Burger King and Tim Hortons announced on Sunday that they would merge into a single enterprise with $22 billion in revenue and 18,000 restaurants worldwide. A new parent company headquartered in Canada would be created in what technically is a tax inversion, although tax savings are not driving the merger itself. The main strategy is to become more competitive with McDonalds and Yum Brands, the owner of Taco Bell and KFC.
It’s no secret that the quick service restaurant industry is struggling for growth. Consumers are choosing healthier options like Chipotle over traditional fast food restaurants. Consolidation is needed, but I’m not convinced this is a good marriage.
While Burger King and Tim Hortons claim the acquisition will make them more competitive with McDonalds and Yum Brands, how will the combined companies continue to grow? Will they get more purchasing power with suppliers or leverage economies of scale? Yes, the company will have more stores and a bigger bite of the burger, but the fast food market as a whole is shrinking. Tim Hortons was owned by Wendy’s from 1992 to 2006, when it was spun off in an IPO, so how will this transaction be any different from Wendy’s ownership?
If the transaction goes through, branding will be a real challenge.
Burger King is an American fast food burger restaurant founded in Florida, famous for its Whopper. Tim Hortons is a dominant brand in Canada co-founded by Canadian hockey player Tim Horton. The store is well-known for their coffee, donuts, bagels and other breakfast options. Tim Horton (the hockey player) is a well-recognized name in Canada, but I am skeptical that the brand will resonate with Americans.
So will they co-brand? Drop one brand? Create a new brand? Without a single brand it will be hard to contest the dominance of their competitors. But a single brand will come with obvious costs, in the loss of at least one well-known name.
Putting aside my doubts, I brainstormed a couple of ideas:
- Breakfast for lunch – Tim Hortons could add additional lunch items to its menu and Burger King could add more breakfast and coffee options, leveraging the strengths of each company to provide meals throughout the day.
- Branded products – Similar to offering an expanded menu, they might choose to offer a smaller selection of well-known branded products at different restaurants, for example, offering Tim Hortons coffee at Burger King.
- One-stop shop – Burger King and Tim Hortons may function as two restaurants in one building. You could go to one counter for a burger and another counter for a donut. Yum Brands has done that with Taco Bell and Pizza Hut. In fact, this is similar to how some Tim Hortons restaurants operated when owned by Wendy’s.
- No brand integration – Tim Horton’s and Burger King may remain as separate restaurants with separate brands. This could mean keeping Tim Hortons restaurants concentrated in Canada where it has a strong, recognized brand name, or they might choose to expand both stores geographically.
It will be very interesting to see if this transaction is successful. Fast food restaurants need to change in order to remain profitable, but to me this is an unsavory pairing. If were up to me, I would have imagined something more along the lines of a Dunkin Donuts – Tim Horton’s merger.