Dear Fellow Shareholders,
In 2010 we began vigorously implementing our 2010–2013 strategic plan, designed to build on our strengths, create new avenues of growth and position us for future success. I am pleased to report we made significant progress in executing our strategies.
We are closing in on nearly two decades of continuous same-store sales growth in both Canada and the U.S., and delivered on all of our key financial and operational targets in 2010. I am particularly pleased with the health and strength of our system, which experienced average same-store sales growth of 4.9% in Canada and 3.9% in the U.S. Both results are within one-tenth of one percent of the top end of our targeted ranges, and our performance demonstrates how well our brand continues to resonate with our guests.
We also surpassed $5 billion in franchised restaurant sales in Canada, the first time a Canadian restaurant company has achieved this milestone, and we brought the Tim Hortons experience to tens of thousands of new guests through 245 new locations in North America.
Our strategically important decision to sell our 50% joint-venture interest in Maidstone Bakeries created a substantial gain, which was offset in part by a small portion of the proceeds allocated to Restaurant Owners related to the sale, and by asset impairment and related restaurant closure costs in the New England region. We believe our decision to close restaurants in the New England region removes a significant impediment to our long-term growth and helps to position our U.S. business for continued growth and development.
Absent the collective effects of these items, our underlying performance in 2010 was strong and the Tim Hortons system continued to grow and perform well.
Our performance is built on time-tested principles: offer quality products at a reasonable price, and provide convenience and a welcoming environment, and our guests will reward us. Our focus on operational excellence, menu innovation and effective marketing and promotional activities is designed to build on our competitive strengths in support of these time-tested principles.
As the theme of our Annual Report – Looking Outside. Thinking Inside – suggests, we are focused on both the short- and long-term at Tim Hortons. Our strategic roadmap is designed to build on our past successes to position the organization for continued growth and leadership.
Four primary growth themes underpin our strategic plan: (1) attacking daypart, category and marketing opportunities to drive same-store sales; (2) investing to build our scale and brand in new and existing markets; (3) growing differently in ways we haven't grown before; and (4) leveraging our core business strengths and franchise system.
To this end, we had a strong year of menu innovation, expanding the breadth and depth of our various dayparts, testing new innovations such as Fruit Smoothies and Macaroni and Cheese (U.S.) and offering our guests the warmth of Homestyle Oatmeal and English Muffins for our breakfast sandwiches to start their mornings.
Our team added scale by delivering 149 new restaurants to the Canadian landscape in 2010, with a higher proportion in our growth markets of Quebec, Western Canada, Ontario and major urban areas. We deployed the majority of our U.S. capital in our core growth markets, opening 96 locations including 52 self-serve kiosks, allowing us to accelerate the time required to build higher density levels in our markets, which are most established, increasing convenience for our guests and facilitating increased marketing scale. Our plan is to intensify this focus in 2011.
We are also growing in ways we haven't before. Our Restaurant Owners have fully embraced a hospitality program in Canada designed to increase our guest service advantage, and we continued to innovate with new marketing and promotional activities. In fact, we surpassed more than 1 million followers on Facebook© for the first time last year. We continued to open Cold Stone Creamery® co-branded locations in Canada and the U.S., and announced the first steps of our international growth strategy with a Master License Agreement with Apparel Group, based in Dubai, for up to 120 locations over five years in certain markets within the Gulf Cooperation Council (GCC).
We also pursued continued expansion of vertical integration in our system, with the ramping up of our coffee roasting facility in Hamilton, Ontario, to serve the needs of our Restaurant Owners while serving to protect our proprietary coffee blend. We are also working toward the opening of a replacement distribution centre in Kingston, Ontario, set to open in 2011. At the same time, we continued to work hard to sustain the vital relationship we have with our family of Restaurant Owners to leverage their deep commitment to the brand.
I believe Tim Hortons is at an exciting juncture in our history, and that we are well positioned for future growth. In Canada, we have significant opportunity for future expansion, with opportunities for up to at least 4,000 locations. In the U.S., we are increasing our investments in restaurant development and advertising in our core growth markets to accelerate the time needed to get to critical mass, and we are starting to sow the seeds for longer-term growth through international expansion in the GCC.
I extend my personal thanks to the entire Tim Hortons team, including our Restaurant Owners and team members, corporate team and suppliers, for your contributions to our performance and success this past year and for so capably representing the Tim Hortons brand.
Sincerely,
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