When we first heard the news that Burger King may be ready to move to Canada for a merger with what is arguably Canada’s most beloved company, we didn’t know what to make of it.
Could Tim Hortons become an American company once again? Or would Burger King become Canadian?
Might we soon be able to get a Whopper with a double-double on the side?
Who is this deal really benefitting?
We turned to Queen’s University marketing professor Kenneth Wong to pick his brain about what he thinks the potential merger could mean for both companies, and for Canadians.
HuffPost: So, what’s really in this deal for Burger King?
Kenneth Wong: The obvious thing is the big tax break ... it is obviously going to make a big difference to your performance and to your stock price. The other thing it possibly brings to Burger King is the opportunity to combat McDonald’s on what’s becoming the coffee wars. In [the option to bring Tims coffee into their restaurants], they can create a little bit of a buzz about what makes their coffee different.
HuffPost: And for Tims?
They would be doing an enormous favour to Tim Hortons, not just providing a new source of top-line revenue, but it also becomes a very interesting play for Tim Hortons as a means of expanding into the U.S., which has been the fly in the ointment for them.
The one area where they have been consistently underperforming is the U.S. expansion. Part of that is because if you’re Tim Hortons going into the U.S. -- where they have well-established, well-financed companies -- you’re going to need to have a pretty significant campaign to build awareness of your brand. Some people forget that came almost automatically in Canada.
But if you’re going to justify that magnitude of a campaign, you have to have a lot of restaurants and that would be an enormous financial strain on Tim Hortons. This way they can build their awareness at literally no cost to Tim Hortons’ bottom line.
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Canadian Fast Food
HuffPost: You mentioned the tax savings by moving to Canada, where corporate taxes are lower. Can you think of any other reasons why Burger King would want to move to Canada?
Wong: Well, it’s not like the retail market where you can point to higher margins and less competition and so on. The tax thing is a long-standing practice you see in a lot of pharmaceutical companies. Tim Hortons, in fact, at one time was incorporated in Delaware (where taxes are low), so this is not a new thing.
HuffPost: We Canadians are quite patriotic about our Tims. So, how can we classify this proposed new company, would it be more of a Canadian company or a U.S. company?
Wong: Well, your origin is considered to be where your head office is and for all intents and purposes that will technically be Canada.
HuffPost: The release says they will continue to operate as standalone brands. What does that mean to you?
Wong: In a typical merger you’re always looking for the ability to synergize some aspects of the operations. In this instance, the products are dissimilar, but you’re never going to see burgers and fries in Tim Hortons. You’re never going to see the shutting down of the U.S. headquarters and relocating it to Canada. Anyone that thinks there’s going to be a major surge of employment opportunities because of this is uninformed, I think.
So they’ll each have a position in the marketplace, Burger King is more in the pure fast food place, Timmys is a slightly different category. Beyond the coffee products, I don’t think you’re going to see them spill into each other, I don’t think you’re going to see Tim Hortons/Burger King locations. They’re entirely different and if they’re smart they’ll keep them that way because they’ve both been doing quite well.
HuffPost: How much of a surprise is this merger? It seems a lot of analysts think it makes good business sense.
Wong: Absolutely, I think that because both companies are being bought. They will pay a premium for both because both [companies] just had good quarters. I think there’s huge tax savings that is automatic. That is one of the things that is guaranteed and then on top of that with some of the possibilities it becomes a no-brainer.
HuffPost: Do you anticipate there being any regulatory issues, from a competitive or foreign investment standpoint?
Wong: Well, they’re not in a protected sector [from foreign investment, like telecom]. Even when you combine the assets of the two, they’re still only the third-largest fast food operation. It would be a whole different deal if we were talking about McDonalds buying Tim Hortons, where one could argue there’s a lot of overlap in customers or product lines.
HuffPost: Tax inversion schemes seem quite trendy these days. It happens often in the pharmaceutical sector, but do you see this picking up in other sectors as well?
Wong: It’s one of those things, you have to be very careful as a government whether you’re going to start promoting, given free trade laws and everything else. I think the Canadian government [is] happy to get it but you’re not going to see them start promoting it.
HuffPost: In the U.S., there’s some backlash against this move for tax savings. And in Canada, well, we love our Tims. Do you foresee any sort of marketing or branding risk related to a decision to merge?
Wong: It all depends on how it plays out. We forget that Timmys was once owned by a U.S. burger chain, Wendy’s. The dissolution of that merged entity was not a consequence of branding problems -- it was a consequence of Tim Hortons outperforming Wendys and shareholders thought that leaving them together was depriving them of their rightful return.
The fact that it could be under U.S. ownership doesn’t seem to be a problem, provided that they don’t start to intrude on what makes it unique.
HuffPost: And finally, what creation would you most want to see produced from a Tim Hortons/Burger King mash-up?
Wong: You might see them introduce their ice cream operation or you might see them bring in “better-for-you” options. I mean none of these are good for you, but some might be better than others. That might lean more heavily towards the Timmy’s offering.
The ideal mash-up would have Burger King pricing but Tim Hortons standards as far as speed of service, courteousness and, of course, cleanliness.
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