Tim Hortons is a Canada-based company that sells coffee and other non-alcoholic beverages as well as baked goods, soups, and sandwiches. They were founded in 1984 in Ontario and have since grown, with 5,291 stores currently operating in the United States. Tim Hortons has recently pursued expansion into international markets, with 42 additional franchised locations in Latin America. With a large presence in North America, Tim Hortons is Canada’s largest quick-service restaurant chain.
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Is Tim Hortons Franchised?
Tim Hortons is a subsidiary of Restaurant Brands International (RBI), a Canadian Corporation. Notably, RBI also owns Burger King, Popeyes Louisiana Kitchen, and Firehouse of America.
Stepping into the beverage industry – and more specifically the quick service coffee industry – can be a daunting task, considering the significant start-up costs and the increasingly competitive nature of the industry. This article will break down the Financial Disclosure Document for Tim Hortons and provide all the information that prospective franchisees should know before making an investment decision.
Tim Hortons Restaurant Formats
Tim Hortons offers two types of franchises: the “Standard Shop” – a typical Tim Hortons shop – and the “Non-Standard Shop”– generally a built-in kiosk or a full service cart. The Standard shop typically contains seating for customers, has a drive thru, and is between 1,000 and 2,300 square feet, although some Standard shops may be drive thru only and others may be located inside of malls and airports. The Non-Standard shop may either be a built-in kiosk, which varies by size, or a full service cart, which is generally smaller and has a limited menu.
How is Tim Hortons Positioned in the Food and Beverage Industry?
The quick service coffee industry is well-established and highly competitive in America. Tim Hortons expects its franchises to compete with nationally established chain stores, such as Starbucks, Peet’s Coffee, and Dunkin Donuts, as well as local stores and independent restaurants.
How much does a Tim Hortons Franchise Cost?
The estimated cost of a Tim Hortons franchise depends on a variety of factors; namely, whether you choose to franchise a Standard shop or a Non-Standard shop and whether the Standard shop follows the new model or is a “within petro” location. To break it down,
- A Standard shop under the new model costs $1,044,000 to $1,441,500.
- A “within petro” Standard shop – a shop in partnership with a gas station – costs $246,500 to $641,500.
- A Non-Standard shop costs $94,000 to $270,000.
A breakdown of the costs is shown below. Note that an initial, nonrefundable franchise fee of $50,000 is due upon signing the Franchise Agreement for Standard Shops and a fee of $25,000 is due for Non-Standard shops.
Standard, New Model Shop
| Type of Expenditures | Estimated Range | Method of Payment | When Due | To Whom Payment is to be Made | |
|---|---|---|---|---|---|
| Low | High | ||||
| Initial Franchise Fee | $50,000 | $50,000 | Lump Sum | Within 10 business days of when you sign the Franchise Agreement and before opening | Tim Hortons |
| Real Estate, Taxes, Personal Property Taxes, and CAM Charges | $5,000 | $70,000 | As arranged | Monthly | Tim Hortons, or other lessor or sublessor |
| Equipment | $337,000 | $375,000 | As arranged | Within 30 days of the invoice date and before opening | Tim Hortons and other supplies |
| Real Estate | See Note 5 | See Note 5 | See Note 5 | See Note 5 | Lessor or sublessor or Propoerty Seller |
| Planning and Development and Desing Costs | $20,000 | $10,000 | As arranged | Design Costs owed to third parties are due before your Franchised Restaurant opens | Government Agencies and approved service providers |
| Site Development Costs | $100,000 | $230,000 | As arranged | As arranged | Contractors |
| Building Costs | $476,000 | $504,000 | As arranged | As arranged/ before your Franchised Restaurant’s equipment order date | Contractors and Tim Hortons |
| Training | $20,000 | $27,000 | As arranged | As arranged | Tim Hortons adn suppliers of transportation, food, and lodging |
| Start-up Supplies and Initial Inventory | $7,000 | $14,000 | As arranged | As incurred | Suppliers |
| Professional and License Fees | $1,500 | $10,000 | As arranged | As incurred | Attorneys, Accountants, Government Agencies |
| Insurance | $2,500 | $21,500 | As arranged | Annually | Tim Hortons, Insurers or Lessor/Sublessor |
