FDD Talk 2020: Tim Hortons Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Tim Hortons franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Tim Hortons franchise, based on Item 7 of the company’s 2020 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Tim Hortons franchise, based on Items 5 and 6 of the company’s 2020 FDD

• Section IV – Number of franchised and company-owned Tim Hortons outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD

• Section V – Presentation and analysis of Tim Hortons’ financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:

• 2019 average gross sales for all franchised standard Tim Hortons shops that were open and operating for at least one year as of December 31, 2019, in Michigan, Ohio, New York, Pennsylvania, West Virginia, Maine, Indiana, New Jersey, and Kentucky, respectively

Section I – Background Information

23 Things You Need to Know About the Tim Hortons Franchise

Appoints New Regional President

1.  In early October 2019, Alex Macedo, global brand president of Tim Hortons, announced that Axel Schwan had been appointed as regional president of Tim Hortons for Canada and the U.S., effective immediately. Schwan will continue to report to Macedo. Previously global CMO at Tim Hortons, Schwan will oversee growing the restaurant business in both markets with a particular focus on delivering stable, profitable growth in both markets.

2.  Schwan said, “I am deeply humbled to work at such an iconic brand as Tim Hortons. Having grown up in a family of restaurateurs and working as a restaurant operator myself, I look forward to continuing to work closely with our 1,500 restaurant owners across Canada and the rest of the Tim Hortons family in providing exceptional products and service to all our guests.”

3.  Schwan first joined Restaurant Brands International eight years ago as marketing director in Germany, Austria, and Switzerland and later became the VP of marketing and communication in Europe before advancing to the role of global CMO for Burger King in over 100 countries.

4.  During his tenure at Burger King, Schwan and his team were recognized as among the very best marketers on the planet – including earning many home market and international Cannes Lions awards – and Schwan earned the coveted Cannes Marketer of the Year award in 2017. He then joined Tim Hortons as global CMO in 2017.

5.  According to Macedo, “Since joining the Tim Hortons brand two years ago, Axel has led our innovation work in coffee, including developing our new Fresh Brewers – our largest coffee innovation in 55 years. He has been essential to our work underway today on our core product innovation pipeline in breakfast, donuts and baked goods and has led our efforts in brand-based advertising. Axel has been an advocate for advancing our sustainability initiatives and has also led our work to redesign our restaurants and our packaging for a better guest experience.”

Launches Campaign with Wayne Gretzky

6.  In mid-December 2019, Tim Hortons announced a partnership with hockey great Wayne Gretzky. According to a press release, Gretzky had met Tim Hortons co-founder and hockey legend Tim Horton back in 1968 when he was just a kid. Gretzky’s mother, Phyllis, took him to meet Tim Horton at a local restaurant opening. The meeting ignited Gretzky’s passion for hockey and inspired him not just to become a professional hockey player, but eventually The Great One.

7.  According to Gretzky, “When I was a young boy, I looked up to Tim Horton. He was an icon – one of the best Canadian hockey players of his generation. I would watch him play on TV and every night I went to bed thinking about being like him and playing hockey on TV. There have been many moments in my career that I will never forget, but the moment I met Tim in that restaurant and he signed that napkin for me, it inspired me to believe that I could become a professional hockey player like him.”

8.  A partnership with Gretzky and Tim Hortons has been more than 50 years in the making and is captured through a moving spot, The Autograph. This heartwarming piece tells the true story of how a young Gretzky visited a newly-opened Tim Hortons to meet his hockey hero – Tim Horton. Gretzky realized he forgot to bring something to get signed and a quick-thinking Horton grabbed a napkin and wrote “Wayne, Best Wishes – Tim Horton.”

9.  This memorable exchange inspired Gretzky to dream of being a professional hockey player one day. Walter Gretzky, Wayne’s dad, has kept the autographed napkin for more than 50 years because it meant so much to his son. Walter, the ultimate hockey dad, is featured in the spot alongside Wayne sharing the napkin he has kept for over 50 years.

10.  Paloma Azulay, chief marketing officer of Tim Hortons, said, “To us, the story of Tim Horton and a young Wayne is extraordinary – when I heard it, I knew it was a beautiful and touching story. The true story about the meeting between a Canadian hockey icon and a young boy who we would one day call The Great One was the start of something bigger than great – it was the start of something legendary. We’re so proud to have played a small part in such an important moment in hockey, and Canadian, history. We’re excited to share this story with a generation of Canadians who have been inspired by Wayne.”

11.  Canadians were able to watch The Autograph for the first time on TV during the IIHF Ice Hockey World Junior Championships in December 2019. On January 15, customers could find limited-edition tumblers featuring The Great One’s autograph and iconic number 99 at participating Tim Hortons Restaurants across Canada. Tumblers were also available at participating restaurants for $17.99 and only while supplies lasted.

12.  The Autograph was developed by creative agency GUT with Canadian directors Jon and Torey leading the creative vision from behind the camera. To create the spot, the team recreated a 1960s Tim Hortons restaurant, accurately replicating every detail from the sign outside to the napkins used at the time. In preparation for the shoot, it became clear that playing the role of young Wayne Gretzky was every young Canadian actor’s dream – more than 68,000 Canadian boys auditioned for the role.

Expands Loyalty Program in U.S.

13.  In mid-February 2020, Tim Hortons announced an expansion of its loyalty program, including allowing access to additional menu items and launching new exclusive offers. Tims Rewards evolved to a points-based program and now provides for access to additional menu items not offered in the previous program. Members will now earn 10 points per visit and rewards are unlocked starting at just 60 points.

