It might be a tougher swallow than a day-old doughnut: investment firm Goldman Sachs has downgraded Tim Hortons stock to a "sell" rating citing the possibility of weakening same-store sales in the uber-competitive Canadian coffee market.
In a recent note, Goldman analyst Michael Kelter highlighted "impending Canadian saturation" as a factor for the downgrade. Timmies' earnings per share estimates were reduced to US$2.72 from $2.77 for 2012 by the Wall Street investment firm, whose concerns caused shares to fall more than two per cent Monday, closing at $52.53.
Indeed, Tim Hortons faces strong competition from the likes of Starbucks and now McDonald's with the Golden Arches getting into the low-priced java and specialty drinks game. And with seemingly little room to grow on this side of the border, everyone's gunning for a big slice of Tim Hortons' market share.
But you don't bet against Canada's drive-thru darling just yet: Timmies could deliver a crushing hip check to Ronald McDonald by digging in to the latter's lunchtime market share. To that end, Tim Hortons' interim CEO Paul House is currently promoting a new line of grilled Panini sandwiches that his chain will offer across Canada this fall after successfully testing the market waters stateside.
After all, what other fast-food chain operating in Canada can you name that had to expand its' drive-thru lanes to keep up with consumer demand while aiming to reduce a previously unheard of societal ill dubbed 'drive-thru rage'?
Other companies have made the mistake of underestimating Canadians' cultural connection to Tim Hortons in the past. Take Dunkin' Donuts for instance. Once the top fast-food coffee outlet in la belle province, Dunkin' Brands Canada Ltd. paid a hefty $16.4 million price for ignoring the fact that Timmy's had fast-become the embodiment of caffeine in Canada.
It's also worth mentioning that earlier this year, Timmies tested its customer base's willingness to embrace change by introducing upsized coffee cups. The skeptics may have scoffed but consumers didn't flinch.