Starbucks takes on Tim Hortons

How the high-end brand aims to capture the everyman market

Starbucks takes on Timmy's

Photograph by Jenna Marie Wakani

In the 1991 comedy L.A. Story, Steve Martin’s character, Harris, memorably poked fun at the coffee house culture Starbucks was introducing to Americans: “I’ll have a half double decaffeinated half-caf, with a twist of lemon.” At the time, Starbucks had just 116 stores in the United States. Two decades later, it has ballooned to nearly 17,000 stores in 50 countries. But there still remains a sizable chunk of the coffee-drinking population that’s wary of buying their coffee from the Seattle-based giant, either because it’s too expensive, too fussy or too inconvenient (believe it or not, some coffee drinkers still find it easier to brew a pot at home).

So, with growth opportunities for its flagship brand in North America waning, Starbucks decided last year to overhaul the Seattle’s Best Coffee brand it acquired in the U.S. eight years ago (three years ago in Canada) for less than US$100 million, and signed deals to sell brewed coffee in Subway restaurants, Burger Kings, AMC movie theatres and just about anywhere else it’s often difficult to find a decent cup. Starbucks’ CEO has set a lofty annual revenue goal of $1 billion for the division.

In Canada, Starbucks is now going a step further with a pilot project that has put Seattle’s Best branded “coffee bars” inside four Wal-Mart Supercentres, with another four to be opened over the next year. The idea is to provide a slightly cheaper Starbucks-type beverage, such as lattes and mochas, to people who don’t associate coffee with overstuffed furniture and faux jazz. “It’s a new concept for us. They’re coffee bars with a walk-up window on one side and a bar to linger at on the other,” says Jenny McCabe, a Starbucks spokesperson. “We think we can simplify premium coffee and make it really accessible. Wal-Mart is not a place that most people would have thought to look for premium coffee.”

It’s not clear why Starbucks decided to try the concept with Wal-Mart in Canada. McCabe says that Wal-Mart Canada “was looking to bring in a second food and beverage offering to their Supercentres in Canada,” most of which currently house a McDonald’s restaurant. But since McDonald’s has emerged as a key coffee competitor to Starbucks after dramatically expanding its coffee offerings two years ago, Starbucks may be using Canadian Wal-Marts as a crucible to see how the Seattle’s Best brand stacks up.

Tim Hortons will no doubt be paying close attention to the experiment, too. With more than 3,000 stores across Canada, the coffee chain affectionately known as “Timmy’s” has taken great pains to position itself as the country’s everyman coffee establishment, a place where everyone from hockey moms to construction workers feel comfortable ordering a “double-double” (which is about as complicated as Tim Hortons gets).

Linda Strachan, a restaurant industry analyst at consulting firm NPD Group, says Starbucks is going after an underserved market since it can be difficult to find a good cup of joe without going to a café. According to NPD’s research, Canadians drank 1.7 billion cups of brewed coffee over the past year. But while brewed coffee is the single most popular item purchased from restaurants, included in more than one-quarter of all customer visits, the specialty coffees Starbucks sells only account for about six per cent of restaurant visits, a relatively niche market by comparison. More importantly, Starbucks can try to build its market share without risking its flagship brand. “They will put Starbucks-branded coffee in a high-end hotel, but they probably don’t want it in a convenience store,” Strachan says.

With Seattle’s Best already being served at some 50,000 locations in North America, the challenge will be ensuring quality control among all those various retail partners who are not really in the coffee business. Customers could get turned off if they wind up with a cup of old coffee that’s been sitting in a pot for a few hours at a movie theatre, Strachan warns.

As for the prospect of going up against Canadian icon Tim Hortons, Strachan suggests that the combination of premium coffee and convenience, if executed properly, could be a formidable competitor. “It’s a preference thing, to some degree,” she says. “But there’s a lot of us out there that prefer a darker roast, or richer blend.” Though not necessarily a new vocabulary to go along with it.

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