Now would be a great time for a Canadian with a few bucks looking for a good business idea to start peddling coffee and doughnuts, and to put up the first store directly across the street from the busiest Tim Horton’s he can find. A year ago that would have been a very, very bad idea. A year from now it will be a license to print money. The reason is simple: Timmy’s (as the Canucks affectionately call it) has become more profitable than Burger King and Dunkin Donuts combined on the strength of a laser focus on value. It is being acquired by folks with no clue.
3G Capital is the Brazilian outfit that owns Burger King which, in turn is buying Tim Horton’s. Oh they are calling it a merger and planning to run the combined company out of Canada, but that is just to duck US tax rates. Any talk about whether the BK/Timmy’s company will be run by either the folks from Burger King or the Canadians is a waste of breath. The shots will be called by the Brazilians and that spells doom for Tim Horton’s.
The folks at 3G don’t have any idea what Canadian Prime Minister Stephen Harper means when he says, “Millions of Canadian hockey parents like me know well that when it is 20 degrees below zero and everyone is up for a 6 a.m. practice, nothing motivates the team more than a box of Timbits, and nothing warms the parents in the stands better than a hot double-double.” They don’t understand in part because the 3G folks from Rio de Janeiro and the Burger King folks from Miami don’t know what “hockey parents” are or what “20 degrees below zero” means. Mostly though, they don’t know what OT means because they don’t care.
And they don’t care because they don’t know the difference between value adding and non-value adding. They are bankers who understand business as a set of numbers. They know how to add, subtract, multiply and divide, but they don’t know much about coffee, doughnuts or hamburgers, or the people who consume them.
Neither do they know much about beer or the people who drink it. That’s right – beer. And the loyal Canadian customers who have made Timmy’s “a big part of Canadian identity” have only to look at 3G’s track record as the owners of Budweiser to see what’s coming.
3G has become legendary for cost cutting, much of it symbolic. At Heinz (the ketchup company), “employees were restricted to spending $15 a month on office supplies and told they couldn’t use mini-refrigerators to save on electricity, according to a memo obtained by Bloomberg News. 3G limits printing to 200 pages a month per employee and restricts colour pages to ‘customer-facing purposes.’”
“At Burger King, 3G did away with comfortable offices that top executives and their secretaries had enjoyed, which people at Burger King called Mahogany Row. Executives now sit in a bare-bones, open-plan office.” And “Burger King employees were instructed to use Microsoft Corp.’s Skype to make long-distance calls instead of running up a mobile-phone bill.”
3G’s hard-nosed approach as applied to Budweiser, as well only they didn’t seem to understand the difference between the cost of mahogany desks and the cost of the very thing customers pay them for – beer. “Beer lovers across the U.S. have filed $5 million class-action lawsuits accusing Anheuser-Busch of watering down its Budweiser, Michelob and other brands.”
“Our information comes from former employees at Anheuser-Busch, who have informed us that as a matter of corporate practice, all of their products mentioned (in the lawsuit) are watered down. It’s a simple cost-saving measure, and it’s very significant,” said the lawyers handling the suit.
The result of neither knowing nor caring about the difference between value adding activities and costs and those that do not add value is predictable and inevitable. “Bud And Bud Light Are In Freefall,” wrote Business Insider earlier this year. Craft beers are gobbling up their customers who seem to know the difference between value adding and non quite well. Burger King is making money, but mostly outside of the USA where “sales are sluggish”. Never a good sign when the people who know you and your product well won’t buy it and you have to take the show on the road to sell our wares.
“When Tim Horton’s managers meet their new overlords at 3G, ‘They will have no idea what hit them,’ said a guy named Ken Harris from a consulting outfit that knows 3G well.
And the Canadians who have come to love Tim Horton’s as much for the culture and commitment to their neighborhoods as for the coffee and Timbits will have no idea what happened until it’s too late. But how it will all end up is pretty easy to see coming.
Knowing the difference between value and waste, and managing like you know the difference, is the single biggest driver of success or failure these days, and in this regard, Timmy’s just took the wrong fork in the road.