Tim Hortons Strategic Plan

Submitted By: Corrina Submitted To: Course Code: Date:

To: Canadian Tim Hortons Franchisees From: Corrina, Chief Executive Officer Date: October 23, 2013 RE: Increasing Canadian market share by improving customer retention with the implementation of a loyalty program, called Tim Points. Current Situation Tim Hortons opened its doors in 1964, in Hamilton, Ontario and today is one of the largest quick service restaurant chains in North America. Also, based on capitalization, is one of the biggest publically traded restaurant chains in North America. In Canada it holds roughly 42% of the market share in this industry, with loyal customers visiting three or more times every two weeks. Presently there are more than 4200 restaurants operating successfully in several countries around the world. Over the past two-decades there have been positive same-store sales growth even with the poor economic conditions the world is facing. However, as competition intensifies, we must improve our competitive strategy to compete with substitute products and services. Tim Hortons will implement a loyalty program called Tim Points, which is a system based on points, in an attempt to maintain and increase its market share in Canada. Decision Process The reason that we will be offering a loyalty card is partially because of the fragile economic conditions in Canada. Because of the economy, people have become more frugal with their money and are willing to go to the competition to get greater value. For example, McDonalds offers a coffee and a muffin combo where a customer purchases the coffee at regular price and then has the option to add a muffin to the purchase for an extra $0.10. We also need to keep our current market share satisfied and ensure customer retention, which we heavily rely on. McDonalds alone has increased its market share in the quick-service restaurant-brewed coffee sector by nearly 100% from 5.4% to 10.7% (Krashinsky, 2013) in 2009 with the introduction of McCafe. Although their share isnt increasing as quickly as in 2009, it has still continued to rise, threatening our current share of the market.

We want to focus on implementing the strategy in Canada first because we are a Canadian company and this is where the majority of our market share is. We dont want to risk losing anymore to our large competitors such as Second Cup or McDonalds, who also offer loyalty programs. A substantial decline in Canadian business would greatly affect our financial performance as it accounts for roughly 94% of our reportable segment revenues and 97.5% of segment operating income (Strauss, 2013).

The benefits of using a loyalty program consist of acquiring new customers and providing incentive for repeat purchases. Some buyers are continuously looking for the best deal available and are easily persuaded by loyalty programs because there is perceived value. It will also encourage existing dedicated customers to continue purchasing products at Tim Hortons rather than a competitor because they are now receiving benefits for being loyal. Another advantage is that it will increase the amount of spending by current and future customers because they are eager to gain points and be rewarded for being loyal. A loyalty program also prevents having to discount prices or the necessity of price matching competitors, which increases the risk of losing a substantial amount of revenues. Program Overview During our research we analyzed the loyalty programs that other companies and competitors have in place. This gave us the opportunity to research the strengths and weaknesses in their current systems. We were then able to create a point system that will be feasible for Tim Hortons to maintain and ensure positive impact on customer satisfaction. Enrollment in the program is free to join for residents over the age of fourteen with a valid Canadian address. Tim Points cards will be available in stores, and will look and work similarly to the Tim Cards. The same company that makes the current Tim Cards will also produce the Tim Points cards to ensure that the technology and design is comparable. Employees will swipe the Tim Points card and then the points, based on a pre-tax dollar amount, will be added to their account. Members will first have to create an online account where they can then log in to check their point balances and expiry dates. Tim Points cardholders will be able to earn and redeem points at all Tim Hortons locations across Canada. If the program is only offered in certain regions, it would confuse and anger customers because they would likely be unaware of what
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stores are participating and not. We do not want this program to have a negative impact on the company and the program itself. If a card is lost or stolen, customers can access their online account to report the missing card. They will have the option of transferring the balance of their points to a new Tim Points card, which will automatically deactivate the old card. The new card will be mailed to the most recent valid Canadian address associated with their account. Earning Points Points will be earned based on the pre-tax dollar amount spent at Tim Hortons. For every dollar spent of eligible items, 10 points will be added to the account and we will allow partial points for the increments between every dollar. An example of the point system can be seen in Exhibit F. However, only prepared food and beverages products will be eligible to gain points. Items not eligible for point accumulated include purchases of accessories, gift sets, fine grind coffee and tea for home brewing and Tim Cards. Similar to the Tim Card, point balances can be viewed either online or at the bottom of the customers receipts as long as the points card was used during the specific purchase. Point promotions will be run during the first quarters, when sales are generally lower because of post-holiday spending patterns and a lower number of new restaurant openings. The point promotion will run from January 5th to February 5th since this period falls between gift-giving holidays. This time period was chosen because sales increase during holiday seasons regardless of any promotions, it is our intention to increase our sales during predictable downtime. The promotions will be used to encourage spending at Tim Hortons by providing customers with an incentive of earning double the amount of regular points earned per purchase. As the promotion is running during the winter months, we forecast that the majority of point redemptions will be for hot beverages. Hot beverages have a lower sales price, which will therefore have a lesser impact on our overall revenues in comparison to having the promotion run during the summer.

