Starbucks losing coffee clash with Canadians

Tim Horton's is moving in where the Seattle coffee icon is closing up shop.

By InvestorPlace Feb 23, 2010 12:42PM

Coffee stocksWith a statewide unemployment rate of about 15%, Michigan isn’t exactly on the hot list of growth opportunities right now. That is, unless you’re Tim Horton’s (THI) and you’re looking to beat Starbucks (SBUX) on American soil.

 

Why Michigan? First, Starbucks is showing signs of weakness there. Since 2008, the Seattle coffee icon has been closing underperforming locations in the Wolverine State. Seven sites were shuttered in 2009, with as many as 18 more on the way out this year. That gives THI an opportunity to step into a market where SBUX is losing momentum.

But this isn’t a quiet campaign with Tim Horton’s moving stealthily behind the scenes.


The Canadian coffee shop and bakery is waging an all-out war against Starbucks this year -- and Michigan is the front line.

Tim Horton’s is planning an ambitious expansion effort in the coming months that will add 125 stores with 2,000 employees in the state.  

 

THI's battle plan includes capitalizing on already loyal customers in the region and concentrating on value for cash-strapped consumers. The company also benefits from a wider variety of breakfast and lunch items, including bagels, soups, sandwiches and pastries.

 

Starbucks has tried to break out of its java-centric mold recently by offering new panini sandwiches, but the company has a long way to go if it wants to appeal to more than just coffee drinkers and remain a coffee stock that will perk up your portfolio.

 

Starbucks recently posted strong earnings, easily topping earnings per share estimates of 28 cent, thanks to same-store sales growth of about 4%. But there’s no doubt that the company has lost a lot of ground compared with its juggernaut status a few years ago.

 

Tim Horton's has been steadily growing in Canada and continues to cut into Starbucks’ market share in the northern United States. This move to capitalize on Starbucks' weakness in Michigan could really pay off down the road.

 

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