<<Name>>
<<Professor Name>>
<<Subject>>
<<Date>>
Business Model Generation
Tim Horton’s is Canada’s largest chain of Quick Service Restaurants (QSRs). It was acquired by 3G Capital and Burger King in 2014 with the creation of a new entity – Restaurants Brands International. Since 2014, the chain has expanded its operations not only in the United States but also globally in the Arabian Gulf.
Part 1: Business Model for Tim Hortons
Tim Horton’s future growth is greatly dependent on its key strategic partnerships. The QSR chain works through a model of partnerships (franchisees) and joint ventures. Tim Horton’s works through the Burger King’s master franchise development model. The model is based on the strategic intent to expand operations internationally. The key motivation is to lower the level of investments for the franchisees or JV partners to enable rapid expansion (RBI).
Franchisees offer more than just investment in any market. First, they offer the ability of the Tim Horton’s to penetrate new markets and gain share. Markets across the world are heavily differentiated in terms of consumer behavior, competition, spending patterns and real estate availability and regulations. Franchisees play an important role in determining the best option for all these aspects of Tim Horton’s operations.
Tim Horton’s operates mainly on a fully franchised model. Though this model helps in rapid expansion, optimization of investment and reduction of risks for Tim Horton’s, the model also limits aspects such as initiating major changes in operations or initiatives. The franchisees have complete control on all the operations, including advertising and promotions, while Tim Hortons earns revenue only as royalties or fees. The risk of doing business in future is directly linked to the expansion in the number of franchise outlets and not on innovation or operational efficiency.
Another key partnership for Tim Hortons relates to the Coffee Partnership initiative (Tim Hortons). The company aims to create strong bonds with the communities in which it serves. It works with small scale coffee growers across many countries and helps them improve the quality of coffee and productivity. In addition, it enables them to ensure sustainable growth and improvement of their economic, environmental and social condition.
These key suppliers help in not only developing unique blends of coffee but also sustaining the future growth of the business in those locations. Tim Hortons launched a new blend called ‘Three Peaks Colombian’ in 2015, which is a premium coffee grown in Cauca, Colombia (Shaw). Tim Hortons’ strategic partnerships and key suppliers enable the company to grow geographically while helping innovate with new products and enabling sustainable progress in communities.
Key Activities
Tim Hortons is engaged in the QSR business since 1964. It is the largest chain in Canada and one of the largest in North America. The business operates on a franchise model with around 4,700 restaurants in Canada, U.S.A. and the GCC. The key activity that helps Tim Hortons create value for consumers is the procurement of the best quality of premium coffee beans/blends, tea and specialty drinks. It also procures the best raw materials from suppliers to create a menu of fresh baked products – Timibits, bagels, muffins, cookies, panninis, sandwiches, wraps and many other items.
Tim Hortons operates the model through franchisees and has four main sources of revenue - distribution sales to franchisees (supply chain, manufacturing, procurement, distribution and warehousing), revenue from lease of properties to franchisees, royalties paid by franchisees in terms of fees and percentage of sales and revenue derived from Tim Hortons owned retail outlets (around 13 outlets globally). The Tim Hortons brand enjoys very good customer loyalty and is seen as a premium brand in Canada.
Key Resources
Tim Hortons’ future growth is highly dependent on 3 key factors – its ability to develop and attract the new franchisee model, the use of sustainable and economic processes to grow and acquire the best coffee and investments in technology, efficient operations and marketing.
Consumer tastes have evolved and they are seeking alternative flavors and new menus to reflect their healthy lifestyles. This shift in psychographics and demographics and the growth in the millennial segment with an emphasis on digital technology will define Tim Hortons’ future resourcing strategy (Tim Hortons).
The company will need to evolve new ways of seeking franchisees and possibly a different model of delivery since the new consumer is time constrained, health conscious and mobile. This would entail an investment in new ways of distribution, training, delivery and brand experience across their franchise outlets.
Value Proposition
Tim Hortons is a brand that is known for its authenticity, cultural and national heritage and commitment to community (Gollom). The brand value emanates from its consistent quality of products and its Canadian roots. In terms of customer segments, the brand is relevant to many – be it the old or the millennial groups. The brand has built an enormous amount of goodwill and salience due to its sponsorship of local sports events and CSR initiatives such as the Tim Horton Children’s Foundation.
It continually caters to customer needs and wants with new products within the coffee and beverage segment and also serves quick snacks and meals to busy customers. The company’s marketing and communication strategy helps in engaging with their loyal customers and enhancing the value proposition by promoting their products and their value. More than anything, it is a ‘Canadian way of life’ today.
Customer Relationships
Customers are loyal to the Tim Hortons brand. The brand has established loyalty by a sustained commitment to customer needs and community needs. Customers would want the brand to continue to evolve around different areas such as restaurant menu options, service experience, using technology to interact in new ways, innovations in menus (morning, lunch, all-day, dinner), respond to customer needs related to occasions, time, family health and nutrition.
Enhancing the reach of the restaurants through new outlets or distribution of products through channels such as grocery chains and e-commerce do present an opportunity for Tim Hortons.
Channels
The primary channel used by Tim Hortons to reach customers is through mass advertising and promotions. Since the franchisee plays a key role in this area, the brand has engaged audiences with local and mass (TV) advertising. The brand experience is highly dependent on service delivery at the restaurants. Many new innovations are supported by local level promotions and announcements at the franchise outlets. Customers are encouraged to try new offerings based on promotions and trial offers. Tim Hortons is also known for listening closely to customer needs and wants through formal methods like feedback at stores and through online channels.
