TIM HORTONS ANALYSIS 1
Tim Hortons is the biggest chain restaurant in Canada. It is alsothe leading quick service restaurant and the fourth largest in thenorthern part of America. The company also ranks high in thebreakfast and snacks market (Gollom, 2014). The restaurant operatesin a very competitive environment whereby the number of new entrantsin the market intensifies the scramble for clients. Although therestaurant has a rich history in the food industry, the gradualchange of preference by the clients should create concern, and themanagement should not ignore it. The management needs to payattention in expanding the business to other areas and woo newclients and consequently increase the sales volume. This paper willanalyze the internal and external environment surrounding in itsniche. The analysis can be imperative in making future decisions forthe company by combining the opportunities and strengths to get ridof the threats and weaknesses.
External Analysis: Porter’s Five Forces
1. Sizeable economies of scale- There are few competitors in thenorthern part of America Tim Hortons controls a significant share ofthe market in the area. It controls 62% of the Canadian coffeesegment and 76% of the baked goods in the Canadian market (Gollom,2014). The few competitors include Coffee Time, County Style,McDonalds and Burger King.
2. Brand preferences and customer loyalty- Tim Hortons boasts of ahigh customer loyalty in the northern part of America. However, theloyalty is gradually being neutralized by the presence of renownedbrands like McDonalds. The consumer loyalty enjoyed by bigcompetitors like McDonald in the noted states is gradually shiftingto Canada and other parts of North America.
3. Capital requirement and specialized requirement- New entrantsin the food industry require a moderately high amount of capital iftheir operations are to operate in more than one setting. However,food companies with an international outlook find the Canadian marketa good niche to establish new joints.
4. Switching costs- There is a high switching cost for newentrants since the capital required is moderately high. The factorlowers the threat of new entrants.
5. Costs and resource disadvantages independent of size- the costrequired in establishing food businesses in Canada is a disadvantageto the new entrants. However, the resources required in running thebusinesses are available (Scrudato, 2015). For example, the rawmaterial for preparing food is available in the market and therestaurants regardless of size do not experience operationinconveniences.
6. Regulatory policies-The Canadian food market is one of the mostpreferred by investors due to the friendly policies that do not havelengthy bureaucracies (Gollom, 2014). Any new entrant willing tojoin the industry can do so on choice. The only challenge in themarket is the high capital required and competition offered by theestablished restaurants. The threat of new entrants is, therefore,moderate.
Force Two: Bargaining Power of Buyers
1. Availability of substitutes- There are several restaurantsoffering similar foods as Tim Hortons. They include McDonald, CountyStyle, Burger King and Coffee Time (NDP Group, 2014). These offerhigh competition to Tim Hortons.
2. The degree of differentiation- most of the restaurants offeringservices in Canada work towards maintaining customer loyalty andwooing others by differentiating their products. The differentiatedservices range from services and the types of foods. For example, TimHortons offers coffee and breakfast in the morning hours. A similartrend is observed in the McDonalds.
3. Number of buyers compared to the number of sellers- There arefive big restaurant chains in the country that compete together withTim Hortons (NDP Group, 2014). However, there are many small venturesthat control a significant share of the market.
4. Buyers’ demands for the restaurant’s products- due to theincreasing number of new entrants in the industry, clients are verysensitive to the quality of services. Also, customer loyalty in thisindustry is built on a consistent quality.
5. Information availability on products cost and pricing- each ofthe top competitors offer different process for the foods offered dueto their differentiation. The clients are conversant with the pricessince most of them visit the restaurant regularly.
The overall bargaining power of consumers is significantly high.
Force Three: Bargaining Power of Suppliers
1. Availability of inputs- as a food company, Tim Hortons operatesin an environment well served with the raw materials required in foodpreparation. Most of the materials are grown locally with a fewcoming from overseas.
2. Availability of substitutes- There are many substitutes tochoose from in the industry. The restaurants have a chance to makeorders from the suppliers of their choice.
3. Volume of sales to the industry- as a food industry, TimHortons highly depends on the quality of products from suppliers.There are many food suppliers in the country who deal with certifiedproducts. Their sales also depend on the level of consumption and,therefore, they have to supply quality products.
The bargaining power of suppliers is strong.
Force Four: Threat of Substitutes
1. Available substitutes and cost benefits- although there arefive big competitors in the industry, there are many smallrestaurants that offer quality foods. Tim Hortons and the other chainrestaurants only have an edge of multi-presence and customer loyalty.The clients who care loyal only make a small percentage of the wholepopulation. There is, therefore, the threat of them seeking servicesfrom other restaurants near them.
2. Switching cost- also, due to the small gap in the prices offoods in the restaurants, clients may not prefer one restaurant overanother due to price. Price switching is therefore not a threat.
The threat of presence of substitutes is significantly high.
Force Five: Intensity of Rivalry
1. Number of firms- there are many food providers in Canada andthis increase the rivalry between the individual firms. Also, theentrance of new firms intensifies the competition
2. Diversity of firm- due to the similarity of the foods providesby the restaurants, most of them differentiate their services to gaina competitive edge.
3. Market growth rate- the food industry in Canada is growing at arate of 4.4% annually. The growth attracts new entrants who want toshare in the benefits. By the end of 2014, the value of the industryhad grown to $71. Billion (NDP Group, 2014). There is a high rivalryin the industry.
Summary of the Porter’s Analysis
An analysis of the five forces shows that there is a high competitionin the industry. The five big restaurants in the industry should bean eye opener for the company to expand its operations and woo newclients. Also, the entry of the new restaurants in the market due tothe attractive growth of the industry is also a threat to thecompany. Tim Hortons should take advantage of the many suppliers andprovide food services a big number of clients.
