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If You Think There Are Lots of Doughnut Shops Here, Check Out Canada

from Bloomberg Business News

The British patronize pubs, and the French relish their cafes. Canadians? They’re sweet on doughnut shops. Canada has the world’s largest per-capita concentration of doughnut shops, with Japan second, according to food-industry analysts. Some Canadian chains are owned by publicly held companies, and many are expanding amid rising sales.

In Canada’s doughnut wonderland, industry executives estimate there are roughly five times more doughnut shops per capita than in the U.S., which has about one shop per 68,000 people.

The industry’s growth began in the early 1990s as franchise chains such as Tim Hortons, Dunkin Donuts and Maple Leaf Foods Inc.'s Country Style Donuts spread across the country.

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Canada’s relatively long, cold winters and a growing commuter population have made the country’s doughnut shops a cozy refuge and convenient breakfast and snack stop. Annual sales for the doughnut shops are estimated at $1 billion (Canadian).

“By and large, we Canadians like our coffee and doughnuts,” said John McMahon, 59, of Oakville, Ontario.

McMahon, an industrial products salesman for Ault Foods Ltd., travels throughout Canada. A common thread in his varied schedule, he said, is a cherished, daily treat: a honey-dipped doughnut and coffee with cream and sugar.

“It’s a break for relatively little money. I get something in my stomach and I get out of there quick,” McMahon said.

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Canadians have been devoted to doughnut shops for decades. When the franchises arrived, they were among the first fast-food outlets in Canada to stay open 24 hours, said Lyne Mongrain, Dunkin Donuts Canada marketing manager.

Sales and profit in the entire fast-food industry declined from 1991 to 1993, in part because of the 1991 introduction of a 7% goods and services tax, or GST, said Robin Garrett, director of research at the Canadian Restaurant and Food Services Association.

Still, Canada’s largest doughnut chains have increased their share of the market by increasing the number of outlets and adding bagels, soups, salads, sandwiches and specialty coffees to their menus, Garrett said.

There are at least 2,400 doughnut shops, kiosks and mobile counters in Canada, up from 2,000 at May 1994, said Cathy Mauro, marketing director at Country Style Donuts, Canada’s fourth-largest doughnut chain.

Tim Hortons, named for legendary National Hockey League defenseman Tim Horton, is Canada’s largest doughnut chain, with 1,040 units and $487 million (Canadian) in systemwide sales. Tim Hortons accounted for at least 55 percent of all doughnut shop sales in Canada in 1994, according to industry estimates.

Dunkin Donuts, which operates 225 units, is the No. 2 doughnut shop with $110 million (Canadian) in annual sales. Robin’s Donuts, owned by Robin’s Foods Inc. of Thunder Bay, Ontario, has 230 shops and is No. 3 with $83 million (Canadian) in annual sales.

No. 4 Country Style, owned by Maple Leaf Foods Inc., Canada’s largest food processor, has been adding as many as 25 outlets a year and expects its 1995 sales to increase to $88 million (Canadian) in 1995, up 17% from $75 million (Canadian) in 1992. Maple Leaf Foods’ total 1994 revenue was $930.6 million (Canadian).

To be sure, rapid growth increases costs. While many doughnut outlets are profitable, intensified competition and rising food and packaging costs have kept earnings stagnant over the past four years. The doughnut shops also have lost some sales to a growing number of upscale coffee bars, such as Second Cup Ltd.

“I think most of the people in this business have reached a pretty flat level,” said Bruce Gowdy, vice president of finance at Maple Leaf Foods’ franchising business. “You get to a certain level of earnings and you keep opening stores, and some don’t do so well. It’s the nature of the business,” he said.

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Analysts said the high concentration of doughnut shops will likely become even more pronounced, with an increasing number of outlets and partnerships with other food-service chains and corporations that will sell doughnuts to their customers.

Tim Hortons will be doing its share. The chain, owned by TDL Group, expects to open at least 100 units a year over the next few years, said spokeswoman Patti Jameson.

It already has mobile counters in Imperial Oil Ltd.'s Tiger Express gasoline stations, Canadian Tire Corp. shops, Great Atlantic & Pacific Tea Co. grocery outlets and Imasco Ltd.'s Shoppers Drug Mart units.

Tim Hortons also operates “combo units” with Wendy’s International Inc.'s fast-food restaurants in Canada. It plans to open some Tim Hortons-Wendy’s outlets soon in the U.S.


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