TDL Group Ltd.

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TDL Group Ltd.

874 Sinclair Road
Oakville, Ontario L6K 2Y1
Canada
Telephone: (905) 845-6511
Fax: (905) 845-0265
Web site: http://www.timhortons.com/

Wholly Owned Subsidiary of Wendy’s International, Inc.
Incorporated: 1964 Employees: 42,000
Sales: C$1.7 billion ($1.29 billion) (2000)
NAIC: 72211 Full-Service Restaurants; 72221 Limited-Service Eating Places

TDL Group Ltd. is the licensing company for the Tim Hortons donut chain, Canada’s largest purveyor of coffee and baked goods. Acquired by the Wendy’s International, Inc. hamburger chain in 1995, Hortons has 1900 mostly franchise-owned stores in Canada and more than 130 in the United States. The Toronto Star has called Tim Hortons arguably the most successful franchising company in Canada, the country with the highest per capita concentration of doughnut shops in the world.

Origins

Tim Horton, namesake for the donut chain, was born January 12, 1930 in Cochrane, Ontario. In 1949, he joined the Toronto Maple Leafs, for whom he played during most of his 22-year career in the National Hockey League. Towards the end of his career, the defenseman played for the New York Rangers, Pittsburgh Penguins, and Buffalo Sabres.

Ohio’s Columbus Dispatch detailed Horton’s early fast food career in a 1999 article. It was meant as a kind of retirement plan for Horton in the days before colossal salaries were routine for hockey stars. A hamburger stand venture failed in the 1950s. Eventually, Horton’s cousin, Dennis Grigg, along with other Toronto-area partners, suggested opening a doughnut shop.

The first Tim Horton Donut Shop opened in Hamilton, Ontario, in May 1964. The partners chose the steel town due to a lack of competition from what they perceived to be their principal threat, the Mister Donut chain. The new store took in $34,100 in its first year but made little profit. The menu was initially limited to donuts and coffee (ten cents a cup). Two of the chain’s proprietary yeast donuts, the Apple Fritter, with apple and cinnamon, and the Dutchie, featuring raisins, were its largest sellers in the 1960s.

Ronald V. Joyce, taken by the idea of using Horton’s name to pitch donuts, took over the first Tim Horton store in 1965. Joyce was a former Navy man and—quite appropriately, given the popular association of doughnuts and law enforcement personnel—a police officer for nine years. Born in Tatamagouche, Nova Scotia, in 1930, he left home at age 15 and spent the next few years working menial jobs and otherwise “surviving,” recorded the Toronto Star in a 1995 article. He then spent five years in the Canadian Navy before a nine-year term as a motorcycle cop with the Hamilton Police. Joyce and Horton became full partners in 1967, when Joyce was running three stores. Eventually, the company established an office in Oakville, midway between Hamilton and Horton’s Toronto-area home.

Lonely at Top after 1974

Horton died in an auto accident on February 21, 1974 while returning from a hockey game. Joyce soon created the Tim Horton Children’s Foundation in his honor, which operated camps for underprivileged children from the communities in which the donut chain operated. Joyce acquired the remaining shares in the licensing company, Tim Donut Ltd., from Horton’s widow, Lori Horton, for $1 million. (She later unsuccessfully sued to reverse the transaction, claiming alcohol and drug abuse had made her mentally incompetent.) The doughnut chain consisted of 40 stores at the time.

One of the most significant and enduring new products the chain introduced was its bite-sized donut “hole,” called the TIMBIT, which was added to the menu in 1976. A number of new products were rolled out in the 1980s, including muffins and cakes, pies, croissants, cookies, soups, and chili. Sandwiches and bagels were introduced in the mid-1990s.

The chain opened its 100th store in December 1978. It took only another six years to open its next 100 stores. Among its first efforts south of the border, Hortons opened four stores in Buffalo, New York, in 1985. By 1997, the company had 21 stores in the area. A foray into Joyce’s vacation area of Fort Lauderdale, Florida, did not fare as well, since the company had trouble supplying those stores.

In the late 1980s, one franchisee, Scott’s Hospitality Ltd., first joined Tim Horton donuts with Wendy’s hamburgers when it set up nine joint restaurants at highway service stations. This gave the hamburger units the breakfast menu they lacked while filling the donut section’s off-peak hours with burger sales. The Wendy’s-Hortons connection was cemented by the golf course friendship of Joyce and Wendy’s founder Dave Thomas, who owned neighboring houses in Florida.

At the time of Hortons twenty-fifth anniversary in 1989, the company stated that every year it was selling 145 million cups of coffee (110 million to go) as well as 550,000 pounds of ground coffee in tins. Total sales were about $325 million in 1990, and the company was opening about 50 stores a year. In the middle of the decade, Hortons was adding new types of outlets, setting up counters or kiosks in Tiger Express gas stations, Great Atlantic & Pacific Tea Co. grocery stores, and Shoppers Drug Mart drug stores.

