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TIM HORTONS Case Study Analysis

Organizational performance depends on the strategies put in place by the management team to increase revenue collection. It is essential to analyze both internal and external environment with the aim of making appropriate decisions that can facilitate the positive growth of an institution. Venturing into the restaurant industry is an uphill task due to the kind of competition associated with the penetration of new players in the market. Tim Hortons relies on numerous factors for operations to take place thus creating the need to examine different issues that contribute to the kind of decisions made by the relevant authorities that are designed to transform the image of the company positively.

Bargaining Power of Customers

Clients play a significant role in the growth of any organization because the ultimate aim of a firm’s existence is to serve customers. Bargaining behaviors shape the functionalities of the firm since prices are determined by the clients’ ability to negotiate for a better deal. The ever-changing trends in the restaurant industry require flexibility where hotels are sensitive to the change in behaviors exhibited by the target customers. From the case study, the bargaining power of customers is high because each segment of the restaurant industry has specific customers that drive their sales. Tim Hortons is a fast food restaurant with a 39% customer loyalty rate means that this consumer segment controls the profitability levels of the company. As such, the consumer segment has the power to influence the price of the products and quickly switch to other alternative products in the market. The high bargaining power of customers makes the industry unattractive because the restaurant must invest according to the dynamics in the market.

Bargaining Power of Suppliers

The increase in market coverage demonstrates the need to engage more suppliers for the company to meet the market demands. The quick-service category in which Tim Hortons belong to has many more powerful actors such as McDonald’s. These categories of restaurants have numerous locations which have independent suppliers for its raw materials, meaning that they have many different suppliers.  Tim Hortons has an existing 300 locations and another 261 newly established locations and 3G capitals is equally a well-established company. For this reason, the supplier bargaining power is low because the company can choose to contract other suppliers from its other locations to do the supplies. Additionally, with the acquisition, the company will enhance its bargaining power because it will decide which among its previous suppliers will continue supplying for the new company. The high number of suppliers makes their bargaining power low and ultimately the industry becomes more attractive.

Competitive Rivalry

There are numerous players in both the U.S. and Canada restaurant industries. 900,000 and 81,000 players in both the U.S and restaurant and catering industries respectively indicate the significantly high numbers of players. This is an indication that the competitive rivalry in the industry is high, and mainly because Tom Hortons is operating in the same category with the McDonalds which presents stiff competition. The high competitive power means that the company will have to go as per the market trends including pricing which is a critical determinant of the profit levels. While the Tom Hortons acquisition by 3G Capitals is a strategic move to enhance the competitive advantage of the company, the high competition levels in the industry makes it unattractive because one is not certain of the expected profitability levels. The high industry competition makes the industry less attractive.

The threat of Substitute Products

Health matters have become critical when making consumption plans since people are keen to protect their lifestyles by engaging in healthy eating. To manage the situation, alternative foods are consumed since it is perceived that fast food is not adequately prepared to meet the health standards. For Tim Hortons, the threat of substitute products is high since there is the existence of other players who provide different products. Full-service dining restaurants, limited service restaurants which offer healthy menus and fast-casual restaurants which provided products based on customers’ preference. While fast food products is a preference for a fair share of the market segment, various factors may influence the customers’ preference such as the nutritional value of the food, health impact, source of raw materials among others. These considerations may cause customers to switch to substitutes provided by other players in the market. The situation makes the industry less attractive to Tim Hortons as there are high chances for its customers to shift to substitute products.

The threat of New Entrants

Competition in the restaurant industry is a common practice that is facilitated by the entry of new players who introduce attractive packages to clients. The threat of new entrants is high since the industry is attractive thus contributing to a high number of restaurants being established in the market. However, the restaurant industries in both the U.S. and Canada is already high and well-established with players enjoying economies of scale and strong branding of its products in the market. For instance, Tom Hortons brands are well established and with its numerous outlets, it enjoys economies of scale. According to Angwin and Meadows, merging will help in creating a strong team to counter the strategies employed by new players because the combined team will enjoy the presence of vast experience and diversified markets through different networks created by the two companies during their independent operations (236). Because of this, the threat of new entrants is low due to these requirements and the position that Tom Hortons occupies in the industry. This requires significantly high capital for entry into the market and competing with the strong brand stand to be a challenge. This makes the market more attractive.

Conclusion

The industry is unattractive for Tom Hortons to venture in. This is because; the bargaining power of customers, the competitive rivalry and the threat of substitute products are high against the bargaining power of suppliers and the threat of new entrants which are low.. This means that the possibility of developing a competitive advantage and sustain its profitability levels will be highly compromised. For this reason, Tom Horton’s competitive position is low.

 

Work Cited

Angwin, Duncan N., and Maureen Meadows. “New integration strategies for post-acquisition

management.” Long Range Planning 48.4 (2015): 235-251.

 

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