WSJ article on KKD, Tim Hortons of Canada.
August 23, 2001
Krispy Kreme, Tim Hortons of Canada
Square Off in Each Other's Territory
By JOEL BAGLOLE
Staff Reporter of THE WALL STREET JOURNAL
OTTAWA -- Here's something for cruller lovers to chew on: Two of North
America's most celebrated doughnut chains are invading each other's turf.
Krispy Kreme Doughnuts Inc., whose hot-from-the-oven doughnuts have won
a cult following in the U.S., is coming to Canada. In its first foray outside the
U.S., the Winston-Salem, N.C., company plans to open 39 Canadian outlets in
the next six years, with the first slated for early next year in the Toronto area.
When it comes to doughnuts, Canada is no small fry. According to
market-research firm NPD Group Canada Corp., Canada has more doughnut
shops per capita than any other country on earth -- one for every 9,000 of its
30 million residents. That compares with one U.S. shop for every 26,000
Americans.
"In England, people go to the local
pub to socialize; in Canada, they
go to the local doughnut shop,"
says Steve Penfold, a history
student at Toronto's York
University who is doing his
doctoral thesis on "The Social Life
of Doughnuts."
Dominating the Canadian scene is
the Tim Hortons chain, which accounts for more than half of all
doughnut-and-coffee stores in the country, excluding specialty-coffee shops.
The chain's red-and-white store banners are as much a fixture in communities
across Canada as hockey rinks. In fact, the chain's founder and namesake was
a Hall-of-Fame hockey player with the storied Toronto Maple Leafs.
Many Canadians are unaware that Tim Hortons has been owned since 1995 by
an American company -- Wendy's International Inc., the Dublin, Ohio,
hamburger-chain operator. Tim Hortons is operated, however, by TDL Group
Ltd. of Toronto, and is still considered something of a national Canadian
institution.
Tim Hortons has marginalized its competition through aggressive tactics that
include opening identical drive-through outlets across the street from each
other to catch traffic going in either direction. Its army of 42,000
burgundy-and-white uniformed employees has earned a reputation for efficient
service. Dunkin' Donuts Inc. of Randolph, Mass., the world's largest doughnut
chain with 5,146 stores in 39 countries, has been in Canada since 1961. Yet
according to NPD Group Canada, only 6% of the country's doughnut/coffee
shops are Dunkin' Donuts, a unit of Allied Domecq PLC of Bristol, England.
As Krispy Kreme moves north, Tim Hortons is expanding south, focusing on
U.S. border cities such as Detroit and Buffalo, N.Y. In the past five years, Tim
Hortons has opened 30 stores in the Buffalo area alone, and plans to open nine
more there this year. The company says it expects its U.S. operations to break
even, and possibly turn a profit, by the end of next year, despite the costs
involved in establishing the brand south of the border.
With 1,923 stores in Canada and 124 in the U.S., Tim Hortons shows no signs
of slowing down. Its overall sales rose 20% last year, to $1.2 billion, making it
the second largest food-service company in Canada behind McDonald's
Restaurants of Canada Ltd. Last year, it captured 17% of Canada's $7.2 billion
quick-service restaurant sales, according to the Canadian Restaurant and
Foodservices Association.
Tim Hortons plans to open 180 stores
in Canada and 28 more in the U.S. this
year. It's even testing Krispy Kreme's
southern U.S. stronghold by operating
two shops in West Virginia and one in
Kentucky.
"Tim Hortons is formidable to say the
least," says John Ivankoe, an equity
research analyst at J.P. Morgan in
New York. "The company has built
success on top of success."
Of course, Krispy Kreme is no slouch.
In the fiscal year ended Jan. 28, the
company's sales jumped 40%, to
$448.1 million. Its sales have more
than doubled since 1996, as have its
U.S. stores, which today stand at 192
across 32 states. Stan Parker, Krispy Kreme's senior vice president of
marketing, says the company plans to have more than 400 outlets across North
America by 2006. Of its new Canadian shops, seven will be in the province of
British Columbia and 32 in central-eastern Canada.
Patti Jameson, a spokeswoman for Tim Hortons, says the chain isn't worried
about Krispy Kreme's entry because of the Canadian chain's product diversity.
Tim Hortons added soups and sandwiches in recent years, and plans to expand
its menu further to include upscale bakery items such as baguettes and
sourdough bread. "We're much more than doughnuts," Ms. Jameson says.
Krispy Kreme officials say they are confident the company's singular focus on
hot doughnuts will distinguish it from Tim Hortons. "All we have are our
doughnuts," says the company's Mr. Parker.
Mr. Penfold, the Ph.D. student, says doughnuts have become an "icon" food
that Canadians associate with themselves in the same way that Americans
relate to apple pie. Doughnuts fit into Canadians' humorous self-portrayal as a
blue-collar, beer-drinking and hockey-loving nation, he says.
To appeal to that nationalism, Hortons recently changed its tagline on certain
Canadian ads from "You've always got time for Tim Hortons" to the more
patriotic "We never forget where we came from." Krispy Kreme has relied
largely on word of mouth, instead of ads, to build its brand. (Some brides have
served Krispy Kreme doughnuts instead of wedding cake.)
Helen Smith, a human-resource officer with Canada's federal government, is a
regular Tim Hortons customer, buying coffee daily and the occasional
doughnut. She says she likes the coffee's taste and its low price compared with
coffee sold at specialty stores such as Starbucks. Rev. Gary Nolte, a
Pentecostal minister, frequents Tim Hortons for another reason. "I like their
charity work," he says, referring to the five summer camps for underprivileged
children that Tim Hortons operates.
Write to Joel Baglole at joel.baglole@wsj.com
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