Growing with Wendy’s After 1995

With 1994 sales of C$603 million, Hortons handily eclipsed rival doughnut chains Dunkin’ Donuts, a unit of Allied Domecq PLC, and Robin’s Donuts, owned by Robin’s Foods Inc. (and acquired in 1999 by Afton Food Group). Its third largest rival, Country Style Donuts, was a unit of giant food processing giant Maple Leaf Foods Inc.

Hortons opened its 1,000th store in August 1995. In the final days of the year, the TDL Group Ltd., the chain’s licensing company, signed a merger agreement with Wendy’s International, Inc., the third-largest hamburger chain in the United States. The chain was to operate as an independent division of Wendy’s, lead by Joyce’s deputy, company president Paul House, a former Dairy Queen executive.

The merger would help expand Tim Hortons in the United States, where it had encountered some difficulty in its previous attempts to take root. Wendy’s was itself looking to expand and raise its profile in Canada. The deal was worth $540 million in Wendy’s stock and the assumption of $125 million of Hortons debt.

The merger was the largest in Wendy’s history. The deal made Hortons chief Ronald Joyce the burger giant’s largest shareholder, with 13.5 percent of the company’s outstanding stock, or 17 million shares—more than twice the number then owned by Wendy’s founder Dave Thomas.

System-wide sales exceeded $1 billion in 1997. Though Hortons was second in sales only to McDonald’s on its home turf, its expansion into the United States brought it into a glutted market where it faced competition from players ranging from Starbucks Coffee to corner convenience stores and supermarket bakeries.

As it expanded, the chain preferred to take on franchisees who were interested in operating their own stores. Much of the growth was coming from existing owners adding new stores. After opening a few new company-owned stores in Michigan, Ohio, and West Virginia—many in 80 converted Rax and Hardee’s restaurants acquired by Wendy’s—Hortons planned to begin opening franchised ones in the United States in late 1997. The doughnut chain then had about 25,000 employees system-wide.

By August 1998, Tim Hortons had 100 stores in the United States, and 1700 overall, though three of its West Virginia stores closed. Hortons had also sold several company-run restaurants in Massachusetts and Minnesota, and cut franchise fees and rents. The company then focused on expanding the chain on the 1-95 corridor between Providence, Rhode Island, and Portland, Maine. Tim Hortons’ U.S. business had yet to turn a profit by the end of 1998. The company was also expanding in Quebec, which was culturally perhaps more different from Hortons’ home base in English Canada than was the United States.

The late 1990s saw the reintroduction of sandwiches under the “Tim’s Own” label. Hortons took part in the “cappuccino economy” by introducing a range of espresso-based drinks, including Café Mocha and Iced Cappuccino. The company also sold canned ground coffee via Canadian supermarkets. In a pilot program with proceeds earmarked for a local children’s hospital, cans of “Ron and Dave’s Special Blend” had appeared on Kroger shelves in central Ohio in 1996. In 2000, Hortons’ food menu expanded with the introduction of chicken stew, served in a bread bowl, and coffee cake.

Hortons celebrated its 2000th store opening in December 2000. With a slower-growth strategy than it had in its earlier southerly expansion attempts, the company planned to be profitable in the United States by the end of 2002. However, besides suffering from a name recognition problem south of the border, it faced the intrusion of a powerful new entrant into its motherland. Krispy Kreme Doughnut Corporation soon opened several stores in the Vancouver area, and Krispy Kreme’s average per-store sales (approaching $3 million) dwarfed those of competitors like Dunkin’ Donuts ($650,000) and Tim Hortons ($700,000). Tim Hortons president Paul House dismissed Krispy Kreme’s stature, saying the chain’s total number of stores at the time (166) was little more than the number Hortons had in the United States alone. He also pointed out Hortons’ broad menu of food items, while Krispy Kreme was strictly doughnuts and coffee. Dunkin’ Donuts, which had 175 of its 200 Canadian restaurants located in Quebec, was also increasing its branding and renovation budget, planning to spend $40 million over five years to stave off rivals.

Company Perspectives:

The Tim Hortons chain is a part of people’s lives and lifestyles. To our customers, Tim Hortons is their neighborhood meeting place—a home away from home. The chain’s focus on top quality, always fresh product, and friendly, efficient customer service has helped make Tim Hortons one of North America’s largest coffee and fresh baked goods chains.

The IAWS Group plc, based in Ireland, announced plans for a 50–50 joint bakery venture with Tim Hortons in March 2001. The bakery, built in Brantford, Ontario, was to supply European style breads to Tim Hortons as well as to IAWS’s own Cuisine de France outlets in the United States beginning in 2002. The partners were initially investing £75 million ($125 million) in the venture, with plans to eventually build two more bakeries as demand warranted.