The Canadian Coffee Competition Like the “double-double,” the Canadian coffee market was a category made to order for Tim Hortons. Socially we were gathering more and more at corner cafés, and Tim’s,...



The Canadian Coffee Competition


Like the “double-double,” the Canadian coffee market was a category made to order for Tim Hortons. Socially we were gathering more and more at corner cafés, and Tim’s, founded in 1964, had established itself as the category king long before Starbucks laid down stakes in the 1990s. However, concern began brewing for Tim’s when McDonald’s decided to put forth a concerted effort to cash in on coffee by creating the McCafé brand in 2009.


The impact was felt immediately as Tim’s market share of fresh brewed coffee in Canada began to erode, although by mid-2017, 8 out every 10 cups consumed outside the home were still coming from Tim Hortons. That said, the demand for coffee in Canada, which built the Tim Hortons brand in the first place, was by the late 2010s clearly being contested by Tim’s, McDonald’s, and the omnipresent Starbucks.


The story of how this came to be—the opportunity that each contestant saw in the coffee market, the decisions they made to dive in, and those they continue to make to grab an edge—will unfold as leaders of these brands keep one eye on their competition and one eye on percolating consumer trends. For marketing students wondering about the real-life applicability of marketing theory, read on as we combine two cornerstone concepts of marketing—SWOT analysis and Ansoff’s opportunity matrix—and compare how they are used within the strategic chess game going on between the major players in Canada’s competitive coffee landscape.


While every single market competitor in every single industryshouldbe practising these marketing fundamentals constantly, the evidence does not always show this to be happening. By mid-2017, the once dominant Tim Hortons was fine-tuning its coffee business in the wake of news showing same-store sales were on the slide. While it would have been difficult for those caught in a typical Tim Hortons in-store or drive-through lineup to notice that business had slowed at all, a glance toward the nearest McDonald’s McCafé might have proved otherwise. It would have also, no doubt, supported the decision by Tim Hortons to ratchet up its once untouchable way of doing coffee.


One thing SWOT teaches us is that every opportunity and threat has an epicentre—an origin from which a small, sometimes unnoticeable crack becomes a gaping chasm. By dividing the O and T in SWOT into five subcategories—competition, regulation, economics, social, and technological (CREST) forces—we see how one force might arise on its own but quickly trigger others before creating a flywheel that becomes an entity that business leaders are forced to deal with. The trick, however, is to notice, prepare, and act before that flywheel becomes too powerful to overcome.


The flywheel in the case of Canada’s coffee landscape might be traced to, of all places, Italy. It was there that Howard Schultz, would-be CEO and Starbucks brand architect, noted there was a “third place” in the daily routine of people—a gathering spot between work and home—that was embedded in the European culture. He gambled that North Americans would embrace this concept as well and in 1987 purchased Starbucks and set off to create a category that was neither a restaurant nor a coffee shop, but a “third place.”


Twenty years later, McDonald’s had a separate business unit with a visible in-store “third place” presence—complete with the requisite fireplaces and WiFi—and Tim Hortons was introducing, with the assistance of a major marketing communications push, the “perfectly uncomplicated latte” of its own in order to create its own “third place” environment.


Focusing solely on Tim Hortons for a moment (we are a Canadian publication after all), a high-level glimpse at its SWOT analysis for the year ending 2016 might have looked something like that shown in the table below.


While extensively more detail would have been written into an actual SWOT performed by Tim Hortons leadership in the mid-2010s, the 12 factors noted inExhibit P1.1would have been enough to prompt Tim Hortons to cobble together a growth matrix resembling something similar to that shown in the table below.


Reviewing their options, the leadership of Tim Hortons might have evaluated them in a way similar to the following.


·
Market penetration:Making more of the same coffee for the same coffee customers represents a no-gainer, based upon current leadership in the space, with little if any room to grow.


·
Product development:Creating a new coffee product or product line, targeted at Tim’s large and loyal customers and potentially luring new customers, keeping up with consumer trends, and defending its position as Canada’s coffee brand, represents a significant growth opportunity.


