5. Country Style Food Services Inc.

Transcription

1 5. Country Style Food Services Inc. Country Style Donuts opened its first store in Toronto in 1963 (well before anyone had ever heard of Tim Hortons). Its fresh baked donuts and freshly brewed coffee became very popular, and the company grew so much it attracted the attention of Maple Leaf Foods. Maple Leaf acquired Country Style from the original owners in Leisurely coffee breaks were common in the 1960s and 1970s, and Country Style s original marketing strategy revolved around the coffee break concept. The stores were generally busy and there was a lot less competition than there is today. The marketplace changed in the 1980s and 1990s, but Country Style did not adjust its marketing strategies. Newer quick-serve concepts entered the market, and by the mid-1990s Country Style was being devoured by the competitors. Competitors such as Tim Hortons effectively served the consumer s demand for convenience through extended hours of operation, diverse menus, and drive-through service. Sales were dropping and the company was in a tough financial situation by CAI Partners (a U.S. based company) bought Country Style from Maple Leaf for $45 million. Patrick Gibbons, a seasoned business executive formerly employed by Burger King and Boots Drug Stores, was hired by CAI to turn things around. Gibbons understood the situation he faced: It was clear the core of the business was profitable, but in the recent past, the business had lost its focus. Sales and profits were declining, so some big decisions had to be made immediately. The company never reached the point of bankruptcy, but it entered into creditor protection under the Companies Creditors Agreement Act (CCAA). While under bankruptcy protection Country Style could release its failing franchises from lease arrangements. A total of 120 locations were closed, leaving only 155 standalone stores still in operation. When the protection plan was finalized it called for a payback of 11 cents on the dollar and was approved by 93 percent of creditors. With the company streamlined to 155 traditional locations and another 150 nontraditional locations (gas stations, bingo halls, and convenience stores), the company was in position to develop and implement a new plan to build the business. Marketing Strategy The revival strategy focused on core products and new marketing communications activities. Country Style launched a new advertising campaign with the slogan Love at first sip freshly ground every time. The objective of the campaign was to put coffee back in the spotlight. Gibbons says coffee is the key to profitability as it comprises 60 percent of the company s sales. Baked goods and deli goods (sandwiches and wraps) comprise the remaining 40 percent. The media strategy consisted of radio and outdoor ads and in-store signs. Radio ads were timed to coincide with the early morning and lunch time rush to quick-serve restaurants. Copyright 2007 Pearson Education Canada 353

2 In addition to the advertising, the company introduced a sales promotion called Turn up a winner. The promotion was similar to Tim Hortons Roll up the rim contest except that Country Style offered a prize to everyone buying a coffee a total of 8.4 million prizes. As Gibbons says, To date, it s been unheard of to think that a consumer will be guaranteed a prize simply by purchasing the coffee they love. Present Situation Country Style currently operates about 400 locations and is the second largest donut chain in Ontario and third largest in Canada. Tim Hortons is by far the dominant chain, controlling about 70 percent of the market. Other chains such as Country Style, Coffee Time, Dunkin Donuts, and Baker s Dozen compete more directly with each other for market share. Country Style currently owns about 5 percent of the quick-serve market. Currently there are 150 locations operating under the Country Style banner and another 250 non-traditional distribution points such as gas stations and other restaurants carrying Country Style products. With money-losing locations gone, the company is back in a position of reasonable financial health. Exact sales and profit figures are not made public. Gibbons has established a new challenge for the next five years. The company is in growth mode and wants to be the preferred provider of coffee and donuts in Canada. New restaurants will be opened! The Canadian Restaurant Market and Market Segments In 2004, the Canadian food service industry experienced sales of $37.5 billion, a 5- percent increase over It is estimated that the quick-serve segment of the market accounts for approximately 30 percent of restaurant sales, or about $11.2 billion. Canadian households spend about 23 percent of their food dollars at restaurants and bars. In dollar terms, the average household spent $1728 on food and alcohol at restaurants and bars in Restaurants have experienced relatively small increases in market share since It seems that value-conscious Canadians and the proliferation of convenient, ready-to-eat meals sold at grocery stores have led to increased competition for food service operators. Canada s food service industry is divided into two primary segments: commercial food service, which represents 78 percent of the market, and non-commercial food service, which represents 22 percent of the market. The commercial food service segment is subdivided further: full-service restaurants (fine dining, casual, and family restaurants and restaurant bars) account for 37 percent of sales, and limited-service restaurants (quick-serve restaurants, cafeterias, food courts, and takeout and delivery establishments) account for 30 percent of sales. The remaining 11 percent of sales is from social and contract caterers and bars. The non-commercial food service segment is comprised of accommodation food service (10 percent of sales), institutional food service (6 percent), retail food service (2 percent), and other food service (4 percent). Copyright 2007 Pearson Education Canada 354

