Introduction
Tim Hortons is a well-known Canadian fast food restaurant that operates as a franchiser. Tim Hortons initially offered its clients coffee and doughnuts, but today its menu has been significantly diversified to include other drinks and bakery products. On the whole, Tim Hortons is a profitable business that has expanded internationally. In this paper, some aspects of the business will be analyzed, and conclusions about the reasonability of investments in the company will be made.
The Kind of Market Tim Hortons Operates In
It might be hard to define exactly how the market to which Tim Hortons belongs to in Canada should be classified. On the one hand, in 2013, Tim Hortons controlled approximately 80% of the Canadian industry of “away-from-home coffee,” and had a similar share in other fast foods (Tedesco, 2013, para. 5). At the same time, it is stated that Tim Hortons has been faced by rough competition since recently, mainly because of American companies such as Starbucks, McDonald’s, and SUBWAY (Tedesco, 2013), which means that, despite the large share of Tim Hortons in the industry, the market starts approximating oligopoly.
Price Elasticity of Demand
The price elasticity of demand is calculated as the percent of change in the amount of the product demanded by the percent of change in its price (Ragan, 2014). Fast food/food away from home is more responsive to price changes than food at home (Andreyeva, Long, & Brownell, 2010). However, research shows that the price elasticity of demand for fast food is, on the average, 0.81 (Andreyeva et al., 2010; Khan, Powell, & Wada, 2012), which is still less than 1, so the demand is not elastic. At the same time, the concrete elasticity values can vary from restaurant to restaurant due to the availability of substitutes in that particular area.
Income Elasticity of Demand
The income elasticity of demand is calculated by dividing the percent of change in demand for a product by the percent of change in clients’ income (Ragan, 2014). The income elasticity of demand for fast food varies depending on the income level of clients. It is stated that fast food restaurants are viewed as normal goods (0 < income elasticity of demand < 1) by people with below-average income, at the same time being inferior for those with above-average income (income elasticity of demand < 0) (Kim & Leigh, 2011). Again, the concrete income elasticity figures for particulars Tim Hortons restaurants may vary due to the availability of substitutes in the area.
The Closest Competitors
It was already pointed out that Tim Hortons faces competition from American fast-food restaurants such as Starbucks, McDonald’s, and Subway Restaurants (Tedesco, 2013), which means that these companies are the enterprise’s closest competitors. Clearly, full-service restaurants and any businesses which deal with food are also Tim Hortons’ competitors, but not the closest ones.
Close Substitutes and Complements
There are numerous substitutes for foods sold in fast-food restaurants, such as meals offered in full-service restaurants, foods such as bakery products sold in supermarkets and shops, meals that are prepared at home and taken away with oneself, etc. – virtually, almost any food that can be eaten outside of one’s home.
Complementary goods for fast foods are any particular components of fast food items. If the price of fast food components decreases, the demand for these fast foods increases.
Changes in the Demand for the Company’s Products
It is stated that the demand for foods sold in fast-food restaurants in Canada has been declining over a number of years; this affects both Tim Hortons and its rivals (Sturgeon, 2015). The decrease in fast foods’ popularity is due to the fact that more and more people become aware of the adverse effects of such food on health, and attempt to reduce its consumption (Sturgeon, 2015). McPhail, Chapman, and Beagan (2011), for instance, point out that teenagers of all social classes living not only in urban but also in rural areas make attempts to avoid eating fast food because of being worried about their health. Clearly, this also decreases the overall demand for foods such as ones sold in Tim Hortons.
The Possibility of Increasing Profits by Introducing Employee Training
Tim Hortons is a fast-food restaurant, and it is characteristic of the industry to have a very high staff rotation rate. In addition, employees do not require much training in order to sell coffee or doughnuts. Therefore, it is unlikely that training employees can increase profits; in addition, due to low retention rates, this will likely result in losses. It is suggested to invest the money into better salaries for workers instead of training, in order to motivate them to serve clients better and to reduce the labor turnover so that more experienced workers would not leave their jobs (Tice, 2013).
The profitability of the Business
It is stated that franchisees of Tim Hortons are able to make rather large profits. This is true in the U.S.; it is also especially true for Third World Countries, where foods sold in such restaurants have relatively high quality in comparison to other available alternatives. In Canada, Tim Hortons is also profitable despite the fact that the sales, as it was mentioned, have been decreasing steadily over the last years. However, to sustain this profitability, additional measures might need to be taken (Lum, 2015; Wright, 2015).
Increasing the Profits of Business
To increase the profits, Tim Hortons has already been diversifying its menu for a number of years. It has already been mentioned that one of the main causes of the decrease in sales in fast food restaurants is the health concerns of the customers. Therefore, it is important to address this issue. This can be done by introducing dishes that are healthy (for instance, baked goods made of wholemeal flours) and by increasing the awareness of the customers of the effects of foods sold in Tim Hortons on their health. It is also stated that clients very much enjoy the experience of consuming foods at Tim Hortons (Richelieu & Korai, 2014); this fact can also be taken into account while attempting to increase the profits.
Conclusion
To sum up, it should be noted that Tim Hortons is a profitable business that is the leader of the fast food industry in Canada and, despite some challenges, is able to grow and gain profits not only in Canada but also internationally. Despite the fact that some measures should be taken in order to address these challenges, it might be recommended to invest in this business if the investment is to be effective.
References
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Khan, T., Powell, L. M., & Wada, R. (2012). Fast food consumption and food prices: Evidence from panel data on 5th and 8th grade children. Journal of Obesity, 2012, 1-8. Web.
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Lum, Z.-A. (2015). Tim Hortons’ U.S. stores finally seeing ‘momentum.’ Web.
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Ragan, C. T. S. (2014). Microeconomics (14th Canadian ed.). Toronto, Canada: Pearson Education Canada. Web.
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Sturgeon, J. (2015). As more Canadians pass on fast food, McDonald’s tries to get fitter. Web.
Tedesco, T. (2013). Rivals’ attack on Tim Hortons in morning market forces menu shakeup. Web.
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Wright, L. (2015). Profits roll in for Tim Hortons new owner. Web.