Ugh II

Tim Hortons is an institution in Canada, but the donut and coffee chain has had a tough time cracking the U.S. market. And it doesn’t look as if a deal with Cold Stone Creamery is going to be the inbound ticket investors had envisioned.

Hortons and Cold Stone’s franchisor, Kahala Corp., struck a deal to put their concepts on the same sites in dozens of locations both north and south of the U.S.-Canada border. At present, about 63 Tims, mostly in Canada, have been outfitted with a Cold Stone station featuring the chain’s signature mix-in ice cream. But only two Cold Stones in the U.S. have bolted a Hortons section to their operations.

“We were supposed to have 50 Cold Stones with Tim Hortons in [them] by spring. We are now at two,” Jim Durran, the restaurant analyst for National Bank Financial, remarked to Horton execs during a conference call yesterday. “What's the problem with that side of the equation?”

It’s all a matter of location, location, location, explained Hortons CEO Don Schroeder.

Because Hortons stores typically generate higher sales than a Cold Stone shop, they can be developed in pricier locations with higher visibility and traffic, he said. The addition of ice cream is a ring of a bell.

Cold Stone’s locations are a different matter, he continued. Because concept’s sales per unit are lower, stores are often developed in “’B’ sites” that “are not as supportive of putting a Tim Hortons into that location,” Schroeder added.

In short, the ice cream shops don’t have the traffic to feed a secondary concept, which might even dilute the concept’s weaker per-store sales.

In contrast, Schroeder expressed satisfaction with the additional sales a Cold Stone component can deliver to a Hortons.

Under questioning, he also disclosed that Hortons has the exclusive rights to develop Cold Stone outlets in Canada. That extends to all types of stores, including freestanding branches that aren’t paired with a Tim Hortons, he acknowledged. But the donut chain has no plans to develop ice cream-only units, Schroeder stressed.