Tim Hortons ramps up coffee chain wars

Coffee and doughnuts chain Tim Hortons is getting a little less Canadian and a little more — Americano.

The iconic chain announced Wednesday they will soon sell cappuccinos, espressos and lattes at 3,000 locations across Canada in the near future.

"Starting at $2, the new drinks offer guests a delicious, fast and convenient choice for lattes, at a value price," the TSX-listed company said in a release Wednesday.

"A good latte isn't easily available in many communities. Now, anyone can enjoy a delicious latte in one of our thousands of locations, or grab one in a drive through window, any time of day," the release said.

Lattes and other espresso-based beverages will be available in Ontario starting November 14, and mid-December in the rest of Canada and United States, the company said.

New strategy

The move is a departure from the chain's origins as a simple coffee and baked goods chain.

Founded in 1964 by former NHLer Tim Horton, the company focuses its marketing efforts on its blue-collar roots and wraps its own identity around that of Canada's. No election campaign is complete without the requisite stop at a Tim Hortons location to pick up coffee, buy a dozen donuts, and shake the hands of ordinary Canadians, for example.

But the chain has worked hard to maximize revenues beyond its breakfast base. They have heavily expanded their lunch and dinner selections, for example. Last month, they unveiled the latest addition to their food menu — lasagna.

"Tim Hortons has always been an innovator," retail consultant Wendy Evans says. "And they have to be, because they're always attacked on all sides, from above and below."

"Moving into lattes and cappuccinos is a natural extension of that," Evans said. "They were founded on coffee so it makes sense to expand on that by adding more coffee-based offerings."

'They were founded on coffee so it makes sense to expand on that' —Retail consultant Wendy Evans

It's the latest front in hotly contested coffee wars, as more and more chains vie for a share of the money Canadians spend on their morning coffee. It's estimated that the coffee industry is worth $650 million a year in Canada.

Tim's currently sells eight out of every ten cups of coffee sold at quick service restaurants in Canada, and two billion cups of coffee a year in North America. With revenues like that at stake, expansion into new territory is constant. And Tim's competitors aren't giving up without a fight.

McDonald's Canada also unveiled a line of espresso-based beverages to go along with brewed coffee in many of the chain's Canadian locations.

It's an extension of the success the golden arches have seen with its line of McCafes. "We've doubled our coffee business in the last two years with the McCafes," said John Betts, president and CEO of McDonald's Canada.

The new locations shed the chain's down-market reputation, and encourage patrons to linger with amenities like free Internet and comfortable chairs. It's an idea the chain has been doing in Europe, the U.S. and Australia for years already, Betts notes.

Emboldened by that success overseas, the company is spending $1 billion on the makeover of 1,400 of its Canadian stores.

"People tend to linger a little bit more in restaurants today. They want to enjoy their meals take a break from the busy lifestyle that they lead and we think our restaurants today are certainly doing that a lot better than in the past," Betts said.

But McDonald's isn't stopping there. For the first week of November, the company gave away a free small coffee to customers at select locations across Canada.

"It's the sixth time we've done the promotion in Canada, and every time we do we see our sales increase," Betts says. He adds the chain has given away 60 million cups in Canada over the last six weeks in which the promotion was in place.

Getting a customer in the door to try the new coffee items is changing their customer base, he says. The typical McDonald's brewed coffee drinker is older and male, while espresso buyers tend to be yougner, female and more professional.

"I think retailers always are looking to innovate and move forward, because if you stay stale, the next thing you know, another competitor will be taking your customers," retail analyst Brian Yarbrough said recently of the move.