3 Market and Competition With reference to Figure 1, it is clear that Country Style and other donut chains have fallen well behind Tim Hortons. Tim Hortons has achieved icon status in Canada and since it was acquired by Wendy s in 1996 has continued to expand in Canada and the United States at a rapid pace. There are more than 2400 restaurants in Canada and another 250 in the United States. Given the size and marketing resources of a Tim Hortons one would question the wisdom of any competitor trying to compete with similar product offerings. Tim Hortons successfully repositioned itself from a sweet snack chain to a quick-serve restaurant serving hot soups and deli-style sandwiches. They now compete more directly with McDonald s and Subway than they do other donut and coffee shop chains. Tim Hortons has benefited from steady and consistent national advertising campaigns built around the True stories theme. The ads feature real people telling stories about how Tim Hortons has affected their life. Tim Hortons is also well known for its community-based marketing strategies. The Tim Hortons Children s Foundation, which operates four summer camps for needy children, is well recognized. Tim Hortons is also well known for sponsoring local-market minor sports leagues through its Timbits hockey and soccer programs. Tim Hortons expanded significantly in the early 2000s when it formed a strategic alliance with Imperial Oil. Full-service Tim Horton counters were added to 300 Esso stations across Canada. Tim Hortons has always promoted freshness as a unique selling point. Most of Tim Hortons products are made fresh every day, ensuring top-quality offerings that are unmatched by competitors. Their commitment to quality and freshness is captured in their advertising slogan: Always fresh. However, the company recently adopted a central baking system for sweet goods. Frozen or partially frozen goods are delivered to retail locations. The impact of this change or how competitors are going to exploit it are not known at this time. Clouding the situation for Country Style is the fact the market is saturated. Canada now has more doughnut stores per capita than any country in the world, making it a particularly tough environment for older players like Country Style. As well, specialty coffee shops such as Starbucks, Second Cup, Timothy s, and Williams Coffee Pubs are eating into the coffee-and-snack market. Timothy s World Coffee became a bigger competitor among coffee shop chains when it acquired Mmmuffins (January 2002). While Timothy s competes directly with Starbucks in the specialty-coffee market, the acquisition of Mmmuffins gets them into the bakedgoods segment to compete more directly with Country Style. As of 2005, the coffee shop market is estimated to be worth $3.5 billion. Currently, Country Style is Canada s third largest donut chain behind Tim Hortons and Coffee Time Donuts. It is difficult to compare the performance of Country Style with Tim Hortons due Copyright 2007 Pearson Education Canada 355

4 to the significant difference in size. However, a comparison of revenue generated on a per store basis does indicate a need for improvement at Country Style. In 2001 (prior to the closings of unprofitable stores) Country Style operated 540 locations that generated $120 million in revenue for an average of $ per store. In contrast, Tim Hortons sales revenue in 2001 (as reported by Wendy s International) was $1.5 billion from 2000 outlets, resulting in average revenue of $ per store. Clearly, there is work to be done at Country Style beyond simply closing unprofitable stores! Recent Marketing Strategies Country Style has taken some steps to improve operations. A review of the present marketing situation reveals that the following programs have been implemented: Unprofitable locations have been closed New locations offer drive-through service Coffee has been given higher priority in order to differentiate Country Style from competitors A new advertising campaign featuring the slogan Love at first sip was implemented A range of new soups, sandwiches, and wraps have been added to the menu An annual sales promotion activity ( Turn up a winner ) has been implemented A few twinned locations have opened in partnership with A&W Restaurants Country Style now believes it can be more competitive, and with the financial situation starting to turn around it must now reacquaint the public with the brand, giving a clear reason why new customers should visit a Country Style restaurant. The Challenge Why should anyone want to visit Country Style? The fact that they offer the same type of products as Tim Hortons doesn t seem to be enough to motivate trial visits. Country Style has never been able to develop a significant differential advantage, so customers are perplexed as to what the company really stands for. Its positioning strategy appears to be weak. Recent marketing strategies have attempted to alter customer perceptions and attempts have been made to increase brand awareness and encourage trial visits. But, if Country Style wants to separate itself from the pack of followers (from Coffee Time, Baker s Dozen, and all of the specialty coffee shops), a unique and innovative marketing strategy is necessary. Each element of the marketing mix must be examined and changes must be made where necessary. Copyright 2007 Pearson Education Canada 356

5 How should Country Style be positioned in the quick-serve segment of the market? Should it be an all-embracing operation like Tim Hortons, or should it be more of a niche competitor offering only a select number of products? Given the present size, financial position, and potential marketing resources available, what should Country Style do in the short term (one year) and longer term (three to five years)? Your challenge is to devise a marketing strategy that will build the business. You must increase sales and market share in a very competitive market. Conduct additional secondary research to update case facts where appropriate. Figure 1 Market Shares: Coffee Shop Chains Rank Chain Share 2005 Share Tim Hortons Coffee Time Donuts Starbucks Country Style Second Cup Dunkin Donuts Robin s Donuts / Donut Delite Café Timothy s Baker s Dozen Mmmuffins All Other 1.1 * Robin s Donuts, Donut Delite Café and Mrs. Powell s Bakery Eatery are owned by Allied-Domecq ** Mmmuffins was acquired by Timothy s World Coffee in January Copyright 2007 Pearson Education Canada 357

6 Discussion Questions 1. What corporate strategy should Country Style pursue? Justify your position. 2. What type of marketing strategy or combination of marketing strategies (e.g., niche, market development, market differentiation, and so on) should Country Style pursue? Justify your position. 3. What product decisions are necessary? Should Country Style offer lines comparable to Tim Hortons or should it be more selective and focus on a core group of products? 4. Should Country Style expand beyond Ontario? If so, what are the geographic priorities and how should expansion unfold? 5. Is Country Style doing enough marketing communications? To achieve awareness and trial objectives, should more money be invested in marketing communications? If so, what activities must the company consider? Adapted from Trina Rehberg, Country Style turns up a winner, Franchise Canada, September/October 2003, pp ; Foodservice sales rebound in 2004, Canadian Restaurant and Foodservices Association, Household spending at restaurants cools in 2003, Canadian Restaurant and Foodservices Association, Lisa D Innocenzo, Donut wars: Can anyone catch Tim? Strategy, April 22, 2002, p. 2; Country Style closes doughnut shop in restructure bid, December 14, 2001; Country Style Food Services Inc. restructuring, December 13, 2001; press release from Country Style Food Services Inc. Copyright 2007 Pearson Education Canada 358