Tim Hortons Concerned About Customers' Budget Flexibility
Rising food and gas prices across the board in Canada is a concerning factor for the head of Tim Hortons. The more these prices rise, the more Canadian’s budgets will shrink, leading to potential hesitancy on spending dispensable income on a daily cup of coffee.
"I think everyone in our industry is concerned about what has been happening with commodity costs over the past several months," said President and CEO Don Schroeder in an interview with The Canadian Press.
"What's happening in North Africa and the Middle East, the impact on the price of crude, the impact on the price of gasoline, we know that will have a negative impact on the number of discretionary dollars that our guests have in their pocket,” continued Schroeder.
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According to The Canadian Press, high gas prices affected the company’s revenues in 2008, the last time gas prices reached this height.
"When our guests have fewer discretionary dollars, they have to make choices,” said Schroeder.
But Tim Hortons has continued strong through previous economic recessions. "In tough times, what we have seen in the past is that that customer might come less frequently but then we benefit from trading down — other people coming to Tim Hortons as opposed to a more expensive offering."
The company increased its price for a large cup of coffee by about 4.5 per cent in April, to offset commodity prices. Fortunately,Hortons has already bought its coffee supplies for the year, as in the last seven months coffee ingredients have doubled. This means Tim Hortons won’t further raise prices for the rest of 2011.