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.

Selling coffee by a different sort of cup

If you think a K cup is something for a Playboy model, you’re out of sync with the hottest trend in coffee selling.

The “K” stands for the Keurig, a single-cup coffee brewer that’s now a standard feature of corporate canteen areas. A user fits a sealed single portion of coffee grounds—a little package that looks like a larger-than-normal coffee creamer—into a receptacle inside the machine. The machine is closed, a button is pushed, and the coffee is brewed and dispensed.

Because the user’s discretion is removed, the cup of coffee tends to be of barista quality. You get the best of what’s in the little pre-portioned container, a.k.a. the K cup.

Quality aside, the machines are proving popular because there’s little maintenance. Someone has to empty a bin that catches the used K cups. But there’s very little additional work to be done by the host site.

No wonder the Keurig unit has made such inroads into the coffee-service market. But it’s also winning home-brewers, too. Green Mountain Coffee Roasters sold 771,000 of the units during the 2008 year-end holidays. Walmart has struck a deal with the company to sell Keurigs in 3,000 of its outlets. Clearly it’s the gadget of the moment.

And that’s orgasmic news for coffee processors who put their grinds in K cups. Once you have a machine, you have to buy the cups. It won’t work otherwise. It’s selling razor blades, so to speak.

Yet the phenomenon has landed roasters with retail outlets in a Catch 22. Players like Starbucks could sell a lot of K cups because of the brand appeal. But might they be undercutting themselves in the long run?

Rick Aristotle Munarriz, a frequent contributor to the The Motley Fool financial website, estimates that a K cup could be sold by Starbucks for 40 cents. It would deliver a cup of coffee close to what a café customer would have to pay $2 to get. How long would that disparity be tolerated, even with the delivery of the mystical Starbucks Experience that Howard Schultz is always crowing about?

So Starbucks isn’t selling K cups. Nor, apparently, is Peet’s, a brand with limited retail operations. Nor Dunkin’ Donuts. Or McDonald’s/McCafe. You won’t find Tim Hortons grinds or BK Joe in a K cup, either.

But Caribou sells its coffee that way. Coffee People, too. Diedrich sold its Gloria Jeans concept last week. But it held on to the K cup part of the business. The secondary brands seem to have shrugged and decided, What do we have to lose?

Which makes you stop and wonder: Are the big coffee brands missing an opportunity? Would there be a way to exploit the booming K cup market without cannibalizing walk-up café sales?

You know it’s a question that’s consuming the marketers in Seattle, Oakbrook and Canton, Mass.

Good, bad and ugly behind today's headlines

Sometimes it's difficult to cover the news and remain impartial. Wait a minute--I don't report for a paper anymore! I can be as judgmental as I want!! With that in mind, here are my nay's, yea's and to-the-gallows uptakes on a few restaurant-industry developments that came to light today:

• A shout-out to the Maine Restaurant Association for including a mushroom-picking guide on its website. At a time when the restaurant industry is trying to incorporate more local, fresh ingredients, the association is providing information that can help members be part of the trend. It’s a nice touch--and so distinctly Maine.



• A big Good, Eh? to Canada for emerging as a nation of foodservice thought leaders. This Saturday, McDonald’s units there will be turning off roadside signs and rooftop lighting for Earth Hour, a concentrated version of our Earth Day. The units are also ahead of their Yank counterparts in trying a new Snack Wrap made with burger patties, a favored contender for No Brainer Potential Hit of the Year. And how do we repay our neighbor to the North? By abandoning some of its markets, as Outback Steakhouse is doing in shutting all nine of its Ontario stores. The country that gave the world Timbits definitely deserves better.



• A definite raised eyebrow is turned to the parents in Bellevue, Wash., who formed a group to teach their children how to eat better. The notion is noble, but the name raises some concern about the mindset that’s being instilled: Future Foodies of America. Little kids dressed in black, pairing juice to chicken fingers? Insisting that the fingers be of the free-range variety? And specifying that only an aged Wisconsin variety will do for their grilled cheese? I’ll have to look for the pint-sized members at the James Beard Awards. And I guess it could be worse. Minis for Molecular Gastronomy would’ve been cause for an intervention.



• A hearty slurp for the James Beard Awards, the industry's version of the Oscars. It's a celebration not only of the nation's best chefs, but also the often-overlooked communications side of the business. Full disclosure: I was a judge of the journalism competition. We’ve got a lot of smart people in the U.S. media who can write beautifully and provocatively about food and food-related issues. I’ll bet we could whup Canada’s ass on that front any time.



• A definite raspberry to Maryland officials for blowing the dust off a regulation that probably hadn’t been applied since spats. They’re employing it now as a sneaky way to squeeze a few more dollars out of restaurants and bars. The measure mandates that soda fountains pay a licensing fee. Isn’t a soft drink tower or a fountain gun nothing more than a modern day version of the soda fountain? That’s what the officials are arguing as they hit up anyplace that doesn’t sell soda exclusively in bottles. Fortunately, the fee can be as low as $10. Still, it’s something you’d expect from a guy in a white straw hat as he pushes snake oil. How about levying an ice-wagon fee for each reach-in?