Since the news broke that Burger King Worldwide Inc. has agreed to buy Canadian chain Tim Hortons for $11 billion, much of the discussion has centered around what the deal might mean for the corporate tax rate Burger King pays. And rightfully so—as part of the deal, a parent company will be formed that will operate from Canada, where tax rates are considerably lower. But all of this overlooks what could be the most interesting aspect of the deal.
Burger King is gobbling up a unique and wildly successful company.
In some ways, Tim Hortons is the Dunkin' Donuts of Canada. The chain, which was founded in 1964 by its namesake, former NHL hockey player, Miles Gilbert "Tim" Horton, is a friendly, ubiquitouscoffee chain that serves doughnuts and other breakfast fare. Tim Hortons are plastered all across Canada—there are more than 3,100 coffee shops in the country, or more than twice as many stores per capita as there are McDonald's in the United States.
In some ways Tim Hortons is nothing like any of the American chains. The most-ordered menu item at Tim Hortons is a "double double," or a regular coffee with two creams and two sugars. At Tim Hortons, doughnuts holes are called Timbits, the chain's equivalent of Dunkin' Donuts' bite-sized Munchkins. And Tim Hortons is, geographically speaking, still overwhelmingly Canadian. While the chain has been opening stores outside of Canada since 1984, when it expanded to Tonawanda, New York, its first U.S. location, more than 80 percent of its restaurants still operate north of the border.
Most importantly, Tim Hortons has been a massive business success.
The company reported revenues of $3.26 billion last year (pdf), or nearly three times that of Burger King. What's more, Tim Hortons churned out those sales with just under 4,500 locations worldwide, while Burger King has more than 13,000 restaurants around the globe. The Canadian coffee shop's efficiency is such that it outsold Dunkin' Donuts by a factor of almost eleven to one on a per-store basis.
But it's not just a volume business. The stores are turning a healthy profit, too. The company earned nearly $430 million last year after taxes, which is almost twice what Burger King earned, and more than three times Dunkin' Donuts.
When asked why the new parent company for Burger King and Tim Hortons will operate out of Canada, Warren Buffet, whose company Berkshire Hathaway owns a significant chunk of Burger King, denied the tax incentives. Instead, Buffett pointed to the strength of the Canadian chain. "Tim Hortons earns more money than Burger King does,” he told the Financial Times on Tuesday. “I just don’t know how the Canadians would feel about Tim Hortons moving to Florida. The main thing here is to make the Canadians happy.” The logic is understandable—after all, loyal Canadians are the lifeblood of the company.
“I’m obsessed with Tim Hortons,” said Ian Hardy, 40, a Toronto blogger who runs the unofficial fan-site Inside Timmies, when he was interviewed by my colleague Danielle Paquette. “I don’t want to see it change. No one here does.”