Redeeming Points Once the customer has accumulated 250 points ($25 spent pre-tax), they will be able to redeem their points for any single beverage of their choice. The reason they will only be able to redeem points on drinks is because they have a lower cost for the company, decreasing the overall effect on sales revenue. The points card will be used like a Tim Card, it will be swiped at the checkout and the information on available points will be displayed on the screen. Employees can then notify the customers if there are enough redeemable points for a free beverage purchase. This will be useful because customers may not always have access to the internet or be familiar with using the internet to check their point balance themselves. After redemption, any point balance on the card that is in excess of the 250 points will remain on the card and can be applied to future redemptions providing the card remains active. If the card is not used for any purchases for a period of six consecutive months, it will become inactive and the points will expire. If a card remains active but the points have not been redeemed within a year from accumulation date, they will also expire. Legal Issues A privacy policy has been put together to ensure that customers know that we will protect their personal information. The policy consists of how we will collect and handle personal information; this includes not selling this data to third parties unless required by law. Information is collected for the purpose of administering the loyalty program and to gather a better understanding of our customers preferences to effectively meet their needs. Marketing Major marketing for the strategy will be completed through several media outlets. Firstly, we will update tweets and statues on Facebook and Twitter because these channels for marketing are free for us to use. Currently, we have over 100,000 followers on Twitter and 2 million friends of Facebook. These methods also allow us to market to a younger generation who make up the majority of social network users. Secondly, we will send out notification e-mails about the loyalty program to our current customer list, who have already given us their e-mail address
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when registering their Tim Cards. This list is valuable for us because these people are already customers of Tim Hortons, with the majority of them likely to be interested in receiving more benefits for purchasing products they already enjoy. We will advertise the new program on popular television networks within the Bell Media group because they have higher ratings in the Canadian market. Their station CTV has coverage across Canada, as seen in Exhibit G. By utilizing Bell Media, we will have access to over 100 radio stations, also seen in Exhibit G. Costs for additional advertising can be found in Exhibit I. We intend to cover these advertising costs by increasing the advertising contributions from our franchisees by 0.5 percent. Currently, they are being charged 3.5 percent but we reserve the right to increase this to a maximum of 4 percent when we see fit. After the three-month initial introduction period, the rate will return to 3.5 percent. Human Resources Training will need to be completed by all franchise owners, managers and employees to ensure that they have an accurate understanding of how the program will function and how to use it effectively. We will create a short video that will outline how the program works and show an example of an employee serving a customer with a Tim Points card. This video can easily be viewed by workers before starting their shifts, or during their break. It is important for them to recognize what the program is being used for and the benefits it will provide customers so that they can extend this knowledge to buyers interested in joining. Measuring Success Success can be measured using a variety of different methods. The first is the number of registered and active accounts; this will be monitored to ensure the program is meeting the needs of our customers. If a large portion of cards has become inactive, we know that the program is not as effective as research had initially predicted. This will provide us with feedback needed to make positive changes to the program. We will also monitor the average number of card uses per customer during a yearly period. This will allow us to determine whether the program was successful in increasing the retention of loyal customers.

Sales increases will also be examined in comparison to the average number of active program users. If a positive correlation exists, we can conclude our strategy was effective in reaching our desired goals. Looking Forward Once the program is functioning smoothly and we show signs of positive customer response in revenues, we can apply this same strategy to our stores in other countries. This program will be a good opportunity to capture market share especially in the United States where our presence isnt as dominant.

