Sam Heath and I worked together at McKinsey many many years ago. He is now responsible for marketing Tim Horton’s in Canada (where it is by far the largest quick service restaurant chain), and Timmie’s fledging business of selling its product in grocery stores. Last year, out of nowhere, Sam’s heart stopped and he “died”. Last week we explore how that event affected him and his overall career in this episode. This episode dives into Tim Horton’s - both the stores and the CPG products - and how he is growing the two inter-related businesses.
Edward: This is Marketing BS. This is part two of my interview with Sam Heath. Today, we're going to dive into his experience as head of retail for CPG and Tim Hortons. Sam, we're both Canadians, and every Canadian in the country understands Tim Hortons down to their bones. But for American listeners, can you describe a little bit what Tim Hortons is and what it does?
Sam: This might be a little bit of a long answer and I'll come at it in two ways. One way, our former CEO tried to describe this to everyone at Burger King right before the merger happened. He said, imagine if Coke operated restaurants in the US and there was no Pepsi, which is a pretty good idea of how important the brand is. Fundamentally, it's a coffee shop/ breakfast/ lunch space that has about a 50% share of the QSR market in Canada, which for context is the sum of what the next 13 chains combined. The next chain is McDonald's. It's just absolutely massive in terms of what it means for Canadians who want to eat.
Edward: In the US, McDonald's has the number one share of the QSR market, is that right?
Edward: What percentage would McDonald's have in the US roughly?
Sam: I'm a few years away from this, but probably 20%, 25%.
Edward: Got it. McDonald's is in the US, Tim Hortons is at 2 ½ times that in Canada.
Sam: It's the only market McDonald's operates in globally where they're not number one, and they're a distant number two to Tim Hortons in Canada.
Edward: Got it. Tim Hortons is almost even more than that in Canada. I don't think there are many Americans who define themselves by McDonald's, but it almost feels like there are Canadians that define themselves by being a part of the Tim Hortons community.
Sam: Yeah, and this is the other way that I wanted to try to get at it. If you're a big fan of an NFL team, or maybe even better, a college football team in the US—that type of just extreme buying of what that brand means to you, what that team means to you—that's the place that Tim Hortons takes in Canada. College sports are just much less important. People get Tim Hortons tattooed on themselves regularly. Weddings happen at Tim Hortons every year or two. People choose to get married there. It means things in a way that I don't think anybody truly understands.
Edward: How does that happen? At the end of the day, they serve donuts, coffee, and sandwiches. Why are people getting married at Tim Hortons?
Sam: In the 80s and 90s, a big problem for Canadians is who are we as a country, as a people? All of the answers up until that point, it's we're like Americans, but—we're less this than Americans, we’re more this than Americans. Sometime in the mid-90s, there's a book published called Timbit Nation that tried to answer this. The book said we’re a nation of people that have Tim Hortons and go to Tim Hortons, to a lesser extent Canadian Tire.
The way the brand got there is it is a brand by Canadians for Canadians. It's always being 100% franchised. The people running Tim Hortons restaurant have been members of the local community. There’s been this really intuitive sense of how you make coffee, donuts, bagels, breakfast sandwiches, and things for the people that are around you that are like you. No one ever planned strategically. It just evolved. But after 40 or 50 years of that, you end up looking around going, Tim Hortons represents us because it's just us trying to do the best we can for each other.
Edward: How does Tim Hortons think about marketing in Canada? I can imagine awareness is not a problem. What problem are you trying to solve with marketing in Tim Hortons?
Sam: That's a good question, and no, awareness is not a problem. It's 99%. I keep saying, I want you to introduce me to a person who's not aware of Tim Hortons in Canada. It's more a matter of how you express that Tim Hortons is Canada in a way that does not come across as seeming arrogant.
Canadians feel like we're part of them and we're in us. We are number one. Canadians don't want to hear us tell them that we are number one. We're Canadians’ favorite coffee and if we tell Canadians we are your favorite coffee, there’s dissonance. There's a clash between how people think about us and how we're talking that comes out there. They want us to be humble and they want us to serve them. That's the difficult part in all of our advertising, is reflecting that humility, which is tough when you are so big and when you are 50% of QSR.
Edward: What is the goal? What metrics do you measure to say like, hey, our marketing is doing well?
