November 5, 2014 1:25 pm
Updated: November 5, 2014 3:50 pm

Canadians are opening their wallets wider at Tim Hortons. Here’s why

New menu items are turning sales growth around at Tim Hortons -- just in time for its takeover by Burger King.

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Canadians are spending more at Tim Hortons Inc., the coffee chain said Wednesday, as it focuses on up-selling them on pricier menu items, like the new spicy chicken sandwich, or better yet, packaging orders in with new side dishes.

Customers are also lapping up a new dark roast blend of coffee, helping to prime sales.

“Many of our guests are trading up,” Marc Caira, Tim Hortons chief executive said on a conference call.

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The new crispy chicken sandwich introduced in the spring is boosting lunchtime sales, Caira said, while other new items such as Greek yogurt, kettle chips and hash browns are convincing customers to increase how much they’re spending with Canada’s biggest coffee chain.

MORE: Can a crispy chicken sandwich end a sales rut at Tim Hortons?

Sales at Tim Hortons locations open more than a year, a key food retail metric, were up 3.5 per cent in the three months between July and September – the best showing in more than two years (see chart).

Dark roast

The introduction of a new dark roast coffee blend is also winning back customers who have left for rivals, chiefly Starbucks and McDonalds.

McDonalds, the second-biggest fast food chain in Canada after Tim Hortons, has ratcheted up efforts to win more coffee drinkers and breakfast customers in recent years, Tims’ traditional customer base.

Those defections partly explain why sales growth at Tims had been trending down until recently.

“Guests that might have been leaving us to go to another restaurant for a darker blend are now staying with us,” Caira said. “Guests who perhaps in the past we lost are now coming back.”

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Even so, others are still leaving or switching up their coffee or lunch routine to include rival restaurants.

While total sales were up, actual foot traffic to Tims’ Canadian coffee shops was down “slightly” in the latest three-month stretch compared to the same period a year ago, analysts at Desjardins Securities said.

Still, the analysts credited Tims’ shifts in the menu – which includes the removal of 50 items that haven’t been selling well this year – with reversing the sales trend at the till.

“The introduction of the crispy chicken sandwich proved popular with Canadian customers, and the introduction of dark roast coffee benefited sales,” Desjardins retail stock analyst Keith Howlett said in a note.

Total sales climbed more than 10 per cent compared to the July-September period in 2013.

Burger King looms

The improving performance at Tims comes as it prepares to merge with U.S. fast-food chain Burger King.

The $12.5 billion mega-merger, which was first announced in late August, was approved by Canada’s Competition Bureau last week. It has yet to be approved by Industry Minister James Moore, whose review of the bid stands as the last regulatory obstacle in Canada.

Tim Hortons said Wednesday it will hold a vote with shareholders on Dec. 9, where a majority will have to approve the takeover.

MORE: ‘Painful changes’ await Tim Hortons under new owners, report warns

Burger King’s owners, 3G Capital, have stated there’s little planned changes for Tim Hortons at the store level, while Caira has said it’s “business as usual”  for Tim Hortons in Canada.

WATCH: The Burger King-Tim Hortons merger broken down. 

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