Personal Finance

Burger King Parent Co. Wants to Take on Starbucks, Dunkin' Donuts

In more populated parts of the United States, it's not uncommon to see a Dunkin' Brands (NASDAQ: DNKN) Dunkin' Donuts across the street from a Dunkin' Donuts or a Starbucks (NASDAQ: SBUX) in view of another Starbucks. Perhaps even more common are streets, town centers, malls, and rest stops that have both chains as well as other alternatives for those seeking coffee, pastries, or other goods sold by the two chains.

The coffee space has become especially crowded with seemingly every gas station offering lattes and McDonald's offering its McCafe line in most of its locations. That concentration makes launching a new national brand a dicey proposition, but that's exactly what Restaurant Brands International (NYSE: QSR) (RBI) plans to do with its Tim Hortons chain.

"We think the Tim Hortons brand should be everywhere in the U.S.," CEO Daniel Schwartz told Bloomberg this month. "We're always focused on finding new markets."

Tim Hortons has fewer than 1,000 U.S. locations. Image source: Tim Hortons.

What is Tim Hortons?

Many Americans may never have visited a Tim Hortons because most of the chain's 4,590 restaurants (3,665) are in Canada. Owned by RBI, which also owns Burger King, Tims, as its fans call it, has 869 U.S. restaurants.

Comparable to a Dunkin' Donuts, but with a heftier menu of lunch items and soups, the chain has a full lineup of coffee, including a wide range of espresso drinks, as well as doughnuts and other pastries. The chain has been steadily growing its footprint, Schwartz explained during RBI's recent Q3 earnings call, which was transcribed by Seeking Alpha (registration required).

"At Tim Hortons, we continued to make good progress expanding the brand in both existing markets and new markets," he said.

The chain also put up decent numbers for its most recent quarter. It saw same-store sales growth of 2%. In addition, by growing its location count by 3.4%, the company was able to post systemwide sales growth of 4.8% for the quarter. The CEO also noted that international growth has been moving ahead steadily.

"On the new market expansion front, during the quarter, we established a master franchise joint venture for Tims in Great Britain," Schwartz said. "This marked the second such international partnership for Tim Hortons since the creation of RBI, continuing the momentum from Philippines that we had announced at the end of last quarter."

What about the chain's U.S. plans?

Tim Hortons also delivered strong performance in its U.S. locations during Q3. The company posted same-store sales growth of 4.5%, which Schwartz attributed to solid performance in coffee and cold beverages, along with strength from its grilled breakfast products.

The chain, according to its CEO, plans to enact his goal of being a national brand in the U.S. by leaning on its existing franchise partners. The company has four major franchise partners in the United States and the company plans to add more.

"As it relates to restaurant development, we are pleased with the progress our partners in Minneapolis, Columbus, Cincinnati and Indianapolis are making toward delivering a robust pipeline in the United States," he said. "Our teams are working diligently with each of these partners to make sure we execute well on the first experience of our guests as we opened new locations and markets."

Is this a good idea?

While Tim Hortons has a strong position in the Canadian market, it's dwarfed in the U.S. by Dunkin' Donuts, which has over 8,000 locations, and Starbucks, which had over 13,500 cafes in this country at the end of 2015. It makes sense for RBI to steadily grow the Tim Hortons brand, but it should take things slowly.

Schwartz may be right that Tim Hortons should be everywhere in the U.S., but his company's actions show that making that happen is a long-term goal. RBI has been taking the right approach by working with experienced master franchise partners to take on one new market at a time. That will eventually raise its profile and build expectation for when it enters a new market. That's a long path, but it's not unlike the one Sonic has been following as it has steadily challenged the more-established fast food brands.

Perhaps someday Tims can be a true rival to Starbucks and Dunkin' Donuts, but that day is a long way away. Schwartz has big plans, but he has also shown a willingness to follow a disciplined plan to bring them into being.

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Daniel Kline has no position in any stocks mentioned. He misses Tim Hortons coffee now that he is rarely in Maine. The Motley Fool owns shares of and recommends Starbucks. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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