Sam: Ultimately, we measure the same thing that everybody in marketing does, which is sales. Are sales going up? But that's often a trailing metric for what really matters. We're also looking at brand health, brand connection, and share of preference. Do people say that we're their favorite coffee? Do people say they look forward to going to us? Do people trust us? All of the things you can imagine to define a brand and how people feel about the brand that we know, end up over months or a year leading to declines in visitation or in sales.
Edward: If you run those correlations, do you look at how much people trust Tim Hortons, then look at what the sales are six months after that, and see whether or not there's an R-squared that you can measure?
Sam: We do. We try and find them in simple marketing ROI metrics that try to tease out all the different factors that go into your marketing that will often reveal things like this. But ultimately, the link ends up being soft. This is one of the arts of marketing. You have to take it on faith. There is a general correlation. But nobody can say that if trust drops six months later, this goes down because trust can also be affected by macro factors that have nothing to do with Tim Hortons specifically.
Edward: You can imagine a world where even if trust goes down, people continue to shop there because McDonald's has a bad quarter or because of something else that happens with your competitors.
Sam: That's exactly right.
Edward: You operate on trust a little bit, or you just have a certain belief that these are the good things to do. Those good things sound like, hey, creating advertisements that drive up trust, creating advertisements that drive up, would you say, that this is my favorite coffee. Is that a statement that you measure and track overtime?
Sam: Yeah, we do track favorite coffee, that’s the exact wording of it. It’s now lost to me. We track, favorite coffee. We track, it’s a place for people like me, which is one of the standard brand metrics. That one tends to be quite important for the crowd, people, feel about the brand, overall.
Edward: How do you build marketing that does that? What do you do that's different from many other places that are trying to build awareness or consideration? You're trying to build, hey, this is a place for me. What does that look like?
Sam: This gets into the qualitative pieces of marketing a little bit. There's a weekly comedy show called This Hour Has 22 Minutes. They fairly regularly, for a while, would produce parodies of Tim Hortons’ ads. Tim Hortons would make an advertisement, and the comedy show would recreate the advertisement as a comedy sketch, and air that for free in one of the country’s most popular comedy shows. Imagine if McDonald's US and Saturday Night Live will recreate your latest ad and air it on Saturday Night, it's a pretty big deal. That tells us we're doing the right things. We look for those types of ads.
Other ones literally pull on the heartstrings. There's a series of ads that we ran over a while that made people cry watching them. An immigrant father taking his kid to hockey practice, and then his kid growing up, and taking his kid to hockey practice, and how Tim Hortons played a part in that whole. There's one about Wayne Gretzky meeting Tim Horton at the first store he opened, and talking about how he went into hockey, partially because Tim Horton told him to keep playing.
Those are the ads that we know are driving the brand. Ultimately, we also have to launch our latest cold brew coffee, which is really important. But we know that if people are crying or making fun of our ads, then they're linking to people on a pretty deep emotional level.
Edward: Tears and laughter. Is that the metric?
Sam: Tears and laughter. Although we found that one hard to get a quantitative measurement of.
Edward: Tim Hortons is this dominant player in Canada. I imagine your brand has not succeeded as well in the United States. Why do you think that is? Is it just too tied to Canada?
Sam: We've done really well in a few US markets—Buffalo, where we're number one by market share similarly to Canada, Detroit, Columbus, Rochester, a few of these, Upstate New York, Ohio, and similar locations. We have close to 800 restaurants in the US and they do quite well in the markets that we’re in.
I think a lot of our success in those places may be due to the fact that we entered at a time when a lot of brands are pulling out of these rust belt cities when manufacturing is getting hollowed out. We came in and there's a lot of emotional goodwill towards the brand from locals in those US cities who remember us coming in when a lot of other brands won’t. We have had some success in the US.
Edward: These are all franchise models in the US as well?
Sam: They are. Yeah.
Edward: The same thing that happened in Canada, where it was the local people building this business happened in these upstate US markets where it was local people—maybe in a time when the community was struggling—local people were stepping up and running these things, and they connected to the local community.
Sam: We ended up with a similar type of connection as we had in Canada in those markets. But when you look beyond those markets, you're right. We have struggled to move out, to establish the brand. In some parts of New England where we've expanded two or three times had been forced to retrench. We just couldn't make our stores profitable, and we had to pull back.
