July 12, 2012 / 5:49 PM / in 5 years

In Canada, Tim Hortons aims to eat McDonald's lunch

TORONTO (Reuters) - Tim Hortons Inc THI.TO interim Chief Executive Paul House is pushing for more of Canada’s lunch market, and sees the Canadian chain, best known for its coffee, overtaking McDonald’s Corp (MCD.N) in lunchtime market share within about five years.

Tim Hortons Inc interim Chief Executive Paul House poses for a portrait at a Tim Hortons coffee shop in Toronto July 12, 2012. REUTERS/Mark Blinch

Tims, as the chain is known across Canada, has expanded its food offerings and says its market share for fast-food lunch in its home market is now second only to that claimed by U.S.-based heavyweight McDonald‘s.

“There is no reason why we cannot be No. 1 at lunch,” House said in an interview. “Can we do it in a year or two? No. Can we do it in the next five years or so? Absolutely.”

Tim Hortons is akin to a national symbol in Canada. Its ads celebrate taking the kids to hockey practice and its ubiquitous red and yellow restaurants are mandatory political campaign stops.

It already claims 8 of every ten cups of coffee sold in Canada, and that’s why the company has to be aggressive in other segments, House says. He sees new menu items boosting the company’s market share, and he is on a media push promoting a new line of grilled panini sandwiches, which the chain will offer across Canada this fall.

The sandwiches are an import from Tims’ stores in the United States. Another product first introduced south of the border, frozen lemonade, came up in the spring.

Not so long ago, the U.S. stores were a drag on earnings rather than a source of ideas for the core Canadian business. In 2010 Tims pulled out of some markets, closing 36 U.S. restaurants. As of April 1, it had 721 locations in the United States and 3,315 in Canada.

Lately the U.S. business has boasted strong sales gains in established shops, 8.5 percent in the last reported quarter, ended April 1. That compares with 5.2 percent growth in Canada.

“We feel good about our U.S. business, but I don’t feel great about it,” he said. “I want more sales per store ... We’ve got certain stores that are doing huge volumes, but we’ve got other stores that are doing, you know, average or below average volumes.”

House said not all the U.S. stores are profitable, but said that is to be expected in an emerging market.

CEO SEARCH CONTINUES

House first served as CEO from 2005 to 2008. When his successor Don Schroeder left abruptly in May 2011, he took over on a temporary basis.

In May 2012, the company said House had agreed to stay until December 2013 if necessary. House said the CEO search is ongoing, and that the company has looked outside Canada for its new head.

House said that when he came back, he did not expect to stay so long, and noted unspecified delays in the search. But he was never in a rush to leave.

“I knew I had to have the mindset that I am the CEO, that I‘m here for the foreseeable future, and I’ve got to run the business that way,” he said. “I had to convince the team that, hey, I‘m not just here babysitting. I‘m here, it’s like the old days, I‘m back in charge.”

Editing by Frank McGurty

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