Economic analysis

Can the new Tim Hortons CEO save its American expansion?

Pressure from hedge funds means Marc Caira has to act fast
James Cowan, Canadian Business

Tim Hortons appointed Marc Caira, as its new CEO on May 8, a mere 714 days after the departure of its last chief executive.

The leisurely pace of its executive search process was widely attributed to two factors. First, the company initially thrived under interim leader Paul House, a 25-year veteran of the company who previously served as CEO between 2006 and 2008. But perhaps more importantly, Tim Hortons needed a leader with experience in the U.S. market. Canada is quickly reaching its double-double saturation point. By its own estimates, there’s a market for about 4,000 Tim Hortons in the country; there are now 3,453 with 24 opening in the last quarter alone. As it outgrows its home market, the coffee chain has naturally looked south. But its American expansion has, so far, been wobbly at best. It was forced to close 36 stores in the northeastern United States in 2010 due to poor performance. Same-store sales were down 0.5% in the United States in the first quarter of 2013, compared with 0.3% in Canada.

Outgoing CEO House conceded to Canadian Business earlier this year that the U.S. remains a problem: “I won’t lie to you. I wish were making more money down there,” he said. In the 2012 annual report, the company states: “Operating income in our U.S. segment has not kept pace with our overall growth in that country, and improving it is one of our top priorities.”

But this strategy has spurred conflict with Highfields Capital Management, which reportedly owns 6% of Tim Hortons stock. In a letter to House on March 21, the hedge fund pushed Tim Hortons to scale back any plan for further U.S. expansion plan or “scrap it altogether.” Analysts questioned whether Highfields was been too impatient with a company that has treated shareholders very well for years.

Nonetheless, there’s now clearly pressure on Caira to deliver on Tim Hortons’ American dream—or abandon it. Most recently, Caira was Global CEO of Nestlé Professional, which sells food and beverages—from coffee to pizzas—to restaurants and other food service operations. Having managed 10,000 employees in 90 countries, Caira clearly has international experience. Among his responsibilities at Nestlé was finding ways to expand and improve its coffee business. But there’s an undeniable leap between supplying coffee shops to running them. His appointment is a sound choice, but not an intuitive one. And having spent nearly two years choosing a leader, exhausting investor goodwill along the way, Tim Hortons has not left Caira much time to prove they made the right choice.