Edward: It's interesting that these markets that you are successful in, tend to be almost like border cities. They're very close to Canada. Is that something to do with it or do you think it was just the timing? If you had entered Alabama at the same time period back when these other markets, other quick users were pulling out, would you have been as successful there or does it tie to the fact that these people know what Canada is because they live on the border?
Sam: When I write my alternative history book, I will explore that in-depth and until then, I'd just be guessing.
Edward: Let's talk about the CPG business. You've been running the CPG business for a while now. Even for our listeners, describe a little bit. What does the CPG business mean for Tim Hortons?
Sam: I’ll give it a quick history which describes what it is. We started selling some of our packaged coffee in grocery stores in Canada around 10 years ago because the grocery store came to us and said, hey, would you consider selling it as your packaged coffee? We'd like to put it on shelves. Which is not normally how grocery stores interact with their vendors.
Edward: This sounds an awful lot like how you've managed your career. The Tim Hortons-CPG business grew the way Sam grew his career and they came to you.
Sam: It's just, oh, I guess we can do this if someone does it. Exactly. From there, in 2015, we decided to get strategic, small as strategic, and say, what if we actually went to the grocery store and asked them to list our product and that led to just pretty rapid growth between 2015 and we decided to do this. By late 2016, we became Canada's number one CPG coffee brand, neck-and-neck with the other two.
Since 2017, 2018 with a couple of adjustments, strategy, and more products, we now have probably doubled the market share of the next largest coffee brand on shelves in Canada. We've also expanded into soup, granola bars, through licensed deals, and ready-to-drink coffee, and cereal. In 2017, we entered the US CPG market, although so far really just with coffee.
Edward: Let's start with the Canadian business first, how do you think about growing the CPG business from a marketing perspective different from retail? Or is there a difference? Do you just basically coast on the back of the retail brand?
Sam: In terms of brand strength, we are a very small part of Tim Hortons’ total sales, what it means in Canada. We're not having a significant impact on the brand. Clearly, the overall brand strength which comes from restaurants is why we've had success in CPG? What we really try to do is make sure that nothing we do can harm the master print. If we started selling Tim Hortons pencils and USB chargers in retail that would probably annoy Canadians like, what are you doing? You're just putting your name on everything? We try to do what we can to reinforce it, but we're a small force overall for what Tim Hortons means in Canada.
Edward: The purpose of CPG then is it's almost like, hey, we've already built this brand in retail. Let's go into CPG. From the minimal additional effort, we can make some profit. Every time you see Tim Hortons on a shelf in a grocery store, it's the equivalent of a billboard on the side of the street advertising the retail.
Sam: From a marketing perspective, it absolutely is. We've got some pretty good research that says, the more you see our soup on grocery store shelves, the more likely you are to go to a restaurant to add soup for lunch.
The other thing though, is 80% of coffee is still consumed at home, despite how much coffee we sell in our restaurants in Canada. We didn't want Canadians going home and going, I want to make myself a nice cup and then have to look to our competitors for their at-home coffee. If you're reaching for coffee at breakfast in the morning when you don't go to Tim Hortons restaurant, we wanted to make sure we were there so that we stayed present [...].
Edward: Got it. CPG is a lot more of a defensive play then than an offensive play?
Sam: It's a bit of both. The sales and profit are nice, but it's also a matter of people expecting us to be there. Again, you look at the brand, it's about being humble and doing what Canadians want us to do. They want to drink Tim Hortons coffee at home. I'm not going to tell them they can't.
Edward: Do you do any marketing specifically for your CPG side of things, or is it just a matter of like, hey, you've done the marketing for the retail and CPG is just a distribution channel?
Sam: It's largely just a distribution channel, and the marketing that we do for CPG products tends to be to raise awareness that they exist in this format or just getting more prominence in the grocery store aisle. When you are shopping for your coffee, we want to have our displays, our signage, our offers jump off the shelf. Unlike with restaurants, you've got to decide where you're going for coffee well in advance of picking up the coffee, or either walking down the street one way to Tim Hortons and the other way to go to McDonald's. On the grocery store shelf, you just raise your hand 6 inches and you're buying a different brand. The more permanent we can be there, the better our sales will be in the grocery.
Edward: Yeah. I know you're not a digital marketing guy, but I kind of think a little bit like your retail business is top of the funnel. Do marketing, do brand, do television, but then your CPG business is almost all direct response stuff. It's like this equivalent of paid search or by the corner display or getting on eye level or hitting the person with the flyer as they're walking in the door to say, hey, it's $0.10 off today.
