Tim Hortons still 'confident' in turnaround, eyes loyalty and drive-thru improvements to boost sales

Key Points
  • Tim Hortons' same-store sales declined in Canada by 1.2%.
  • The coffee chain is in the middle of a turnaround after several years of disappointing sales growth.
  • Tims is looking to improved food and beverage options, store renovations and its loyalty program to reinvigorate the business.
Why Tim Hortons is struggling in the U.S.
Why Tim Hortons is struggling in the U.S.

After another disappointing quarter from Tim Hortons, the owner of the Canadian coffee chain shared more about its plans to reinvigorate the business.

Shares of its parent company Restaurant Brands slid 3% in morning trading Monday, despite strong performances from its other two chains, Popeyes Louisiana Kitchen and Burger King.

Tims, which is in the middle of a multiyear turnaround, accounted for 60% of Restaurant Brands' total revenue during the third quarter. The chain is still responsible for seven out of every ten cups of coffee sold in Canada.

But in Canada, its home market, same-store sales declined by 1.2%.

"This was a challenging quarter, but we continue to be focused on delivering results and have our sleeves rolled up as we finish the year," Restaurant Brands CEO Jose Cil told analysts on the conference call.

Sales of both hot and cold beverages were weaker during the quarter. Limited-time offers did not help declining sales of the Iced Capp, Tims' version of the Frappuccino. Canada's cold weather means that fewer customers drink cold beverages year round.

"However, we were encouraged by the Creamy Chills products and believe they have the potential to be a strong platform for future innovation and growth," Cil said.

For hot beverages, Tims is trying to improve the quality and efficiency of its 40-year-old coffee-making system by rolling out new brewers across Canada by early 2020. The brewers have a new water filtration system for more consistent coffee and free up more time for employees.

The chain also unveiled new spill-resistant lids for its coffee during the third quarter. The majority of Tims customers pick up their coffee via a drive-thru.

Tim Hortons also recognized the importance of the drive-thru in its renovations of hundreds of stores. Some locations have received double drive-thru lanes to allow for faster service.

The chain is also trying to address weaker lunchtime food sales, although executives did not share any more specifics.

"Given our leadership in convenience and frequency, we continue to believe that we can win market share and lunch over time with the right investment and focus," Cil said.

In July, the coffee chain opened its first "innovation cafe" in downtown Toronto — similar to Starbucks' upscale Roastery locations. Tims is using the store to introduce new products, like a line of handcrafted doughnuts and a line of Nitro cold drinks. It plans to test the Nitro cold brew and iced teas in some locations next year.

Starbucks' own Nitro cold brew has helped drive U.S. sales since it began rolling it out across the United States.

One bright spot for Tims was the continued success of its loyalty program, which launched in March. Half of all of its transactions come from rewards members.

But the majority of these customers are using swipe cards, not the Tims' mobile app, to identify themselves as members. The chain is working on converting these customers into using the app, so it can target them with personalized promotions.

"Now, during this period, we may see a little pressure on [same-store sales growth] but we're confident long term that this is going to be a driver of traffic and profitable sales," Cil said.

Tims is also expanding its overseas reach as growth in its home market slows. The chain is opening more restaurants in the United Kingdom, Spain, Mexico and the Middle East. It is also targeting China, with plans to open 1,500 locations across the country in the next decade.