468 Retail and Channel Management Blog

Thursday, February 26, 2009

Tim Hortons Aims to Heat up Sales with Cold Stone Partnership

On February 6 2009 Tim Hortons and Cold Stone Creamery announced their plan for 100 pilot stores incorporating both companies’ products sold from the same counter. As most Canadians know, Tim Hortons is a dominating brand, located conveniently across the country, operating fast food restaurants built on a foundation of coffee and donuts. They strive to create an authentic experience by stressing strong ties to history, Canadians, and their values. They are mid-priced and have enjoyed a strong demand for their traffic building Tim Hortons brand coffee and Timbits.
In stark contrast, Cold Stone Creamery has strives to be “the #1 super premium ice cream concept in the world!” With half the number of stores serving ten times the population, Cold Stone has obviously not adopted a high penetration strategy to locate itself as conveniently. Furthermore, Cold Stone is half the age of Tim Hortons, and its high priced products violently clash with the ‘salt of the earth’ brand image that Tim Hortons has so carefully cultivated.

Richard Talbot of Talbot Consultants international stated "I think they probably both need help. But it's a bit funny. … It does seem a bit of an odd couple – not so much with the product but with the pricing." At first glance, from the basic Retail Value Proposition (RVP) perspective, this decision seems to be detrimental to both companies, and an irrational gimmick in the face of the looming recession. This begs the question; have the executives from two successful companies completely forgotten retailing fundamentals? I don’t think so.

Lee Knowlton, chief operating officer of Cold Stone’s parent company Kahala, explained “Cold Stone's highest traffic volume occurs in the evening, while Tim Hortons' highest traffic volume occurs in the morning and afternoon. The complementary day-parts will increase our customer bases and drive additional revenue for our franchisees.” This seems fair enough, but hardly makes a convincing argument to champion such a partnership. A day care is busy in the morning and afternoon, and a bar is busy in the evening, but the idea of incorporating a day care into a bar so parents can get liquored up, knowing their children are in capable hands in the back room of a nightclub, doesn’t quite fly. Or to draw a more direct comparison, neither does the idea of dropping little Susie off at Dirty Pretty Day Care before work. No, there must be a better, more strategic reason for this decision. For this explanation we have to look back to the RVP, specifically selection and product category roles. We have to focus less on how the differences between the companies can detract from one another, and more on how they can complement each other.

Tim Hortons’ selection is mostly comprised of traffic building products (coffee, timbits) and turf protecting products (sandwiches, muffins). Cold Stone has focused on transaction building (ice cream toppings) and excitement creating products (sweet treat cupcakes). By partnering together the companies are creating a selection of products in all four roles that are each individually strong enough to propel a brand to success, despite lacklustre offerings in other roles. Not only that, but by leveraging off each other’s brand equity, they can more effectively shore up their weaknesses while mitigating the effects of such a positioning shift under their own brand. Maintaining a separation between the brands is critical to success for both companies. Essentially, Tim Hortons will be increasing the average size of its transactions while Cold Stone will be increasing customer frequency. Furthermore, from Tim Hortons’ standpoint, Cold Stone is a better known destination type retailer in the U.S.; customers will make a trip specifically to their stores, creating the perfect opportunity for someone new to sample a Tim Hortons coffee, and for Dunkin Donuts to lose a customer.
Quotations obtained from:
Marina Strauss, "Tim Hortons to team with ice cream chain," The Globe and Mail, Saturday Feb. 7, 2009.
Information obtained from:

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