| Security Deposits | $0 | $15,000 | As arranged | As incurred | Utilities, Lessor |
| Additional Funds | $25,000 | $25,000 | During the first 3 months of operation | Various | |
| Total | $1,044,000 | $1,441,500 | |||
Standard, Within Petro Shop
| Type of Expenditures | Estimated Range | Method of Payment | When Due | To Whom Payment is to be Made | |
|---|---|---|---|---|---|
| Low | High | ||||
| Initial Franchise Fee | $50,000 | $50,000 | Lump Sum | Within 10 business days of when you sign the Franchise Agreement and before opening | Tim Hortons |
| Real Estate Taxes, Personal Property Taxes, and CAM Charges | $1,000 | $10,000 | As arranged | Monthly | Tim Hortons, or other lessor o sublessor |
| Equipment | $60,000 | $216,000 | As arranged | Within 30 days of the invoice date and before opening | Tim Hortons, and other suppliers |
| Real Estate | See Note 5 | See Note 5 | See Note 5 | See Note 5 | Lessor or sublessor, or Property Seller |
| Planning and Development and Design Costs | $15,000 | $37,000 | As arranged | Design costs owed to third parties are due before you Franchised Restaurant opens | Approved service providers |
| Site Development Costs | $0 | $0 | As arranged | As arranged | Contractors |
| Building Costs | $75,000 | $230,000 | As arranged | As arranged/ before your Franchised Restaurant’s equipment delivery date | Contractos and Tim Horton |
| Training | $20,000 | $27,000 | As arranged | As incurred | Tim Hortons and suppliers of transportation, food and lodging |
| Start-up Supplies and Initial Inventory | $7,000 | $14,000 | As arranged | As incurred | Suppliers |
| Professional and License Fees | $1,500 | $10,000 | As arranged | As incurred | Attorneys, Accountants, Government Agencies |
| Insurance | $2,000 | $7,500 | As arranged | Annually | Insurers or Lessor/Sublessor |
| Security Deposits | $0 | $15,000 | As arranged | As incurred | Utilities, Lessor |
| Additional Funds | $15,000 | $25,000 | During the first 3 months of operation | Various | |
| Total | $246,500 | $641,500 | |||
Note that a majority of the costs for each of the three types of shops come from the line items “Planning and Development Costs”, “Site Development Costs”, and “Building Costs”. The first two costs only apply to newly constructed Franchised Restaurants, so existing restaurants would not need these costs. Building Costs are estimates to construct a building’s structure and systems; for those that don’t need to be built from the ground up, these costs include refurbishment costs, such as the installation of a drive-thru.
Franchise Requirements
The Tim Hortons Franchise must be operated in compliance with the Franchise Agreement. Tim Hortons will provide a Confidential Operations Manual that will contain standards that must be followed. These standards include what proprietary items may be sold and restrictions on store build-out, computer software, and supplier and product approval.
Additionally, Tim Hortons expects new franchisees to participate in the Tim Hortons Training Program before opening their shop. This training program, based in Columbus, Ohio, provides the skills necessary to properly operate a Tim Hortons shop, and takes approximately 20 business days over a 1 to 6 week period. A full breakdown of the training program, broken down by hours of training, is shown below.
| Classroom Training | On the job Training (Full Program) | |||
|---|---|---|---|---|
| Subject | Hours | Subject | Hours | Location |
| Welcome to Tim Hortons (Orientation) | 1.0 | Welcome to Tim Hortons (Orientation) Beverage Service | 1.0 30.0 | Columbus, Ohio |
| Hospitality and Brand Standards | 3.5 | Drive Thru (Ifapplicable) | 36.0 | Columbus, Ohio |
| Food Safety | 2.5 | Equipment Maintenance | 4.0 | Columbus, Ohio |
| Coffee Leadership and Other Beverages | 4.5 | Food Safety | 8.0 | Columbus, Ohio |
| Restaurant Management Routines | 2.0 | Food Preparation and Food Service | 32.0 | Columbus, Ohio |
| Restaurant Management Routines P.L.A.N | 2.0 | Digital and Loyalty | 1.0 | Columbus, Ohio |
| Restaurant Management Operations | 43.0 | Columbus, Ohio | ||
| REV | 8.0 | Columbus, Ohio | ||
| Clearview Overview and Introduction | 8.0 | Columbus, Ohio | ||
| Training at Tim’s Modules | 8.0 | Columbus, Ohio | ||
| TOTAL CLASSROOM TRAINING | 15.5 | TOTAL ON THE JOB TRAINING | 179.0 | |
Ongoing Fees
The main fees associated with owning a Tim Hortons franchise are as follows:
- A 4.5 to 6% royalty fee on all gross sales, due weekly, and
- A 4% advertising fee on all gross sales, due monthly.