Bibliography News. (2013, September 26). Canadian population surpasses 35 million . CBC.ca - Canadian News Sports Entertainment Kids Docs Radio TV. Retrieved October 15, 2013, from http://www.cbc.ca/news/canadian-population-surpasses-35-million-1.1869011 Friedman, W. (2013, March 13). MediaPost Publications Trad 30-Sec Spot Shines, Costs Up 5% . MediaPost News and Conferences for Media, Marketing and Online Advertising Professionals. Retrieved October 15, 2013, from http://www.mediapost.com/publications/article/195725/trad-30-sec-spot-shines-costsup-5.html#axzz2iORtXWmi Friend, D. (2013, September 17). New Tim Hortons CEO Reviewing Everything From Coffee Cups To Doughnuts. CTV News | Top Stories - Breaking News - Top News Headlines. Retrieved October 17, 2013, from http://www.ctvnews.ca/business/new-tim-hortonsceo-reviewing-everything-from-coffee-cups-to-doughnuts-1.1459270 Krashinsky, S. (2013, October 7). Gourmet brew? New Tim Hortons campaign tells story behind the coffee - The Globe and Mail. The Globe and Mail. Retrieved October 19, 2013, from http://www.theglobeandmail.com/report-on-business/industry-news/marketing/gourmetgrounds-new-tim-hortons-campaign-tells-story-behind-the-coffee/article14717767/ Labour force, employment and unemployment, levels and rates, by province (Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick). (2013, April 1). Statistics Canada. Retrieved October 17, 2013, from http://www.statcan.gc.ca/tablestableaux/sum-som/l01/cst01/labor07a-eng.htm Loyalty Marketing Best Practices. (n.d.). CRM Best Practices - Customer Relationship Management. Retrieved October 18, 2013, from http://www.crmtrends.com/loyalty.html McCafe Loyalty Program . (n.d.). McDonalds. Retrieved October 18, 2013, from http://www.mcdonalds.ca/ca/en/help/mccafe_loyalty_program.html McClellan, S. (2013, January 29). MediaPost Publications Costs For TV Spots Rocket 7% . MediaPost . Retrieved October 19, 2013, from http://www.mediapost.com/publications/article/192213/costs-for-tv-spots-rocket7.html#axzz2iORtXWmi Nordicity Group Ltd. (2009). Analysis of the Economics of Canadian Television Programming. Toronto, ON
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Strauss, Marina. (2013) The Globe and Mail. Can Tim Hortons fight off McDonalds attack? http://www.theglobeandmail.com/globe-investor/can-tim-hortons-fight-off-mcdonaldsattack/article8993325/?page=all Tim Hortons Inc. (2013). 2012 Annual Report. Retrieved October 15, 2013 from http://www.timhortons.com Wheelen, T. L., & Hunger, J. D. (2012). Concepts in strategic management and business policy: toward global sustainability (13th ed.). Upper Saddle, N.J.: Pearson Prentice Hall.

Exhibit A STEEP Analysis (Focusing on Canadian franchises)

Sociocultural Lifestyle changes people are starting to look for healthier options because of health risks and problems. Career expectations because level of education is rising, people wanting careers are looking for better paying jobs with benefits and retirement plans. Growth rate of population Canadas growth rate has been steady at 1.2%, which means there are that many more potential customers. Regional shifts in population shift towards the west which now claims 30.7% of the population. Birthrates and Life expectancies although birth rates are declining in Canada, life expectancies are rising, which means there is potential to get customers to become loyal while they are young and buy their products for a longer period. Level of education - rising, making it harder to find and retain employees for low wage jobs. Unionization - some of the franchises in Quebec and Ontario have unionized employees, including the workers at the Windsor Regional Hospital who make $26/hour in wages and benefits. However, most are not unionized.

Technological New Products opportunity for new products such as menu items and recyclable or thicker cups and lids. New developments in technology Tim Hortons now has offers Tassimo disks for at-home brewing, people still drinking their coffee, but wont have to wait in drive thru. Internet availability Their website can be used for a variety of things such as checking gift card balances, ordering online products (gift baskets, coffee makers, etc.), reading up on nutritional information, and applying for jobs.

