RBI: Taking Flight with Tim Hortons

Written by David Guo

IBR Editorial Board
Ivey Business Review


The Rise of the Double-Double

With nearly 4,000 stores, Tim Hortons is Canada’s market leader and largest quick-service restaurant (QSR) chain. Founded in 1964 by NHL player Tim Horton, the QSR chain has since proliferated across Canada to become the nation’s “most treasured brand,” consistently scoring highly in trust, ability, affinity, and authenticity. In addition to operating as a franchise, Tim Hortons has successfully expanded into retail markets, becoming the top at-home coffee brand in Canada with a 23 percent market share. Its international presence and product offering have also expanded in efforts to grow the brand — the company expanded to the United States in 1984, and has since experienced steady growth in 13 new countries. Core to its brand and strategy, Tim Hortons aligns all growth initiatives with its competitive advantage of reliability and affinity for Canadian culture.

Brewing Competition

Despite Tim Hortons’ regional dominance, constant competitive pressure has caused it to lose nearly a quarter of its market share-plummeting from 75 percent in 2014 to 53 percent in 2021. This is due in part to QSR competitors who have introduced their own line of coffee and baked breakfast goods. McDonald’s, in particular, doubled its breakfast business from 2011 to 2015. Other competing coffee shops like Starbucks have since entered the Canadian market with a focus on customer experience and have captured major market share through innovative offerings such as digital loyalty programs.

Tim Hortons’ current response to competition is to enhance its menu options and improve the customer experience. Recent product additions such as the Beyond Meat burger focused on servicing new consumer trends and broadening the menu, but have since proven to be unpopular. Many loyal customers have accused the brand of having an “identity crisis,” with recent changes being labelled as unauthentic and brand-diluting. These frequent changes have also caused confusion amongst repeat customers, hurting consumer loyalty and prompting poor reviews. To appease this major target segment, Tim Hortons enacted a “back to basics” product strategy centered around improving the quality of original menu items while limiting product experimentation.

On the other hand, Tim Hortons’ competitors were met with success when entering the breakfast market. Thus, while Tim Hortons’ competitors innovate and change their menus to capture industry trends, Tim Hortons’ strong brand affinity may also be its biggest problem given its customers’ expectations of consistency. Regardless of recent criticism and execution issues, Tim Hortons has a unique opportunity to diversify its distribution channels.

Taking Flight

Tim Hortons should partner with Air Canada to provide a limited selection of popular menu items for purchase on flights. Air Canada is Canada’s flag carrier and its largest airline by fleet size and passengers carried, with 51.54 million passengers in 2019. The International Air Transport Association is projecting that international passenger levels will recover to 105 percent of pre-pandemic levels, with an average growth rate of 3.2 percent over the next twenty years. Thus, targeting airline passengers is a growing opportunity.

Currently, Tim Hortons has stores in airports to service passengers prior to and after flights, but no opportunity exists to purchase Tim Hortons’ products during flights. This group of consumers presents an opportunity for Tim Hortons to introduce a new distribution method and diversify its revenue stream. In addition, Tim Hortons can amplify its brand resonance amongst current and potential customers while avoiding backlash and accusations of brand dilution from loyal customers. With stores in gas stations, OnRoute service centres, and most major airports across Canada, Tim Hortons is no stranger to targeting its key market — everyday Canadians on the move — through convenient placement.

Service in the Sky

Apart from filling potential revenue gaps, a partnership between Tim Hortons and Air Canada would be mutually beneficial for both parties. Collaborating with Air Canada aligns with Tim Hortons’ brand image of being a uniquely “Canadian” company, a key advantage that Tim Hortons’ competitors lack. Improved brand association will help Tim Hortons defend its leadership by increasing traffic at its traditional stores — like it did by partnering with Justin Bieber.

Brand aside, Tim Hortons can use the partnership to increase participation in its digital loyalty program by encouraging Air Canada passengers to download and use the Tim Hortons app. Getting new users onto the platform is the easiest way for Tim Hortons to showcase the company’s improved digital customer experience to maximize return on this investment. Tim Hortons can also use the Air Canada partnership for data insights. For instance, in-flight purchase data can be utilized to determine the best menu for different flight routes and for economy/business classes. This can counter the challenges of exporting their brand of Canadian values internationally by identifying initial customer interests.

Your Coffee Awaits

On the flip side, a co-branding partnership has the potential to improve Air Canada’s perception as well. Beyond brand synergies between both companies, Air Canada has faced criticism for unsatisfactory in-flight food, which it attempted to solve by partnering with notable chefs. Food plays a huge role in a customer’s perception of an airline and it helps differentiate airlines from competitors. Air Canada’s coffee is currently provided by Second Cup Café, which ranks below Tim Hortons for overall performance amongst consumers.

Food and on-board service is especially valued by business travellers, who typically make up 75 percent of an airline’s revenue. Given that their travel expenses are covered by their organizations, business travellers are less price-sensitive and more likely to purchase food in-flight, which makes them a more lucrative target segment. By partnering with Tim Hortons, Air Canada could dramatically improve the in-flight experience for business travellers by providing Tim Hortons snacks products free of charge, leading to greater customer loyalty and increased future ticket sales. Above all, airlines often foster a strong sense of national pride and often reflect their nation’s unique cuisine. By providing Tim Hortons, Air Canada has the opportunity to align itself with the activities of its competitors.

Rolling in the Dough (nuts)

Due to operational constraints, Tim Hortons should limit its offering to menu items which can be practically served on an airplane. Given that Air Canada sees an average of 51.54 million passengers per year and that 7 percent of passengers purchase in-flight food, Tim Hortons will have a total addressable market of 2.3 million passengers. Based on an industry standard mark-up of 241 percent for baked goods and 150 percent for drinks, and with assumed purchase rates, Tim Hortons has the potential to generate nearly $44.7 million in revenue.

Your Coffee Awaits

Tim Hortons wants to defend its market leader position, and it has done so by improving customer experience. However, its most loyal customer base has been dissatisfied with the recent brand inconsistencies in product innovation. Thus, Tim Hortons should launch a strategic initiative to diversify its distribution channels, by offering their products on Air Canada flights. This will help Tim Hortons target new consumers, create co-brand opportunities, and gain market data, which will help increase its sales in an increasingly competitive QSR landscape.

While Tim Hortons should start with Air Canada given the “All-Canadian” status, this partnership can serve as a foray into consumers-in-transit with future possible expansions into rail and water travel. This pivot would give Tim Hortons an opportunity to access new customers beyond its traditional tactics of product and customer experience enhancements, and the alternate revenue sources allow Tim Hortons to retain its leadership by focusing on relatively untapped consumers. By doing this, Tim Hortons can further expand its distribution network, create new touchpoints with on-the-move consumers beyond traditional restaurants, and continue to impact everyday Canadian lives.



IBR Editorial Board
Ivey Business Review

IBR provides a forum for tomorrow’s business leaders to develop, voice and discuss their thoughts on today’s business strategies, threats and opportunities.