Customer Segments
Tim Hortons is one of the most loved brands in Canada. Around 40% of women voted for the brand because it went beyond the product – a hot cup of coffee (Haynes). The brand enjoys a strong emotional connection with all its customer segments. It is a mass brand enjoyed by a cross section of customer segments – from young children to millennials to the older Gen X and Y segments. The brand is strongly linked to the communities it operates in mainly due to the loyalty and advocacy of the franchise owners. It is more of a “community brand” (Haynes) that has universal appeal. It has been promoted as a uniquely Canadian brand and experience with campaigns such as ‘True Stories’ in 1995. Product innovations have enabled Tim Hortons to gain customer repeat visits and maintain excitement among its mass users.
Cost Structure
Tim Horton’s cost structure includes all the costs associated with the supply chain such as cost of goods, labor costs, depreciation and cost of third party distributor logistics and grocery store supplies. “Costs also include food, paper and labour costs of company restaurants” (Tim Hortons).
Raw material costs of coffee are always on the rise and the company controls those costs by engaging in long term agreements, to provide protection from dynamic prices (Friend).
The other component of cost is selling, general and administrative expense which salaries, IT costs, restaurant related costs and advertising expenditures. This component is the highest contributor to overall cost of operations.
Revenue Streams
Customers pay for the brand value and the experience that is derived from outlets. The type of pricing is asset sale and service based. Customers pay for the fixed price menus that are based on transactional value. Besides this Franchise and Property revenues form a major part of the revenue stream, contributing to more than 85% of overall revenues. 15% of overall revenue is from the sale of menu items at restaurants and from grocery outlets.
Part 2: New Business Model based on Offer-Driven Innovations
Tim Horton’s needs to evaluate its competitive stance and future growth strategy based not only the Canadian market but the global markets. The growth of e-commerce brands such as Amazon and services by disruptive companies such as Uber (UberEats) provide a great opportunity for Tim Horton’s to form and engage with new partners. The changes in consumer behavior, with increasing smartphone penetration and online ordering across the world, will enable Tim Hortons to increase share with new offers based on innovations in delivery to homes.
Key Activities
Based on the new offer driven strategies, Tim Hortons can engage better with new and old customers and add value to the offerings. Increasing its level of activities to include digital engagement and performance metrics will help the brand grow faster. Co-marketing activities with new partners will help expand reach and help in acquisition of new customers.
Key Resources
The new offer driven initiatives will require new resources in terms of a loyalty and partnership team which will manage all the activities related to operations, promotions, customer feedback and services. Additional investments in IT will be needed to integrate some of the ordering systems with the new partners.
Value Propositions
The new initiative will help Tim Hortons to expand the basket of offerings and value propositions. With a relatively low investment, the company can reach new customers and offer home service and convenience. It will help customers who are restricted to home (loyal elders and baby boomers) to order their favorite coffee without stepping out.
Customer Relationships
The new offer will help in adding value to the customer relationships built by Tim Hortons over the years. It will reinforce the brand’s commitment to stay innovative and be engaged with real customer needs.
Channels
The main channel of delivery will be through ordering online on a TH mobile site or through an App but the actual delivery of goods will be through Amazon or UberEats. This synergistic relationship with new partners will enable Tim Hortons to expand its geographical reach and time-focused menu options (it can deliver all-day breakfasts like McDonald’s).
Customer Segments
The key customer segment will be individuals who are at home or offices. Loyal customers segments like the Baby boomers can be reached and also children who return home from school.
Cost Structure
This offer driven program will increase the overall SG&A because of new cost of operations and salaries. Another cost that will be added is the cost of sharing of revenue with new partners.
Revenue Streams
This initiative will help in resolving the issues surrounding competition and lower foot prints at retail outlets. A new digitally-led revenue stream will help add to overall revenues without heavy investments in developing a new channel.
Appendix
References
Friend, David. “Coffee bean volatility: Will Tim Hortons join competitors in raising
prices?”ctvnews.ca, 5 November 2014, kitchener.ctvnews.ca/coffee-bean-volatility-will-tim-hortons-join-competitors-in-raising-prices-1.2088682. Accessed 25 January 2017.
Gollom, Mark. “Tim Hortons: Why the coffee giant is 'genuinely beloved' by Canadians.”
cbc.ca, 28August 2014, www.cbc.ca/news/business/tim-hortons-why-the-coffee-giant-is-genuinely-beloved-by-canadians-1.2748530. Accessed 25 January 2017.
Haynes, Megan. “Overall Brand of the Year: Crowning Tim Hortons.” strategyonline.ca,
10 October 2014, strategyonline.ca/2014/10/10/overall-brand-of-the-year-crowning-tim-hortons/. Accessed 25 January 2017.
RBI. “About the TIM HORTONS® Brand”. rbi.com, 2017, www.rbi.com/Brands.
Accessed 25 January 2017.
Shaw, Hollie. “Tim Hortons brews up new premium Three Peaks blend, its latest volley in coffee
wars.” financialpost.com, 1 April 2015, business.financialpost.com/news/retail-marketing/tim-hortons-brews-up-new-premium-three-peaks-blend-its-latest-volley-in-coffee-wars. Accessed 25 January 2017.
Tim Hortons. “Corporate”. timhortons, 2017, www.timhortons.com/ca/en/corporate/index.php.
Accessed 25 January 2017.
