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Tim Hortons focuses on lunch options as it chases McDonalds, KFC customers

TORONTO - Tim Hortons chief executive Marc Caira wants more Canadians who would usually eat at McDonalds or KFC to try lunch at his restaurants instead.

The CEO said Thursday he's determined to make the company the lunchtime leader among quick-service food outlets through its growing variety of sandwiches, grilled paninis and other offerings.

"In this low-growth era, you need to aggressively go after these segments because there's potential to grow," he said in an interview after the company's annual meeting in Toronto.

Caira outlined some of his general plans as part of a presentation to shareholders that emphasized the company will enter "a new era" as it nears it's 50th anniversary later this month.

He said the popular restaurant chain is already making an effort to redefine itself with Canadians as a coffee spot foremost, but also the home of various other items they can't find elsewhere, like the Extreme Italian sandwich and the steak and cheese panini.

One of the latest menu items is a crispy chicken sandwich that Caira said is a perfect example of how it wants customers to think differently about the brand.

"(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," he said.

"When the market isn't growing — and it's not — sometimes the only way you're going to grow is by stealing from somebody. We're the biggest in Canada, so we're the easiest to steal from. We want to give consumers the message that if you're going to buy a crispy chicken, buy ours."

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, which compares to McDonalds' 21.7 per cent share in the same period, the research found.

While Tim Hortons champions lunch, Caira also wants to focus more on nutrition, emphasizing that his company's crispy chicken sandwich contains more protein and less fat than comparable offerings.

However, chasing the heath-food market comes with certain expectations.

During the annual meeting, one shareholder urged executives to launch a broader array of gluten-free items, while another suggested that more nutritional options, like a selection of salads or fruits and vegetables, would benefit the company in the future.

Caira told the audience that all of those options would be considered as part of a five-year strategic plan that began this year, but after the meeting, he drew a line emphasizing that Tim Hortons won't go overboard when it comes to nutrition.

"I don't want to have a separate menu board that says: 'These are healthier products.' To me it's a holistic strategy across your entire organization," he said.

"Our responsibility is to make the product as healthy as possible and provide you the information to help you make the right decision. It's very easy to make (a) donut really, really healthy. The problem is you wouldn't buy it because there's no taste."

While Caira said he's open to various options, he's certain the national coffee and doughnut chain needs to move faster to test and launch food items as it faces off against aggressive competitors.

"You will notice continued changes at Tim Hortons,'' he told shareholders. "You will notice a heightened sense of urgency."

Tim Hortons has faced an onslaught of competition from both high-end coffee shops like Starbucks, and fast food chain McDonalds, which entered the coffee market several years ago.

Some analysts remain concerned that the highly competitive market will weigh on Tim Hortons results in the coming quarters.

A report published by Derek Dley of Canaccord Genuity pulled back the target price for the company's stock to $58 from $59.

"In our view, the company is taking the appropriate steps to try and increase the productivity of its existing store base, through initiatives such as double lane drive-thrus and product innovation," he wrote.

"However, given the stepped-up focus on the breakfast day part by a number of its competitors, the environment remains more challenging than we have witnessed in the past."

RBC Capital Markets analyst Irene Nattel had a more optimistic take with a share price target of $70.

"Tim Hortons is a mature company with a strong consumer franchise that nonetheless has above-average earnings growth potential," she wrote.

On Wednesday, Tim Hortons reported a 5.5 per cent bump in net profit in the first quarter to $90.9 million, results that fell short of analyst expectations.

Revenues were up 4.8 per cent to $766.4 million compared with $731.5 million.

The Canadian Press


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