A Tale of Two Coffee Shops

It has been interesting to monitor the shifting fortunes of Tim Hortons and Starbucks as the economy contracts. Tim Hortons (TDL) recently announced a 11.5% increase in Q2 profits whereas Starbucks have been announcing executive shuffles, store closures, rebranding efforts and price adjustments to try to revive their sagging earnings.

I find some personal validation and/or vindication in this dramatic reversal in corporate fortunes. Tim Hortons has always been my paper-cup java of choice. I joined the Tim Hortons fan club at an early age, growing up in the East end of Hamilton just a few miles from the original Tim Hortons outlet, where it all began (on Ottawa St. N). I have fond memories of driving there with my Dad as a kid. In those days they used to sell off their "day old" donuts in plastic bag dozen assortments at half price. There used to be much heated discussion in the car among my siblings en route about whether we wanted to go with a fresh dozen donuts in an assorted box of our choice or double up and pig out on the day-old grab bags for the same price. Hamilton was a lunch bucket town where donut shops thrive (likely has more donut shops per capita than any other city in the world). The original Ottawa St N shop was strategically located on the daily commute route of steelworkers heading to the blast furnaces on their morning commutes. Tim Hortons is clearly and proudly "blue collar".

Starbucks, on the other hand, is the much more upscale hi-brow "foo-foo" brand. Unlike Tims, which was born in the blue collar shadow of the blast furnace, Starbucks comes to us via the US Pacific Northwest, where they take their coffee almost as seriously as Italians. Starbucks is more about the show than the coffee. The brand has upscale cachet and is much more white-collar than blue collar. The problem is that as they have expanded to more and more outlets, they have become more broadly accessible to the masses, which has undermined the snob-appeal cachet of the brand.

The pretentiousness of Starbucks is quite hilarious. This used to be cleverly parodied on the Frasier sitcom when the Crane brothers gave the barrista their esoteric finicky choices! Rather than referring to their cups sizes as small, medium, large or extra large, Starbucks applies terms like "short" for small , "tall" for medium "grande" (pronounced "grawn-day") for large and "vente" for extra-large. They always offer a mild and bold coffee daily house blend, in addition to a de-caf option. There is also a wide range of hot and cold speciality drinks, some of which are coffee based (espresso, latte, cappuccinos, et al) and others which are cream or ice based. When you order a specialty blended drink you need to specify a wide range of finishing and extra instructions, ranging from the caffeine level (de-caf or half-caf), the number of espresso shots (single, double, triple, quad) whitener options (half and half, non-fat, low fat, soy, lactose free), topping options (foam, low foam, no foam, extra-foam, whipped on top) and even serrving temperature (140 degrees is less likely to burn)! You need to be a mathematician to add up all the possible permutations and combinations. Its choice overkill to the nth degree.

Meanwhile back at Tim Hortons, (although they have recently added Flavour Shots) they have only one favour of coffee--- coffee flavour! The serving options are normally limited to black (the way I take mine), double-double and triple-triple (the way our building security guard Nicole (she's from Oshawa) takes hers, when I bring her one back).

We are spoiled in terms of paper cup coffee options within walking range of our condo. We have three Tim Hortons and three Starbucks nearby. The Starbucks evening closing times vary from 8 PM to 10 PM-- and two of them (the one at King and George and the one on Front, west of the market) have patios. Meanwhile, one of the Tim Hortons shares its facilities with Wendys and the other is inside George Brown College (so has very restricted hours). When I am at work, there are four Tim Hortons, located on the PATH in concourse food courts, within walking distance of my office (one in Scotia Plaza, one in the TD Canadian Pacific, one in 145 King W and one in the First Canadian Place Exchange Tower (with a 5th about to open in Royal Bank Plaza when its Food Court re-opens in the Fall.) There are also six Starbucks within walking distance... two in Brookfield Place, one in the TD CP "west side" foodcourt, one in First Canadian Place, one in Lombard Place, one in the Richmond-Adelaide Centre and one on the ground floor of First Canadian Place.

My workmates are almost equally divided in their Tims vs Starbucks preferences, ven tho I work in a decidedly white collar environment in a Big 4 professional services firm.

In the final analysis, I believe the fact that Tim Hortons is thriving now while Starbucks is struggling is more a barometer of the ailing economy than the relative merits of their product or marketing efforts. With gas at $1.25 a litre, people simply can't afford to drop $4 for a cup of java every time they enter the coffee shop. That's why Tim Hortons is pulling ahead. Mickey Dees is also upgrading coffee options to challenge Starbucks in its home market. There is a misconception that Starbucks offers better tasting coffee that justifies its higher price. The results of independent taste tests dispel this myth. Apparently Starbucks is test-marketing cheaper coffee in some markets. When the economy comes roaring back, I expect, Starbucks should be poised to resume their growth, if they are able to ride out the rocky road until then! Meanwhile, Tim Hortons is going to be riding the steeper growth curve!