkin's, is decidedly blue-collar and its menu is similar to Dunkin's, serving coffee and donuts at its core. But Tim Hortons also offers soups and sandwiches to bring in lunchtime sales - a weak spot in Dunkin's business model right now, as two-thirds of its $4 billion-plus in sales come before lunchtime.

Fast-food chains are known for their cyclical nature - McDonald's struggled through several lean years before turning the corner two years ago. The jury is still out on Burger King, which was a dysfunctional mess before private equity firms cleaned it up and took it public earlier in the year. Number 3 player Wendy's, meanwhile, is having a rough time of its own lately. Even Starbucks has shown a glimmer of weakness, as its stock plunged in early August on news of weaker-than-expected July sales.

Despite the uncertainty and change in the industry Tim Hortons continues to grow. Since the end of 1995, when it merged with Wendy's, Tim’s system-wide sales have grown at a compound annual rate of 18.5 percent. Same-store sales, the lifeblood of any restaurant, have grown for 13 straight years in Canada at a 7 percent annual clip, which is roughly double the industry average.