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Economic Interest Rates: Interest rates are low if Tim Hortons should need a loan, but this is unlikely considering they had approx. 120,000,000 in cash and cash equivalent at their 2012 fiscal year end. Inflation Rates: inflation rates are low, which means prices on products wont have increase like they did in 2009 and 2011. Unemployment Levels: Moderate level of unemployment in comparison to the last 10 years (7.2% in 2012), which means those individuals are less likely to spend money on items they dont see value in. Disposal and Discretionary Income: Because unemployment levels are moderate, people may choose not to purchase Tim Hortons products because they arent necessary products. They are more willing to shop around to get the best bang for their buck. Ecological Locations Tim Hortons has a we fit anywhere philosophy that allows them to operate in many prime locations and can reach the maximum amount of potential customers. Recycling - issues because only certain stores offer a recycling program for their paper cups. With over 3 million cups of coffee sold a day, this can lead to an enormous amount of litter. Political-legal page 59 etc. Tax laws tax is high in Canada which means their net income will be lower than if they were running in a different country with the same market share. Laws on hiring and promotion CRTC has regulations on what content they can have in their advertising. Stability of government the Canadian government is stable unlike the current state of the US government where there are more than 300,000 people currently laid off.

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Exhibit B External Factor Analysis Summary

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Exhibit C Internal Factor Analysis Summary

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Exhibit D Industry Matrix

Tim Hortons Rating 1=poor to Weight 5=outstanading 0.20 4 0.05 3 0.05 4 0.20 4 0.25 5 0.10 5 0.15 3 1 McDonalds

Key Success Factors Pricing Advertising Community Involvement Product Quality Location Product Variety Customer Service - Speed TOTAL

Weighted Rating 1=poor to Weighted Score 5=outstanading Score 0.8 4 0.8 0.15 3 0.15 0.2 3 0.15 0.8 4 0.8 1.25 3 0.75 0.5 3 0.3 0.45 4 0.6 4.15 3.55

Exhibit E Analysis of Porters Five Factors Threat of New Entrants (High) The threat of new entrants is high in the quick service coffee industry. Entry into this market doesnt require extensive resources and capital because it is not necessary for similar companies to build stores, they can easily rent and renovate a space in a prime location. Thousands of competitors both on a corporate and locally owned scale can enter the fast food/coffee market on a regionally, nationally, and internationally. Rivalry among Existing Firms (High) The rivalry between existing competitors is high both nationally and internationally. Tim Hortons has wide brand recognition nationally; however their international recognition is not as extensive. Regardless of their recognition, the level of competition is high in this industry because the offerings and prices are very similar for coffee and bake shops. This means that businesses in this industry have to attempt to differentiate themselves through marketing (Exs slogans, advertisements, sponsorships). Threat of Substitute Products or Services (High) Threat of substitute products or services for the quick service industry is high. For example, people can easily make hot and cold beverages at home using a kettle, coffee pot or Tassimo/Keurig which is faster and cheaper. However, Tim Hortons does sell fine grind coffee and Tassimo cups. People can also buy groceries to make their own sandwiches/soups/cookies/donuts etc. By doing this they also have the option to make food healthier by using ingredients such as whole wheat or gluten free products. Energy drinks are
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also a popular substitute for coffee/tea because of the high caffeine levels. Also, all other forms of fast food such as subs, hamburgers, milkshakes, pizza etc. are substituting for the products that Tims offers. Bargaining Power of Buyers (High) The bargaining power of buyers in the quick service food and beverage industry is high. Customers have the option to shop around similar products and services from thousands of competitors in the same price range. It is especially easy for buyers in this industry because most of the competitors are located in/around the same operating areas. This is why it is important for Tim Hortons to constantly differentiate their products and influence buyers to purchase their products over the competition and create strong customer relationships. Bargaining Power of Suppliers (Moderate) The bargaining power of suppliers in this industry is moderate. This is because Tim Hortons has the option to buy products from many different suppliers. However, there is price volatility with some of their key commodities and even with secure commitments and forward hedging programs they may still feel the effects. In turn they will have to either absorb these higher costs or pass them down to franchise owners and customers. Exhibit F Point System

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Exhibit G Bell Media Coverage and Advertising Options (TV and Radio)

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Exhibit H Television Advertising Rates in Canada

Exhibit I Advertising Costs

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