Tim Hortons to think like an American in order to sell to U.S. customers

Tim Hortons co-founder Ron Joyce sips a coffee in Toronto on Friday, October 20, 2006. (File / THE CANADIAN PRESS)

Tim Hortons Inc. (TSX:THI) will take a decidedly American approach to the menus at its U.S. stores as the chain prepares to roll out more quick service restaurants south of the border.

While it's still a work in process, president and chief executive Marc Caira said Wednesday that Tim Hortons needs to reconsider what it believes U.S. customers like to eat, because it doesn't always fit with what makes Canadians' mouths water.

"The challenge there is to build loyalty beyond the breakfast day part, and how we plan on doing that is by developing products specifically for the American consumers," he said in a conference call with analysts after its latest financial results.

"In the past, we may have tried to perhaps use Canadian products a bit too often."

Caira, who joined Tim Hortons last summer from the global operations of Swiss food and beverage company Nestle, didn't reveal what he thought suited U.S. appetites., but said a major focus would be on snacks for lunch and dinner hours. He said there would still be an emphasis on new breakfast menus too.

"We'll continue to build breakfast," he said. "We'll continue to build coffee."

On Wednesday, Tim Hortons reported a 5.5 per cent bump in net profit in the first quarter to $90.9 million, results that fell short of analyst expectations. The profit amounted to 66 cents per diluted share, compared with $86.2 million or 56 cents in the same period last year.

Analysts on average had expected 68 cents per share, according to estimates compiled by Thomson Reuters.

Revenues were up 4.8 per cent to $766.4 million compared with $731.5 million.

Operating expenses increased by 7.3 per cent due to items such as increased rent, renovations and new restaurant openings, although it also blamed the higher costs on $3.1-million of expenses from the launch of its own co-branded credit and loyalty card, the Double Double Card.

Tim Hortons is looking for fresh inspiration in the United States where it still trying to gain traction.

In February, the company announced plans to open 300 new U.S. locations by 2018 in various cities including St. Louis, Youngstown, Ohio, Fort Wayne, Ind. and more in North Dakota.

On Wednesday, the company added Pennsylvania and West Virginia to the list, saying they would together open as many as 20 Tim Hortons.

Feeding the U.S. customer will be an entirely different challenge than appealing to Canadians, partly because the industry competes with food items that sometimes grab headlines because they're so outrageous.

For instance, Taco Bell recently launched a waffle taco that it has aggressively marketed on television as a more exciting alternative to McDonald's Egg McMuffin.

Other U.S. coffee chains have also pursued stronger position in the breakfast market, including Starbucks which revamped its menu in March to include more sandwiches like a breakfast croissant with ham, cheese and egg.

In Canada, the competition is comparatively tame, although Tim Hortons is still refreshing its menu with new items.

During the past few months, it has introduced warm kettle chips, a chicken sandwich and a new line of frozen green tea beverages that Caira said he hopes will keep customers coming back throughout the day and buying more.

"We need to convince a small percentage of those ordering a single item to order two and, for those currently ordering two items, we'd like some of them to order three," he said.