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FDD Talk 2017: What You Need to Know About the Tim Hortons Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

by Franchise Chatter on July 18, 2017

in Coffee Franchise, Donuts Franchise, FDD Talk 2017: Food Franchises, Franchise Earnings



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Tim Hortons Photo by Mark 2400

In this FDD Talk 2017 post, you’ll learn the following:

  • Section I – Background information on the Tim Hortons franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a Tim Hortons franchise, based on Item 7 of the company’s 2017 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Tim Hortons franchise, based on Items 5 and 6 of the company’s 2017 FDD
  • Section IV – Presentation and analysis of Tim Hortons’ financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:
  • 2016 average gross sales for all franchised standard Tim Hortons shops that were open and operating for at least one year as of December 31, 2016 in Indiana, Kentucky, Maine, Michigan, New York, North Dakota, Ohio, Pennsylvania, West Virginia, New Jersey, and Missouri, respectively

Section I – Background Information

15 Things You Need to Know About the Tim Hortons Franchise

U.S. Franchisees Form Alliance to Tackle “Mismanagement” Under New Parent Company



1.  At the end of June, it was reported that approximately half of all U.S. Tim Hortons franchisees had formed an alliance to tackle “mismanagement” under new parent company, Restaurant Brands International (RBI), which also owns Burger King and Popeyes.

2.  The alliance claims that RBI has been collecting money from Tim Hortons franchisees that is supposed to go to an advertising fund, but instead of using it for marketing, RBI is using the money for expenses unrelated to Tim Hortons.

3.  In addition to the claims that RBI is misusing funds, the franchisees claim that RBI’s restaurant inspections are unfair and “harassing.” According to Robert M. Einhorn, an attorney at Zarco Einhorn Salkowski & Brito in Miami who is representing the U.S. alliance, RBI keeps changing inspection rules and is failing many of the stores, “which serves to demoralize the franchisees.”

4.  The U.S. alliance is following in the footsteps of Tim Hortons’ Canadian franchisees who formed a group in early March called the Great White North Franchisee Association, which has since launched a class action lawsuit against RBI. The Canadian franchisees’ claims against RBI are similar to those expressed by the U.S. group.

Expansion Into the UK

5.  Tim Hortons opened its first store in the United Kingdom on June 2nd and the company says that this opening will be followed by a “12-month rapid expansion into other major regional cities” in the UK later in the year.



6.  To celebrate the opening, Tim Hortons gave away several prizes, including a free breakfast combo meal to the first 100 guests and a box of 50 Timbits – the restaurant’s mini doughnut holes – every month for a year to the first 10 customers. There were several other giveaways throughout opening day such as a chance to win free coffee for a year or a trip for two to Canada.

7.  According to Gurprit Dhaliwal, Chief Operating Officer of Tim Hortons UK and Ireland LTD, the restaurant’s opening in the UK has received a lot of positive buzz.

Special Canada Day Menu

8.  To celebrate Canada Day 2017, Tim Hortons offered a special menu including limited-time items such as a Poutine Doughnut. The Poutine Doughnut was only available on Canada Day (July 1) at five U.S. locations: Derby, Hamburg, and East Aurora in New York; Rochester Hills, Michigan; and Columbus, Ohio. All five locations are relatively close to the U.S.-Canada border.

9.  The Poutine Doughnut is a Tim Hortons Honey Dip Doughnut topped with potato wedges, gravy, and cheese curds. According to Felipe Athayde, Executive Vice President of Tim Hortons U.S., the doughnut and other Canadian inspired treats “are a great way for Americans to get in on the 150th celebration of their friendly neighbor next door.”

10.  The two other items offered on Canada Day were the Maple Bacon Iced Capp, which is topped with whipped cream, bacon bits, and maple flakes, and the Maple Timbits, which are maple flavored doughnut holes. Both items are available throughout the month of July at participating Tim Hortons locations.



Company History

11.  Tim Hortons was founded in 1964 by Canadian hockey player Miles Gilbert “Tim” Horton and Jim Charade in Hamilton, Ontario. A year after opening, the company began franchising.

12.  In 1967, after opening two additional stores, Horton partnered with Ron Joyce. Upon Horton’s death in 1974, Joyce bought out the Horton family’s share of the business for $1 million and took over as sole owner of the company. Joyce aggressively expanded the chain and in 1991 opened the 500th location.

13.  In 1995, Wendy’s International, Inc., an American company, acquired and merged with Tim Hortons. A decade later, in late 2005, Wendy’s announced it would sell between 15% and 18% of the Tim Hortons operations in an initial public offering, after facing pressure from major investors Peter May and Nelson Peltz. By the end of 2006, Wendy’s sold its remaining interest in Tim Hortons to shareholders.

14.  Tim Hortons remained independent for less than a decade and was acquired by Burger King in 2014 for USD $11.4 billion (CAD $12.5 billion). Today, Tim Hortons has stores around the world with over 4,600 locations.

Entrepreneur’s Franchise 500

15.  Tim Hortons has not appeared on Entrepreneur’s annual Franchise 500 list in the past decade.

Section II – Estimated Costs

  • Please click here for detailed estimates of Tim Hortons franchise costs, based on Item 7 of the company’s 2017 FDD (updated).

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on Tim Hortons’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

  • The following table describes the average Gross Sales in 2016 for all franchised Standard Shops that were open and operating for at least one year as of December 31, 2016.
  • A Standard Shop is the typical Tim Hortons restaurant. It produces, merchandises, and sells a variety of baked goods, such as donuts, cookies, muffins, tarts, as well as coffee and other beverages. Most Standard Shops also offer a variety of soups, chili, and sandwiches. The Standard Shop generally ranges in size from 1,000 to 1,776 square feet, and contains a seating area for customers. The Standard Shop also typically includes a drive-thru facility and may be a stand-alone or an in-line Shop.
  • The table reflects the results of 490 franchised Standard Shops (which includes Shops operating under a Franchise Agreement and under an Operator Agreement) or 71.7% of all franchised Shops. The remaining franchised Shops were not included because they opened or closed after January 1, 2016 (32) or they were not Standard Shops (161).
  • In preparing this table, Tim Hortons relied on the data contained in the unaudited reports submitted to it by its franchisees and operators.
  • As of December 31, 2016, 76.4% of the Tim Hortons System operated a Standard Shop.
  • The information appearing in this table reflects the aggregate Gross Sales results of individual Standard Shops. The information does not reflect the costs of sales, operating expenses, or other costs or expenses that must be deducted from the Gross Sales figures to reflect net income or profit. Moreover, this information should not be relied upon as representative of the Gross Sales of a Shop other than a Standard Shop.

Average Gross Sales in 2016 for All Franchised Standard Shops That Were Open and Operating for At Least One Year as of December 31, 2016

Indiana



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