Int\'l Strategic Management (Case Study - Tim Horton\'s) PDF

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Global Strategy Group Case Study Assignment: Tim Hortons Team Members: Teacher: _____ Date: _________ 1) Analyze the external environment of Tim Hortons in detail - please refer to the information in the case plus any additional information required through research (PESTLE). Macro-environmental fac...

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Global Strategy Group Case Study Assignment: Tim Hortons

Team Members:

Teacher: _____ Date: _________

1) Analyze the external environment of Tim Hortons in detail - please refer to the information in the case plus any additional information required through research (PESTLE).

Macro-environmental factors according to PESTEL: Political Base on the regulation of Canada and U.S. Tim Hortons and 3G Capital must have followed government regulation for the acquisition of the company to an American brand which owned two-thirds of Burger king an international brand. Also, shareholders of Tim Hortons should approve the purchase before the deal close. The company gave them two option all-share or all-cash option, and the price of the share for each was $94 after an acquisition. When companies are expanding, they are looking for the location of the headquarter that they can decrease their company tax.3G Capital can take advantage of lower corporate tax by opening their acquisition in Canada instead of U.S. Starbucks, Dunkin Donuts and McDonald are Tim Horton's competitor, and they all expanded their brand in Europe and North America for Tim Hortons to be able to compete with them in the foreign market they struggle with government guidelines in those countries.

Economical In 2013 the fast food industry experienced a considerable increase in a visit which shows that because customers lifestyle is changing their habits of eating are also changing. They are looking for the restaurant who can provide their food in faster time , with healthier and affordable price. McDonald and Tim Hortons serve under quick service categories and from their beginning until 2014 they added the different segment to their menu so they could be innovative and be able to compete in the industry. Inconsistent economic growth is one of the factors that increase competition in this industry; therefore Tim Hortons could use this acquisition to enter the world market and be able to trade in different currencies. 99.5 percent of Tim Hortons stores are franchised-owned, and the cost to acquire Tim Hortons franchise was approximately $500000, they are the largest quick-service restaurant in Canada. By this acquisition Tim Hortons can benefit from the U.S. economy and 3G Capital can enjoy lower tax rate, and lower exchange rate and lower interest rate in Canada. In 2014 Tim Hortons expand restaurants in U.S. and GCC. GDP in all these countries is the significant factor for Tim Hortons because if the GDP is growing the purchasing power of the customers are increasing and lead to income increase for Tim Hortons. In 2014 they expanded breakfast menu and added Dark roast coffee to their hot serving beverage, and espresso drinks so they can compete with McDonald products and by bringing their price down with Starbucks. The strategy is “we fit anywhere” led them to open the store in a non-traditional location or convenience store and gas station, therefore they weren’t only depended to their restaurants like McDonald and Starbucks. Because of the cost of labor and inventory, they have three manufacturing facilities, six warehouse distribution centers and one warehouse across Canada, and they export their product from Canada around the world. Their plan for 2014 is to grow and make transitional investments and further position our business for success. Their 4-year window is 11 to 13 percent compounded annual growth rate, increasing free cash flows of approximately $2 billion, operating income generated through the U.S. segment of up to $50 million, and opening 800 or more new locations in North America and the GCC.

Sociocultural In North America, the restaurant industry is changing from full service to limited and quick service. People prefer to visit limited service or quick service restaurant and have ethnic options and eat healthier foods also support locally sourced products, in general, we can say consumer preferences is changing. There is 39 percent customer loyalty to quickservice brands like Tim Hortons and Mcdonalds in Canada, and the quick-service restaurant market represented 64.7 percent of all meals and snacks sold in the foodservice industry and generated $22.6 billion in sales in 2013. The aging population is another important social factor, nowadays the young generation is so busy with work and studying and don't have any opportunity to cook or visit the full-service restaurant, they prefer to grab their coffee, foods or snack to go. Consumer trend for local products like fish and natural ingredients is the reason for Tim Hortons to look for ethnic menus so they can meet consumers desire. Tim Hortons should be aware of religious and cultural values as well, their restaurant in GCC should serve halal meat only in their sandwiches which could be a challenge for them. For their marketing and advertising, they must be careful that their company doesn’t disrespect any culture or country since their goal is to become a global brand. Tim Hortons is competing with Starbucks, Mcdonald's, and Dunkin’ Donuts for them to have an edge in the competition, they must be creative about their product and decrease their price. Tim Hortons foundation supported several children and youth to attend to summer camps at no cost. By doing this, they show their customers that they care about society and their business its not only about earning the profit and they can attract more customers to their business.

Technological On a constant basis giants of the quick-service industry through use of new technology push their efficiency rates and capabilities in order to create the most strategically optimized value chains. Tim Hortons and its rivals such as McDonalds, Dunkin Donuts and Starbucks own different technologies of producing various products such as coffee, tea, pastries and sandwiches that are very specific to these places, hence can be considered as competitive edges. Mobile and digital technologies have opened a whole new way to attract customers and develop a better customer engagement through use of apps with the reward system.

