Can Canadian Chains Crack the Code to U.S. Growth Success?

Tim Hortons entered the United States 40 years ago, establishing itself in markets where Canadians could get coffee across the border. And while it has opened more than 600 locations in the U.S. since then, the last four decades haven’t seen the coffee chain gain as much market share as it has in the North, where there is about one restaurant for every 10,000 people.

The brand began working to expand into international markets after its acquisition by RBI a decade ago. Since then, it has implemented some changes to its U.S. operations, adding more cold beverages and savory breakfast items and introducing new, simplified prototypes that reduce capital expenditures and improve profitability for operators, says Ryan Ferranti, head of business development and franchising.

It is also evolving its franchise strategy to accelerate its growth in new markets across the country.

“We initially thought, ‘We’re close to the Michigan-Ohio-New York border. How can we grow around those borders?’ Then we looked around and said, ‘Maybe a better approach would be to go to the growth areas,’” Ferranti says. “It’s twofold. What are the growth areas, but also where are people from Canada and our core markets in the Northeast and Midwest migrating? A lot of them are migrating south, so we have built-in brand awareness in those markets.”

To build customer density more quickly and efficiently, Tim Hortons has moved away from relying on smaller, local franchisees and is partnering with larger, more experienced multi-unit operators.

“Selecting the right markets and franchisees and changing the format, including the prototype itself and the architecture of our menu: these three elements were the pillars of what we needed to change,” Ferranti explains. “Since then, we have had enormous success.”

Tim Hortons ended 2023 with its highest number of U.S. restaurant openings in more than five years, including major expansions in new markets like Texas and Georgia. The company also signed deals to enter Arizona, Missouri, Delaware, New Jersey, Tennessee and several other states.

Like many brands that cut their teeth in Canada, BURRITOBAR got its start in the U.S. close to home. It awarded its first master franchise agreement for Michigan and opened its first store in 2020 about 60 miles from the border. Two more stores in the state and one in Delaware have since opened. Leases have been signed or are under negotiation in Hawaii, Tennessee and several other parts of the country. Master franchise agreements have also been awarded in nine other states.

“Following the proven formula in Canada, our strategy is to focus primarily on developing the brand in suburban, secondary and tertiary markets,” explains Jeff Young, Director of Development. “Once we have gained brand awareness and critical mass, we will move into more urban environments.”

The U.S. expansion isn’t just about replicating the strategy that brought it more than 300 locations in Canada. The Tex-Mex chain is called barBURRITO in its home market, but it’s branching out into the U.S. under a different name to avoid potential trademark disputes. It’s now partnering with a design and marketing agency to help scale BURRITOBAR.

The franchisor is rebranding the brand with an updated logo and new design elements that Young says will “elevate all consumer touchpoints” and “strengthen our niche within the category.” That’s important, he adds, because Canadian chains looking to expand into the U.S. must have a clearly defined niche within their respective segment. They must also have “a compelling story of a resilient brand with a proven business model” and a “rich history of success.”

“Canada can be a challenging market overall because of the higher operating costs,” Young says. “Occupancy costs, labour, cost of goods and taxes are generally higher, and AUVs are lower than south of the border. If a brand can demonstrate that it can thrive in Canada, the U.S. offers a world of opportunity.”

With a population ten times that of Canada, the United States is an attractive market and a natural extension for restaurant chains that started in the North. But breaking into the U.S. comes with its own set of challenges. For starters, the complex web of franchise regulations often makes entering the market more daunting than other international markets.

It’s something James McInnes, CEO of Ontario-based Odd Burger, learned to deal with when planning the vegan fast-food chain’s expansion into the United States.

“Each state has different laws and regulations,” he explains. “With those differences, managing your franchise system is very complex. The biggest hurdle is the whole legal process.”

In some states, brands must register their franchise disclosure agreement before offering or selling franchises. These standards vary from state to state. Some include extensive details like financial statements and litigation history, while others only require basic information. Some states have no disclosure requirements at all.

“There are a lot of things to consider in your expansion strategy first,” McInnes says. “Are you going to pay registration fees? Are you going to expand into states that don’t have registration requirements? You have to figure out what your roadmap is going to be first, and then you have to start putting the paperwork together.”

The company is preparing to open its first stores in two states next year. One of them requires registration, the other does not. But the decision about where to plant its flags first on the map ultimately has less to do with registration requirements and more to do with its plan to grow its presence and increase brand awareness in the country.

Odd Burger signed its first growth deal in a state bordering Canada. Last year, it signed a regional representation agreement to build 20 locations in Washington. It followed up this spring with its second deal to build 40 locations in Florida.

“We also wanted to expand into a remote territory, because to be successful in the U.S., we can’t just expand into places right next to Canada,” McInnes says. “We need to be able to expand into Florida, Texas and other places like that.”