Sam: Or a $1 off. That's exactly it. If we can get the display or in the aisle that interrupts the shopping experience that gets it in front of you. The reason that the brands do this and why we do this is we know that it works. The more display space you can get, especially outside of the coffee aisle, the more likely you are to pick up sales from people that otherwise might choose to buy a different brand.
Edward: Do other direct response stuff work for you? What about something like direct mail? Could you use direct mail to drive this business?
Sam: We've used direct mail in a couple of specific instances and they're basically new product launches. We launched instant coffee in 2019, and we mailed sachets to people to sample at home to drive awareness and trial. We're doing something exactly equivalent with a granola bar, food lunch. If you're in Canada listening to this, you might get a Tim Hortons double chocolate granola bar in the mail. You might have received one. That is designed overall awareness where that's a new category for us and awareness is 17% for our granola bars. We know that we can drive it higher. We've got a great product and we want people to try it.
What we've found is absolutely no correlation of those activities with sales. Again, we're taking it on faith. We know that 50,000 people tried the product within the country of 40 million people. That's not many.
Edward: That's interesting. When you run those direct mail tests, you don't do them like, hey, we're going to do some in the East side of Toronto, not the West side of Toronto, and then see what happens to sales over the next three months?
Sam: We have tried those and we cannot find a signal among the noise of our sales data. We keep doing it because we know that it does mean 50,000-100,000 more people have tried the product and the demand made by. Some things you just have to take on faith. In the tests that we've done, we can't get a response high enough to actually measure.
Edward: That's interesting. Is that because you don't do it at the scale necessary to measure a response? Or do you think that the response isn't there?
Sam: It could be both, getting to the scale necessary is either fabulously expensive. If you're mailing out instant coffee to be in the households who would never consider buying instant coffee or wasting a lot of your marketing budget on people that just aren't in the category, or it could be that it's just not there. Having sent the infinite marketing budget to get to the scale that we need, it's really hard to say.
Edward: How do you think about marketing the US differently than Canada on the CPG business because you don't have that giant retail brand behind you that's giving you 99% awareness? Do you need to do things differently in the US?
Sam: I love this question because we have a very specific answer to it. We re-did all of our packaging 1 ½ ago. In Canada and the US, we tested a set of about 10 different taglines. In Canada, the tagline that we put on all of our packaged coffee now says, “Roasting in Canada since 1964.” Which is correct, we've been roasting our coffee here. We haven't changed the blend since 1964. Canadian thought, you've been here for a while. You're like us.
I've been in Canada since 1964 when I was born here. People liked the sort of comfort routine of that. In the US, that was mediocre at best. What the US liked, whether it was in a market where they know as well like Buffalo or a market where much less known like Texas is, “Canada's Favorite Coffee.” Which, if you recall, we tested in Canada. Canadians hated that. It probably would have hurt sales if we used it. In the US our bags say, “Canada’s Favorite Coffee.” We've got the research to back up to make sure we're telling the truth, but in Canada, it says, “Roasting in Canada since 1964.”
What that's reinforcing is we realized we needed to tell Americans something about our coffee. We couldn't just say, hey, we’re the stuff you get in the coffee shops. We need to say there's a reason to buy this and Canadian coffee is a unique selling proposition. It may not be the strongest possible way, but again, we didn't design this brand.
We have to sell what we have and that's worked really well. We're growing at something 25% per year, five years straight in the US grocery market. In March, we're number two by dollar sales growth, 2021 versus 2020. It seems to be working.
Edward: Sam, this has been great. Thank you so much for being on the show today. Before you go, can you tell me about your quake book? The book that you read that changed the way you think about the world.
Sam: Absolutely. It is The Three Marriages by David Whyte. He is a poet-philosopher who does an awful lot of corporate speaking engagements. He basically says work-life balance is [...] for two reasons. It implies that there's a static balance point that you're trying to get between work and life and two, there's no place left for the self. He says that in life you have three marriages. One, your traditional marriage with your significant other, two with your lifelong work, and three with yourself. Each of those marriages is a conversation, and each of the conversations is in conversation with each other. It sounds high-level, highfalutin poetic. It was one of the most profound things I've read. It helped me get more effective at work and think about work differently and the relationships for the rest of my life.
Edward: Sam, thank you so much for being here today.
Sam: Thanks, Ed.