·
Market development:Pursuing a new customer, a Starbucks customer for instance, would be difficult to achieve given Starbucks’ domination of the “third place” category and therefore presents no significant growth opportunity


·
Diversification:Developing a new product, as Starbucks did when it began selling wine and beer in Canada in 2016, would seem simply too risky… if not preposterous for the “family” image of Tim Hortons.


The process outlined above artificially condenses and compresses the process of SWOT analysis and growth opportunity evaluation into a simplistic series of tables and bullet points. Months of research involving deep dives into extensive data and analytics would have had to be waded through in order to come to similar conclusions. But then again, we have the luxury of hindsight and armchair marketing advice. The point is, marketing is a strategic process that fuels the engine that makes businesses tick.


At the time of this writing, Tim Hortons was pushing its franchisees to order $12,000 espresso machines across Canada to support the “perfectly uncomplicated latte” campaign. McDonalds McCafés were continuing their aggressive push into territories of both Tim Hortons andStarbucks, essentially employing a market penetration strategy. As for Starbucks? Well, it was not so casually continuing to fortify its position as leaders in the “third place” category but with the aforementioned addition of alcoholic beverages was developing a new product line for a new market segment—a classic diversification growth strategy.


ExhibitP1.1



Tim Hortons Swot Analysis—2016 (Hypothetical)















Strengths


· Canadian market leader


· Access to capital


· Value pricing




Weaknesses


· Perception of “blue collar” appeal


· Unsophisticated coffee offerings


· Lineups




Opportunities


· “Bourgeois” reputation of Starbucks and its customer base


· Social demand for specialty coffees


· Technological methods for cost-effective specialty coffee production




Threats


· Ubiquity and growth of the specialty coffee market and associated products


· McDonald’s launch of McCafé, with value-priced specialty coffees


· Shift in demographics, and growing preference for specialty coffees



ExhibitP1.2



Tim Hortons Opportunity Matrix—2016 (Hypothetical)
























Current Products




New Products



Current Markets



Market Penetration


Open more restaurants, make more coffee, sell more coffee to same customers. The safest growth strategy.



Product Development


Create new product(s) for loyal Tim Hortons customers, who want something different.



New Markets



Market Development


Pursue a different or untapped market, currently unserved by Tim Hortons.



Diversification


Develop a new product for a new market—the riskiest of all growth strategies.



Your job, now that time has passed since this writing, is to report back with your observations on how these combatants, and any others, have fared in the great Canadian coffee showdown.



Sources


· Calum Marsh. “With Its ‘Uncomplicated Latte’ Is Tim Hortons Risking Its Blue Collar Brand?”National Post, May 4, 2017, http://news.nationalpost.com/life/food-drink/with-its-uncomplicated-latte-is-tim-hortons-risking-its-blue-collar-brand (accessed May 10, 2017).


· Al Ramadan, Dave Peterson, Christopher Lochhead, and Kevin Maney.Play Bigger: How Pirates, Dreamers, and Innovators Create and Dominate Markets. New York: HarperCollins, 2016.


· Hollie Shaw. “Tim Hortons, Burger King Owner’s Same Store Sales Decline as It Battles McDonald’s,”Financial Post, April 26, 2017, http://business.financialpost.com/news/retail-marketing/tim-hortons-burger-king-and-popeyes-sales-fall-in-their-home-markets-but-earnings-beat-expectations (accessed April 28, 2017).


· Marina Strauss. “The $12,000 Espresso Machine: Tim Hortons Brews up New Plan in Coffee Wars,”Globe and Mail, updated December 12, 2016, www.theglobeandmail.com/report-on-business/tim-hortons-to-roll-out-new-premium-espresso-options/article33302351 (accessed May 10, 2017).



Questions


1. How are the three coffee brands featured in this article (Tim Hortons, Starbucks, and McCafé) faring today in market share in Canada? Search them online, paying particularly close attention to coverage in theNational PostandGlobe and Mail.


2. Have any additional competitive forces emerged into the Canadian coffee competition that have altered the landscape in any way? List and explain.


3. What other forces of the marketing environment have affected the progress of each of the three coffee brands in Canada?


4. What, if any, new growth strategies have any of the three coffee brands employ


Apr 22, 2021
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