While the royalty fee is in line with the food and beverage industry average of 5.3%, Tim Hortons 4% marketing fee is significantly higher than the industry average of 2.3%.
Additional minor fees, such as audit costs, refurbishment costs, and Smart Store charges, vary depending on location and circumstances.
Company Trends
Prospective franchisees should also consider how Tim Hortons as a company has fared in recent years. Although past performance is no indicator of future success, recent trends in company performance can be an indicator for the underlying strength and viability of Tim Hortons as a brand. As such, we will examine trends in gross sales and total number of stores for Tim Hortons over the past three years.
Gross Sales
Tim Hortons reported an average of a 9.4% same store growth between 2020 and 2021, which is a sign that the company is experiencing healthy, robust growth in existing markets. This growth, however, should be qualified, considering that consumer demand for restaurant dining – quick service restaurants included – was severely dampened in 2020 due to the coronavirus pandemic. As such, growth should be expected from restaurants now when compared to their performance during the pandemic-stricken year.
| Total Standard Shops, Including New Model Shops | ||||
|---|---|---|---|---|
| Period | Shop SSS Growth (DAily Average) | Total # of Shops | #% of Shops Exceeding Average SSS | Median Shop SSS Growth |
| 2020/2021 | 9.4% | 558 | 303/54% | 10.9% |
Total Number of Stores
Tim Hortons had a net growth of 4 stores across all its outlets in 2021, rising from 633 to 637 total stores. This bucked a recent trend seen in previous years where they experienced a net decline in the number of open stores. Whether this growth will continue or is simply a fluke remains to be seen.
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 727 | 656 | -71 |
| 2020 | 656 | 633 | -23 | |
| 2021 | 633 | 637 | +4 | |
| Company-Owned | 2019 | 0 | 0 | 0 |
| 2020 | 0 | 0 | >0 | |
| 2021 | 0 | 0 | 0 | |
| Total Outlets | 2019 | 727 | 656 | -71 |
| 2020 | 656 | 633 | -23 | |
| 2021 | 633 | 637 | +4 |
How much do Tim Hortons Franchises Make?
The Gross Sales across Tim Hortons Standard shops for the year ending December 31, 2021 is shown below. The average Tim Hortons reported $87,858 in monthly Gross Sales; the median Tim Hortons, $90,431. Therefore, an average Tim Hortons can be expected to make $1,054,296 in annual Gross Sales.
| Average | Median | |
|---|---|---|
| Gross Sales | $87,858 | $90,431 |
| COGS | $23,530 | $24,229 |
| COGS % of Sales | 27% | 27% |
| Labor | $22,916 | $24,211 |
| Labor % of Sales | 26% | 27% |
How much do Tim Hortons Franchise Owners make?
As shown above, the average Tim Hortons has $1,054,296 in Gross Sales in 2021.
We will take the midpoint investment of a Standard shop, which amounts to $1,242,750. Based on this midpoint investment,
- A 10% profit margin would yield estimated annual profits of $105,430. This means it would take nearly 14 years to recoup your investment.
- A 15% profit margin would yield estimated annual profits of $158,144. This means it would take nearly 11 years to recoup your investment.
- A 20% profit margin would yield estimated annual profits of $210,860. This means it would take nearly 8 years to recoup your investment.
Note that these calculations account for the 2 years it takes, on average, for a franchise in the food and beverage industry to scale up to full production. Also note that these calculations do not account for inflation or interest rates that are compounded over the timeframe.
However, many Tim Hortons and quick service restaurants franchises make their return on investment back much faster through a triple net lease (NNN). In this type of lease agreement, the franchisee leases the restaurant building from the property owner. The franchisee then pays the building’s property taxes, insurance, and maintenance costs in exchange for a lower rent. As seen below, Tim Hortons franchises may engage in NNN leases with property owners. The flexibility of NNN leases allows the tenant to have more freedom with their operating structure.
Source: Tim Hortons NNN
Source: Collier International
Many factors affect the sales, costs, and expenses of your Franchise. There is no guarantee that these numbers will be reflective of the time it takes for your Franchise to recoup your initial investment.
Is the Tim Hortons Franchise Profit Worth the Cost?
While Tim Hortons is a growing company and has seen increasing gross sales, the 8-14 year timeframe that you could reasonably expect to recoup your initial investment may be a long period of time for one to wait. Unless you are also developing and owning the real estate, you might want to also consider other food franchises available on Vetted Biz.