14.  Points levels are:

• 60 points: Classic Cookie, Classic Donut, Specialty Donut
• 80 points: Brewed Coffee, Tea (Specialty or Steeped)
• 120 points: Hot Chocolate, French Vanilla, Regular Iced Coffee
• 160 points: 10 pack Timbits, Original Iced Capp, Regular Hot or Iced Lattes
• 200 points: Biscuit or English Muffin Breakfast Sandwich, Breakfast Wraps
• 240 points: Turkey Bacon Club, Ham and Swiss, Chicken Wraps

15.  In order to access their Tims Rewards account, members should use the mobile app. As of March 10, physical cards are no longer supported in the U.S. and members will not be able to redeem rewards or earn points using a physical card.

16.  Through the mobile app, members will be able to select a desired rewards level and can then redeem their points for their favorite Tim Hortons menu items once they reach it, or can choose to bank points in the mobile app to save the points for up to a year. If members don’t choose a reward level, the default will be a free coffee or tea after earning 80 points.

17.  Members who access their Tims Rewards account through the mobile app and have selected a reward level will be able to unlock exclusive benefits and receive a reward on their birthday.

18.  More details on Tims Rewards:

• Earning points: Members will earn 10 points when they make an eligible purchase, which is a transaction with a pre-tax total of greater than $0.50 and that is made at least 30 minutes after the most recent eligible purchase. The Tim Hortons mobile app must be presented and scanned before paying.

• Existing Rewards and Visits: On February 26, already-participating members received 90 points for every banked reward, 10 points for every visit they had accumulated up to that point, and an additional 20 points.

Company History

19.  Tim Hortons was founded in 1964 by legendary Canadian hockey player Tim Horton and his business partner Jim Charade in Hamilton, Ontario, Canada. Not long after opening the first Tim Hortons, Horton met Ron Joyce, a former Hamilton police constable, and offered Joyce one of the first franchises.

20.  Joyce was a savvy businessman who had experience owning a Dairy Queen franchise. Eventually, Joyce became heavily involved with Tim Hortons operations, but he and Charade did not get along. Joyce briefly left the company, but came back after Horton asked him to after promising to make Joyce an equal partner. When Joyce came back, Charade left the company in 1966.

21.  Horton and Joyce continued to run the company together until Horton died in a car accident in 1974. After his death, Joyce bought out the Horton family’s shares and became sole owner of the company. Joyce aggressively expanded Tim Hortons and is credited with the brand’s success. Over the next few decades, Tim Hortons continued to expand all across Canada. The first Tim Hortons in the United States opened in 1984 in New York.

22.  In 1995, Tim Hortons merged with American fast-food chain Wendy’s. While many Canadians were upset by the merger, the two companies remained partnered until 2006. Tim Hortons regained its independence for the next few years. However, in 2014, Tim Hortons merged with Burger King under a new parent company, Restaurant Brands International, which is majority-owned by Brazilian investment company 3G Capital. Today, there are Tim Hortons shops all across North America and a few locations in the United Kingdom.

Entrepreneur’s Franchise 500

23.  Tim Hortons did not rank on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Tim Hortons franchise costs, based on Item 7 of the company’s 2020 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Tim Hortons’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2017

• Outlets at the Start of the Year:  788
• Outlets at the End of the Year:  738
• Net Change:  -50

2018

• Outlets at the Start of the Year:  738
• Outlets at the End of the Year:  727
• Net Change:  -11

2019

• Outlets at the Start of the Year:  727
• Outlets at the End of the Year:  656
• Net Change:  -71

Company-Owned

2017

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2018

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2019

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis

• The following table describes the average and median Gross Sales in 2019 for all franchised Standard Shops that were open and operating for at least one year as of December 31, 2019.

• Gross Sales include all revenues received by the Tim Hortons Shop, less refunds and sales taxes.

• A Standard Shop is the typical Tim Hortons Shop. It produces, merchandises, and sells a variety of baked goods, such as donuts, cookies, muffins, tarts, as well as coffee and other beverages. Most Standard Shops also offer a variety of soups, chili, and sandwiches. The Standard Shop generally ranges in size from 1,000 to 2,300 square feet, and contains a seating area for customers. The Standard Shop also typically includes a drive-thru facility and may be a stand-alone or an in-line Shop.

• The table reflects the results of 489 franchised Standard Shops (which includes Tim Hortons Shops operating under a Franchise Agreement and under an Operator Agreement), or 68% of all Tim Hortons Shops. The remaining Tim Hortons Shops were not included because they opened or closed after January 1, 2019 (12%), they were not Standard Shops (27%), or they did not report actual sales for all 12 months in 2019 (0.3%).

• 75 of the Tim Hortons Shops that were excluded closed during 2019. Tim Hortons had two Tim Hortons Shops close in 2019 after being open less than 12 months.

• In preparing this table, Tim Hortons relied on the data contained in the unaudited reports submitted to it by its franchisees and operators.

• As of December 31, 2019, 74% of the Tim Hortons System operated a Standard Shop.

• The information appearing in this table reflects the aggregate Gross Sales results of individual Standard Shops. The information does not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the Gross Sales figures to reflect net income or profit. Moreover, this information should not not be considered as the actual or probable sales results that will be realized by any franchisee or Tim Hortons Shop.

• Actual results vary from Tim Hortons Shop to Tim Hortons Shop and Tim Hortons cannot estimate the results of any specific Tim Hortons Shop. A new franchisee’s Tim Hortons Shop results are likely to differ from those of established Tim Hortons Shops.

Average Gross Sales in 2019 for All Franchised Standard Shops That Were Open and Operating for At Least One Year as of December 31, 2019

Michigan

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