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BUSINESS
Tim Hortons

Can Tim Hortons win over U.S. market?

Bruce Horovitz
USA TODAY

On its face, everything seems right about Tim Hortons.

NEW YORK, NY - AUGUST 25:  A  sign hangs on a Tim Horton's cafe in Manhattan on August 25, 2014 in New York City. It has been confirmed that American fast food giant Burger King is in discussions for a possible take-over of Canadian coffee and cafe chain Tim Horton's. Shares of Tim Hortons Inc and U.S. Burger King Worldwide Inc rose after news of the merger talk. The new company would be based in Canada which has a lower corporate tax rate than the United States.  (Photo by Spencer Platt/Getty Images) ORG XMIT: 509089649 ORIG FILE ID: 454143184

The Canadian bakery and coffee shop chain — which Burger King on Monday confirmed it is negotiating to purchase — has got great coffee. It's got terrific food. And it has a cult-like following across Canada. Tim Hortons is so wildly popular in Canada that big American brands from Dunkin' Donuts to Starbucks have had a tough time expanding onto its turf.

So why has the chain with more than 3,600 locations in Canada not been a bigger hit in the U.S. market, where it has about 850 units?

In a word: culture. Three restaurant industry consultants note some key challenges that Tim Hortons faces on the U.S. side of the border:

• It's mostly unknown. Tim Hortons is "relatively unknown" to consumers who don't live near the Canadian border, said Darren Tristano, executive vice president at the restaurant consulting firm Technomic. Because the chain is not in most states, national advertising makes little sense — so most folks simply are not familiar with it.

• The brand name has little meaning in the U.S. The 50-year-old chain is named after the former Canadian hockey star who co-founded it. Tim Horton was a defensive star for more than two decades on several National Hockey League teams, but mostly with the Toronto Maple Leafs. Hockey, of course, is generally not as popular in the U.S. as in Canada.

• Doughnuts are not a growth market in the U.S. With Americans eating fewer doughnuts as they try to eat healthier, even Dunkin' Donuts has evolved its focus away from doughnuts and towards coffee, notes Christopher Muller, professor at Boston University's School of Hospitality Administration. That's one reason why the Krispy Kreme chain has shrunk and other regional doughnut chains have disappeared, he said. The U.S. is not in need of yet another doughnut chain, Muller said.

• Wendy's couldn't do it. Wendy's, which owned the chain for several years before spinning it off in 2006, couldn't figure out how to successfully expand Tim Hortons in the U.S. "If Wendy's couldn't leverage the relationship, it's hard to imagine that Burger King would do a better job," said Tristano.

• Cultural nuances still need to be addressed. "When brands go into different markets, there are differences in what consumers expect," said Dennis Lombardi, executive vice president at WD Partners, a restaurant consulting firm. "Nothing is broken at Tim Hortons. It just needs time to fine-tune its menu and tweak its flavor profile in U.S. locations."

One notable difference to address is that Americans broadly prefer to eat doughnuts at breakfast, while in much of Canada, doughnuts are just as popular in the afternoon and evening, said Muller. Tim Hortons would need to readjust its menu and marketing to reflect that, he said.

• U.S. competitors are tough. Going up against the likes of McDonald's, Starbucks and Dunkin' Donuts on their U.S. turf — particularly at breakfast — continues to be a tough challenge for Tim Hortons, said Lombardi.

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