Value Chain Analysis: Primary Activities
There are several factors in the internal analysis that apply to TimHortons. They include inbound logistics, operations, and outboundlogistics. The most imperative inbound logistics for Tim Hortons aresuppliers and labor source. As a serve food company, Tim Hortonsdepends on the quality of materials delivered by the suppliers(Gollom, 2014). It is, therefore, necessary to choose from among themany the ones who provide healthy raw materials. In Canada, therestaurant’s chain operations depend on regional warehousedistribution to ensure the availability of fresh food every day(Strauss, 2015). Also, a skilled labor force is also vital in themanagement, preparation, and presentation of food. Food preparationand presentation is one of the areas of differentiation in the foodindustry. Customer service forms an intricate part of therestaurants. The management perfects it through a 24-hour service indrive-through facilities for clients who may not get time to visitthe restaurant (Gollom, 2014).
Secondly, an operation is also an important internal tool. Themanagement of the chain aids in reflecting uniformity both in thephysical appearance and internal culture (Strauss, 2015). As part ofits outbound logistics, the restaurant concentrates on satisfying theneeds of the client’s base by providing high-quality services andhealthy foods.
Value Chain Analysis: Support Activities
The primary activities of the restaurant create a competitive edgethat leads to superior profit margins. The management emphasizes onquality control to ensure that the initial quality of is maintained.Quality control ensures that clients get their coffee within twentyminutes after placing their orders. The restaurant also maintains abrand image and its popular motto, “Always Fresh.” In all thestores, the management ensures that the workers maintain uniformculture. The large number of stores that amount to 3600 also gives ita competitive edge over other competitors (Gollom, 2014).
The VRIO analyzes show the viability of organizations decisions andactivities and assess their competitiveness. A viable companyoperates in a promising environment that has positive prospects forgrowth. The Canadian restaurant industry is growing at 4.4% annually(NDP Group, 2014). It provides an opportunity for business expansionand stand a chance to withstand the competition arising from theexisting rivals and other new entrants. Although Tim Hortons enjoys awide presence in the country, its idea of food preparation andservice is not rare, and it is easy for other companies like BurgerKing and McDonald to emulate it. The differentiation of food serviceis easily emulated by competitors and new entrants, and it is not aprimary source of competitiveness.
Conversely, although the internal support activities of the companyare easy to imitate by other players in the market, the competitorsfind it difficult to imitate the outward reflection of the Canadianculture by Tim Hortons. Clients consider it a representation ofCanadian culture and it explains why it is the largest coffee shop inthe country. The perception that people have towards the restaurantsgives it a competitive edge.
Besides enjoying the loyalty of the citizens, the restaurant is in aposition to exploit the ever-growing industry and increase its clientbase. A review of the restaurant`s financial performance shows asteady improvement from 2006 to 2014. It working capital has beenrising steadily, and it is an indication that the company has a lotof liquid assets that could be instrumental in establishing newjoints and differentiating the services. The stable financialbackground gives it a competitive edge in the market and it can useit to create a big gap between it and the close competitors.
-Canada’s largest food service concentrating n fast foods
-It is te leading restaurant in terms of market share
-It enjoys good reputation and people take it as a representation of the Canadian culture
-Operates 3600 outlets some of which operate 24 hours every day to meet the needs of different clients
-Has a highly skilled workforce that meets the needs of the clients
-It does not have a solid world wide experience lie its close competitors like McDonalds
-It does not have distinctive differentiae of services they are therefore easy for the competitors to emulate (Scrudato, 2015).
-The favorable internal environment is an opportunity for expansion and establishing mergers
-The increasing use of technology in the food industry for making orders and getting clients feedback is an opportunity to improve its services
-The increasing consciousness of people about their health is a threat for a fast food restaurant like Tim Hortons (Scrudato, 2015).
-there is an intense competition from the close rivals as well and the entrance of new restaurants in the market
-Some people are also investing in stylish coffee making home machines and it reduces the need to take coffee from the restaurant
In conclusion, Tim Hortons remains the largest fasts food restaurantin Canada. The restaurant enjoys the loyalty of the citizens and aconsistently growing revenue growth. However, the management shouldbe wary of the competitors who are gaining roots in the country andtaking advantage of the growing industry. It should focus on wideningthe gap between it and the other competitors by reaching out to morecustomers and differentiating their services.
Gollom, M.(2014). Tim Hortonss: Why the coffee giant is genuinely beloved byCanadians. CBC News. Retrieved fromhttp://www.cbc.ca/news/business/tim-Hortonss-why-the-coffee-giant-is-genuinely-beloved-by-canadians-1.2748530
NDP Group.(2014). Canadian chain restaurant industry review. GE CapitalFranchise Finance. Retrieved fromhttp://www.restaurantinvest.ca/site/restaurant_invest/assets/pdf/2014__canadian_chain_restaurant_industry_review.pdf
Scrudato, R.(2015). Restaurant Brands International: A SWOT analysis. ValueLine. Retrieved fromhttp://www.valueline.com/Stocks/Highlights/Restaurant_Brands_International__A_Short_SWOT_Analysis.aspx#.VuG8yUCTbMx
Strauss, M.(2015). Cost-cutting strategy: A boost for Tim Hortons. The GlobalMail. Retrieved fromhttp://www.theglobeandmail.com/report-on-business/combined-tim-hortons-burger-king-results-miss-analyst-estimates/article24135140/