Problem # 1 - Product quality is not keeping up with the competition

Tim Hortons is often seen as a national treasure but often fails to keep up with emerging trends and demographic shifts resulting in a weakening position. Companies in Canada's coffee industry face increased competition as key competitors are capitalizing on the demand for coffee baked goods and breakfast. In 2021 Starbucks confirmed that the number of members in its loyalty program in Canada grew by 25% over the past two years. Bank of America recently stated that: "we think Tim Hortons has lost share over the past several years in Canada to its two biggest competitors, Starbucks and McDonald's."

Starbucks and McDonald's continue to invest in improving the quality of the coffee they serve, with a strong focus on sustainability and ethical labour practices.

In a 2020 survey by Angus Reid, 14% of those surveyed said that the quality of Tim Hortons coffee improved, while 19% said that it had worsened. When asked about the quality of Starbucks coffee, 13% said that it had improved, while only 7% said that it had worsened. When it comes to service, 8% of consumers believe the quality of service at Tim Hortons has improved, while 25% believe it has worsened. Compared to Starbucks, 13% believe that the quality of service has improved, while only 8% believe it has worsened.

Many industry experts believe that the gradual decline in quality at Tim Hortons is due to the $11.4 billion takeover of Tim Hortons by 3G Capital in 2014. The private equity company is known for aggressive cost-cutting and a laser focus on operational efficiencies. In 2015 hundreds of employees at Tim Hortons' head office and regional offices lost their jobs due to cuts implemented by the new management team 3G Capital brought in.

Problem # 2 - A proliferation of products that have missed the mark

Alex Macedo, Tim Hortons' now-departed Global President, focused on On Trend Innovation and stated, "Who would have thought that you would be able to go into a Tim Hortons and have a plant-based burger one day? ". His passion for innovation pushed Tim Hortons outside its comfort zone and legacy towards a desire to be first or a close second in the market for new products. Alex believed that coffee and donuts weren't sexy enough for current and future consumers.

After launching a plant-based Beyond Meat burger, Tim Hortons quickly removed it from its menu in 2019 after only two months in the market. In search of growth, companies often mistake going outside of their core competency. They overestimate their customer's desire for something new and underestimate how quickly they can become known for selling the new hot thing.

The Beyond Meat burger wasn't Tim Hortons' only new menu item in 2019. In 2020 Tim Hortons made 60 new menu additions which is two-three times the average amount. These menu additions often confuse customers, but they are also difficult to execute. Speaking about this, Duncan Fulton, RBI's Chief Corporate Officer, said: "Some new products strayed too far from our core categories that made us famous. Moving forward, new launches will be more targeted and will build on our core categories."

Product proliferation also creates execution issues for customer-facing and back-end processes. "It can create havoc at the restaurant level because of the steep learning curve for part-time employees to learn to prepare new items, and it causes confusion with guests who love us for our basics, and every time they come in, the menu board is plastered with new special offers," Fulton said. "You saw Tim Hortons try a burger for the first time. Quite honestly, we have no business doing burgers at Tim Hortons." Moving back to focusing on the basics is a step in the right direction.

Problem # 3 - An inability to please existing customers while trying to attract new customers

Tim Hortons is not a hot new brand that appeals to Gen Z and Millennials (Generation Y). Tim Hortons has been in business for over 50 years, which resonates with Baby Boomers and Generation X. Tim Hortons is not ancient, but its core customer is getting older. They have failed to attract Gen Z and millennial consumers. New menu items like the "Impossible Burger" were likely introduced to target younger health-conscious consumers. After numerous failed new products, Tim Hortons accepted that their core customers are not looking for a plant-based burger. They go to Tim Hortons for a cup of coffee and a donut.

Health-conscious consumers will not view a place that sells many baked goods as a place to have a healthy meal. As the brand ages staying relevant with younger consumers can be challenging, and Tim Hortons will have to make significant changes to achieve profitable growth.

Question1.

Use the 5 Dimensions of Service Quality to discuss what Tim Hortons can do to improve customer service and satisfaction.

2.

Demonstrate how Tim Hortons could use The Gap model to diagnose and address current service quality problems.