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Tim Horton’s – A Canadian company looking for new markets
Tim Horton’s – A Canadian company looking for new markets
Tim hortons competitive market vs starbucks
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When we talk about vertical integration, we address the supply chain of a firm.(…) By definition vertical integration is ‘the act of expanding into new operations for the purpose of decreasing a firm's reliability on other firms in the process of production and distribution’ (Kimmons 2015). In other words, how independent a firm produces and distributes a product or service without relying on other firms. Throughout the history Tim Hortons has immensely integrated vertically. As previously stated Tim Hortons only started out with two product, both not very vertically integrated. The have their own restaurants, which means that they over the years integrated backwards. This means that they started production of product themselves, which they did, by having their own distribution and manufacturing companies (company facts). …show more content…
These centers in Canada are located in ‘Langley, British Columbia; Calgary, Alberta; Kingston, Ontario; Guelph, Ontario; and Debert, Nova Scotia’ (company facts) Tim Hortons has built two coffee roasting facilities(Morelli), as well as their joint venture with IAWS, which supplies and produces baking goods.(tim hortons hompage) This is considered to be backward integration.
Tim Hortons sells Arabic coffee to ensure quality, of which the roast 75% themselves in their two coffee roasting facilities (Morelli). In which you can see that 4/5th of their expenses are internal. (home page annual reports) They have a ‘joint venture with IAWS Group Ltd, for the pre-baked and package product’ (Wendy’s international) Thereby they have avoided a hold-up as it is in both companies interest to perform. (can i link this to Transaction cost) This is an essential part of Tim Hortons business model in which they were able to achieve economies of scale. A firm that is more vertically integrated will also have higher internal costs. (….a book). In 2010 Tim Hortons has had a total revenue of $2’536’495, of which $2’025’332 are accounted for as internal costs.
(2013) This means that 79.85% of the total revenue are internal cost, the remaining 20.15% consist of external costs and profit. (2013) In 2011 80.04% of the total revenue consists of internal costs. 2012 the total revenue was $3’120’504, of which 80.95% were total costs. (2013) This suggests that Tim Hortons is vertically integrated, as most of their costs consist of internal costs. (2013)
Per Kowitt (2014) T. J. Max, due to its size and capital, buys an enormous amount of merchandise upfront from suppliers and still obtain excellent prices and their suppliers also benefit from the same economies of scale. Consequently, the vendors also grow and rather sell to T.J. Maxx than the department stores. This addresses Porter’s Five Forces that Shape Strategy regarding two entry barriers of 1) supply-side economies of scale and 2) demand-side benefits of scale (Porter, 2008).
My organization, Trader Joe’s, is not an international business. Their stores are all located in the United States; therefore, I chose Whole Foods, who is a main competitor of Trader Joe’s for this assignment.
To analyze the economic conditions for Tim Hortons, firstly, we will talk about the worldwide economic situation and the specific economic condition in Canada, then shows how these factors that affect operation of Tim Hortons.
In the August 27th, 2014 article from The Globe and Mail, “Tim Hortons: How a brand became part of our National identity”, Joe Friesen observes that the intended merger of Tim Hortons with Burger King is not an ordinary business transaction, since Tim Hortons’ effective infiltration of the Canadian identity has made it an epitome of its culture and values.
Looking into a brief history of how the Tim Hortons franchise became what it is today, Tim Horton opened his first restaurant in 1964 in Hamilton Ontario. Tim Hortons had the focus to sell top quality, always fresh product with great value and service. This first store started off with only coffee and two types of doughnuts, Apple Fritter and Dutchie. In 1967, Tim Horton joined with Ron Joyce becoming full partners of the newly formed company. After Horton’s tragic death in 1974, his wife sold her husband’s share of the company which had now expanded into 30 restaurants, to co-owner Ron Joyce for one million dollars. She quickly regretted the decision and tried to overturn afterward, but was unsuccessful in doing so. As of today Ron Joyce has taken the small coffee and doughnut restaurant and transformed it into a multibillion dollar franchise, made up of 4304 ...
In the John Deere case, they were calling a lot of things overhead that weren't truly overhead (e.g. scrap, which is probably proportional to the amount produced). We discussed with my group how the internal transfer pricing arrangement probably encouraged the managers to think this way, since it awarded contracts on the basis of direct costs but, by the books, the actual transfer price was supposed to be the full price. In summary, the John Deere case was an exercise in thinking about how not to make pricing decisions.