Environmental The climate change effects on countries where coffee is sourced by companies such as Tim Hortons has to be considered as an important factor. It is a bigger risk for coffee-buyers

Commented [1]: Please rephrase the sentence

because prices on coffee become more and more volatile in the coming years due to shift in climate conditions. Also, recently new trends related to eating green and organic food may affect Tim Hortons’ consumer preferences and increase the demand for such products that may lower the demand for present Tim Hortons foods menu.

Legal There might be new rules and laws regarding consumers health and eating habits that may affect Tim Hortons’ menu.

2) Conduct a SWOT analysis for the company. To analyze strengths and weaknesses, make sure you use the resources and capabilities model https://www.slideshare.net/AnkitBalyan2/comparative-strategic-analysis-of-tim-hortons-andstarbucks Strengths (Resources that become capabilities that further become a competitive edge of a company)Consistent financial performance Dominance in Canada Tim Hortons is on the first place on the Market share statistics within Canada Strong brand awareness in Canada Every Canadian is aware of the Tim Hortons and most of them are loyal to the brands Franchise terms favor corporate interests Franchising is the crucial part of the Tim Hortons brand development, and the terms of how businesses operate the franchise are mutually beneficial for corporation and franchisers. High quality product The product is considered to be of high quality : coffee beans, sandwich ingredients, doughnuts and others. Good operating margins Financial ratio shows us that Tim Hortons is in good stand on the market, profitable, and operating with the high margin. Weaknesses

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Poor brand awareness outside of Canada Non Canadian residents are mostly not aware of the Tim Hortons as a brand

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Low interest in potential franchisees abroad As the brand awareness overseas is not high, the low interest of franchising it is the result

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Instances of store closures abroad Tim Hortons tried to introduce themselves on foreign markets, but couldn't achieve a desired performance and profit and had to close down stores. That now is considered a weakness

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Cultural dependance Tim Hortons is dependent on Canadian culture and mentality.

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Lack of healthy alternative product lines With the trend for healthy lifestyle choices - it is hard to sell pastry this days.

Opportunities -

Growing trend in snacks industry

Commented [2]: trend in snacks industry for what?

Food on the go is a great trend, which should not be underestimated -

Greater demand for quick services

Commented [3]: what kind of quick services?

Minimize the waiting time from ordering to getting the product, drive thru -

Room for growth outside of Canada It is still possible to expand overseas, but with slight adjustments to the brand

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Healthy product line to be introduced There should be more choices of healthy food available for customers. Salads, drinks, gluten free doughnuts

Threats -

A shift in consumer tastes towards more healthy products and lifestyle overall pose a strong threat for Tim Hortons sales; The volatility of coffee beans due to the changes in climate, hence in the pricing of coffee beans as a commodity; Market oversaturation because of how widespread Tim Hortons already is that already causes a decrease in sales.

Commented [4]: Максим, распиши, свои поинты пожалуйста наподобие того, что я тут написал

3) Based on the given information plus additional research, apply porter's model to determine whether the industry is attractive or not. (Alberto & Nick)

Porter’s five forces Industry Rivalry Base on the information provided on the case there are three main competitors that could take away some of Tim’s market share in the North America market: McDonald’s, Starbucks and Dunkin donuts. In order to understand why above mentioned companies are a competition to Tim Hortons it is important to analyze how they position themselves. Also, we need to consider what categories and market segments they compete in. We will then be able to identify where Tim Hortons lies in the market.

Tim Hortons Competition Based on

McDonald’s

Starbucks

Dunkin Donuts

Price of products

Similar to Tims

Higher than Tims

Similar to Tims

Advertising

High amount like Tims

High amount like Tims

Relatively lower (at least in Canada)

Variety of Products

Large product mix like Tims

Large product mix like Tims

Smaller product mix compared to Tims

Taste of Coffee

Strategy based on Taste Quality

Strategy Based on Strategy Based on responsible sourcing Taste Quality

Locations amount compared to Tims (US/Canada)

Higher/Lower

Higher/Lower

Medium/LowerNone

Main Segment

Mostly QuickService

Dine in

Mostly QuickService

Main Products

Hamburgers

Coffee and Baked Goods

Coffee and Baked Goods

Customization of Products

Low

High

Low

Bargaining Power of Suppliers Tim Hortons’ main product is coffee, as per the information of the case; they source their coffee grains mostly from Brazil, Guatemala, Honduras and “Columbia”; however, there are several other countries that grow coffee in the South and North America where they can obtain their coffee grains from countries such as Southern Mexico, Nicaragua, El Salvador, Colombia and Venezuela. Also, they are able to source their coffee beans from various Africans countries such as Ethiopia, Ivory Coast, and others. The reason it is so widely available is because that coffee is not an inimitable product. Tim Hortons is mostly buying the raw materials from the countries mentioned above, but they dont buy highly processed materials to make their end products. Based on the case, Tim owns their Canadian roasting facility, which one would assume is the one that handles the most volume of product. We made this conclusion because of the high number of stores they currently have franchised in Canada.Also, when buying coffee beans Tim Hortons may benefit from their reputation and volume to obtain lower prices given that they can easily find other suppliers; Thus, one would conclude that the power of the suppliers is low in this case.

