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The Canadian Press - ONLINE EDITION

Tim Hortons celebrates 50 years, but faces new challenges beyond coffee

TORONTO - As the candles burn out on Tim Hortons' 50th Anniversary celebration this weekend, the iconic Canadian brand is looking to avoid a mid-life crisis.

Saturday marks the official half-century birthday of the original "Tim Horton Donuts" restaurant in Hamilton, Ont., which opened on May 17, 1964, after it was renovated from an auto repair garage.

Starting from its modest roots, the company, which took its name from Toronto Maple Leafs player and founder Tim Horton, has found a home in seemingly every Canadian neighbourhood and, in some places, nearly every street corner.

With more than 3,600 locations across the country, Tim Hortons is at a crossroads between maintaining its steadfast reputation and staying relevant in an increasingly competitive quick-service business where coffee is just another menu item.

"Tim Horton's has done an impeccable job of managing their brand experience to date," said Axle Davids, a brand strategist at Distility Branding in Toronto.

"It's not splashy or cutting-edge — the name Tim Hortons and the brand are simply containers for all of the hard work and loyalty they've built up over time."

A study from marketing research firm Ipsos Reid found that Tim Hortons ranked as the sixth most influential brand in the country last year, a prominence which is supported by how instilled coffee slang like the "double-double" has become in Canadian culture.

Recently, the company launched a social media campaign where customers could pick which discontinued menu item they'd like to see back in its restaurants. The chocolate eclair won the popularity contest.

And last week Tim Hortons did what few other companies could when it opened a replica of its first restaurant for a single day of celebration. The event, held in the heart of downtown Toronto, included shelves stacked with decades of memorabilia like retro Timbits boxes and desserts that once graced the menu.

While nostalgia runs through the veins of Tim Hortons (TSX:THI), staying true to the company's famous image won't be enough to keep it relevant as the $4.6-billion business of Canadian coffee evolves, and competitors vie for a bigger chunk of the market.

Starbucks has spent years focused on an aggressive rollout across most of the country, chasing the high-end coffee drinker who prefers lattees and frappuccino while, more recently, McDonalds began to lure more cost-conscious customers with a cheaper brew and free giveaways.

Somewhere in the hustle, Tim Hortons lost some focus as it dabbled in alternative food and drink items to mixed success.

The company launched smoothies and frozen lemonade drinks as an answer to the broader selections of some of its biggest competitors, and while they still remain on the menu, a foray into larger submarine-sized sandwiches didn't last long before it was yanked from the offerings.

In 2009, Tim Hortons dove into the frozen treats business with the installation of U.S. chain Cold Stone Creamery at some of its Canadian restaurants. The concept failed to ignite much interest, and five years later the ice cream bars were torn out, at a cost of $19 million.

Despite some failed launches, chief executive Marc Caira, who started at the company last summer, believes there's potential to get more customers thinking about Tim Hortons during their lunch breaks.

He recently unveiled a five-year strategic road map for Tim Hortons' future growth, which positions the company as a coffee spot foremost, but also the home of various other items that might not immediately spring to mind, like the Extreme Italian sandwich and the crispy chicken sandwich.

"(You need) to be able to have the consumer realize, 'Hey, if I'm going to have a crispy chicken, maybe I'll go to the Tim Hortons, rather than Burger King or KFC,''' Caira said in a recent interview.

Tim Hortons is already making progress, Caira said, citing research from the NPD Group, which says the restaurant has been generating lunchtime traffic that's comparable to McDonalds, its biggest competitor.

Tim Hortons had a 21.8 per cent share of quick-service restaurant traffic in the three months ended in February, just slightly above McDonalds' 21.7 per cent share in the same period, the research found.

However, there can be a danger in trying to associate an established brand with new products, said Brynn Winegard, a marketing analyst at Winegard and Company.

"Any time you walk away from the core promise to your loyal customers, in the interest of attracting new customers ... you risk your diehards," she said.

But at the same time, "it's no longer adequate to say, 'I'm a coffee company.'"

While Tim Hortons continues the fight for market share in Canada, the company is also looking abroad for further growth.

In February, Tim Hortons announced plans to open 300 new U.S. locations by 2018, which will add to the 870 restaurants already operating south of the border.

The Persian Gulf region is also in the sights for massive growth, as the company wants to boost the number of locations there from 44 to 200.

The wider rollout will take some patience and experimentation, Caira said.

"I'm not going to be evaluated one month at a time — this is a journey," he said.

"We need to make (financial targets) every month, we need to make (them) every year, but we need to build."

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