Vertical integration in studio system The term "vertical integration" refers to the structure of a marketplace, which is integrated (rather than segregated) at a variety of crucial levels. In the case of the motion picture industry, the studio system established a market in which the studios owned production facilities, distribution outlets, and theaters. In other words, the studios controlled every level of the marketplace from the top down, from production to exhibition. "Vertical integration" began in the 1910s and inspired the postwar consolidation of the studio system as national distribution companies, such as Paramount merged with production companies, such as Famous Players and Lasky and subsequently began purchasing theater chains. All of the major studios in Hollywood (Paramount, MGM, Warner Bros., etc) owned theater chains; the minors, Universal, Columbia, and United artists, did not.
Currently, Nicholson’s financial history boasts a 2% increase in profit annually but this percentage is way below the industry average of 6%. Cooper management proposed that if Nicholson stops selling to every market, increased efficiencies would result and cut cost of goods sold from 69% of sales to 65%. It was also suggested that the acquisition could lower selling, general, and administrative expenses from 22% of sales to 19%.
One of the main costs is to manufacture their products. A major reason the companies are moving manufacturing plants to Asia and South America is to lower manufacturing cost. This will lower the cost for the customer and keep each company competitive and allow them to keep a high margin. Another cost is the inventory cost for each company. Each company needs major capital to store their broad catalog of products. This is especially true for Fastenal because one of their niches is time of delivery. Since Fastenal has more distribution plants we as a company are able to get a customer an order in a shorter period of time. The problem for both companies is since the catalog is so broad many products end up staying in inventory for too long raising inventory costs. Also another cost is product development and management. Each company has many products that need to be developed and the customer seems to always want something else. Both companies spend capital to satisfy their customer’s product needs and each company needs to manage product
they use the weakness of the competitor company to for example, reliance on US market, reliance on beverage innovation, lover revenue and income per employee, lower returns on quality than peers and problems in some international operations. Starbucks now are working really well on their technology in order to succeed. They now have new thing in which you can order and pay to their customer is about meeting their needs of convenience and customization at any time. Over many competitors, Starbucks now represents the easiest and fastest technology application on the phones they can be received by their customers and store partners. According to starbucks.com, the mobile order and pay feature allows customer to choose the beverage and food items. Starbucks correlates the job order cost system, by customizing the beverages in its stores. The raw materials are coffee. The works in process is the part where the customer customizes their order. An example of this step is when a guest orders the “iced coffee with two pumps of caramel syrup with soy milk. The finished product is the completed drinks that the barista makes. The cost of goods sold is the sale of the drink to the customer. It is a customized drink so the customer is paying for the “cost assigned for each job or
Tim Hortons’ strategic plan entitled “Winning in the New Era,” would focus on Canadian business rejuvenation, US profit growth and increase international presence by 2018. According to Tim Hortons’ 2013 annual report, the company would allocate resources to marketing efforts to fulfill their promise to delight every customer who encounters its brand. Growing their Canadian business even further (i.e., across the country) seemed to be a given since they already have a sturdy base and customer loyalty in this culture. Increasing market share in the Canadian market would require an internal focus on products and services within existing stores (same-store growth). Two challenging aspects of the new strategy was 1) to optimize their business model and continue to develop a foothold in the US market—referred to as “A Must-Win Battle”—and 2) to leverage their relationship with 3G and to learn more about the international environment
Starbucks has many business-level strategies, such as cost leadership strategy. Starbucks focused on increasing its profits and compete with other competitors (Starbucks,n.d). According to Starbucks (n.d), “a cost leadership business strategy focuses on gaining advantage by reducing its economic costs below all of its competitors. Although Starbucks targets product differentiation as their main business strategy, they have also implemented cost savings strategies in an effort to maximize profitability. An example of Starbucks cost saving strategy can be identified between 2007 and 2008 when their operational expenses increased by more than $125 million while sales for the same time period were beginning to dip. As outsourcing for distribution contributed to 70% of Starbucks operational expenses, they began targeting these outsourcing agreements for renegotiations in an effort to bring down costs.” Starbucks intended to reduce their
This strategic capitalises on weaknesses since will decrease the cost of coffee beans/beverages but also Starbucks operating cost which they regularly ship across the world to various stores. Starbucks can capitalise on this weakness to improve their brand options. It adds value in the inbound logistics activities, operations and procurements. Starbucks should consider this option since it will decrease their operating cost and therefore will reduce the prices on their menu. The attractiveness is the exact same as mentioned in option 1.
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
The coffee bean supplier market is made up of mostly a few large suppliers, which would suggest suppliers have significant bargaining power. This power is limited by the sheer size of Starbucks which continues to grow, which mitigates supplier power as achieving such a large contract as with Starbucks is very lucrative. Furthermore, Starbucks has engaged in backward vertical integration, purchasing coffee farms in China and Costa Rica, to ensure their supply of high quality beans at a reasonable price, regardless of the increasing demand of high quality beans and the limited suppliers.