Commented [5]: quotation marks?

Bargaining Power of Buyers Tim Hortons is a Coffee Retailer that is widespread in Canada and is engrained in the life of Canadians. As per the case, they are exploring an ambitious strategy to expand throughout the United States and internationally. There is a significant number of buyers in the market, which means that the power of each buyer on the price is low. Also taking into consideration that Tims product mix is mostly standardized and that the customers have little to no say in the end product, one could interpret as low power for the buyers. Furthermore, another aspect to consider as to why buyers have a low power is that Tims is a coffee shop that does not necessarily have to deal with customers after sales in comparison to other industries where after sales services play a vital role in their competitive environment. Tim Hortons does not need to plan and design a reverse logistics strategy in order to keep their

Commented [6]: not sure about this phrasing, I suggest to change to something simpler or just different

Commented [7]: simplify the end part of the sentence because it becomes too complicated to comprehend. + it's better when you operate with facts rather than with assumption like in "one could interpret as..." Commented [8]: what kind of power?

customers happy since it is unusual that a customer would return one of their products (and if they do one would assume it would be full refund at that would be it). On the other hand, one high power that the buyers in this industry would have is the cheap alternatives that buyers would have, they could easily choose a competitor given the presence of McDonald’s and Dunkin Donuts that offer similar prices. Overall, one would deduct that the bargaining power for buyers in this industry is low.

Commented [9]: what kind of power as well

Potential New Entrants Tim Hortons is a franchise-based business, as per the case, 99.5% of their locations are owned by franchisees. Relatively speaking for investors, the cost of buying a franchise is not an “astronomical” investment. To reference the case, the prices can go from $25,000 to $500,000. It is well-known that franchising is one of the most popular ways for businesses to expand their brand within domestic and foreign markets, and for this reason one would deduct that the potential of new entrants is high due to the relative low cost of investment. Another key factor regarding the food industry, is that there are no strict government regulations that limit the operations of a fast food chain, other than the sanitary and dietary regulations that are achievable any new potential entry would not have to make any extraordinary arrangements to enter the market. Thirdly, based on the case, the restaurant industry in the United States was projected to reach 684 billions of USD in 2014, the case also states that this would have been the fifth consecutive year where there has been growth. This would make the industry attractive for new competitors to grab some of the market share due to the constant growth rate of the industry. Hence, the potential of new entrants is high for this industry.

Threat of substitutes Based strictly on the information provided in the case, the prices for substitute goods provided on exhibit 5 are higher but not significantly higher in regards to having a customer deciding one over the other. In the economically ideal world, one would assume, strictly based on price, that customers would always go for the less expensive option. However, given the convenience and a large number of locations of the substitutes, one must acknowledge that the threat due to the prices of substitute goods is high. Another factor to consider is the perceived quality of the goods. At the price point that Tim Hortons sells its products when compared with more direct substitutes such as McDonalds and Dunkin Donuts, the quality of their products is better. Starbucks would be the closer competitor when it comes to providing quality products, nevertheless the price difference between both is significant and for this reason, the threat of substitutes in terms of quality is low. In addition, when it comes to threat of substitutes, one has to take into consideration the switching cost of a customer to any other product such as tea or energy drinks, which are widely available to similar price points to what coffee is retailed at. This would make the threat for this

Commented [10]: speaking for somebody? (on behalf or how is that?). Should it be mentioned this way or would it sound too subjective (our opinion, not a fact)? Commented [11]: price per what or for what?

subcategory high. Furthermore, many analysts suggest that Tim Hortons has reached its saturation point in Canada compared to their direct competitors in the Canadian market. On the other hand, Tim Hortons has an advantage in the US market which is bigger and more profitable because they are still growing the number of locations in comparison with their 3 main competitors that are well over the growth phase. Despite Tim Hortons being the “New Kid on the block”, its main competitors have a strong presence in the US market in terms of locations, tradition and reputation; Thus the threat of substitutes on this subcategory is also high. Overall, one would expect from this case that the threat of substitutes in terms of competition and similar products is relatively high.

Verdict Category

Low or High

Bargaining Power of Suppliers

Low

Bargaining Power of Buyers

Low

Threat of New Entrants

High

Threat of Substitutes

High

Industry Rivalry

High

Is the Industry attractive

Base on our Analysis 3 High 2 lows therefore No, the industry is not attractive for new players...