A sign of maturity or the times? Tim Hortons closes its much ballyhooed innovation cafe

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The lab store at the base of Tim Hortons Inc.’s headquarters in downtown Toronto opened in the summer of 2019 to much fanfare, promising “a modern interpretation” of the aging coffee shop brand. The chain was trying new things, such as selling fancier doughnuts and pouring lattes from a tap like draft beer in a pub. People lined up to get inside.

More than two years later, Tim Hortons has closed its so-called innovation cafe for good, blaming the pandemic that emptied Toronto’s financial district of all its coffee-drinking office workers.

Tim Hortons’ parent company, Restaurant Brands International Inc., framed the closure as a simple business decision: The real estate was expensive, and the location’s clientele isn’t expected to come back to the Bay Street area any time soon. But one analyst pointed out that the cafe’s demise could be a sign of maturity at the chain.

Innovation, usually a cheery buzz word, can actually be a sign of distress in the fast-food business, said Sara Senatore, a senior analyst at Bernstein who has studied turnaround efforts at Starbucks Corp., McDonald’s Corp. and, more recently, Tim Hortons.

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The dark phase leading up to most restaurant turnarounds usually involves a period of frenzied innovation or limited time offers, all aimed at finding a quick fix for deteriorating results.

Everything that we saw was very typical of a company that is searching for answers in the wrong places

Sara Senatore, a senior analyst at Bernstein

“You look back at Starbucks in 2018, right before they undertook their own turnaround,” Senatore said. “They had this Unicorn Frappuccino. You had all kinds of things that were meant to draw a lot of attention, meant to change the narrative.”

But those flashy attempts don’t often succeed in turning around a brand’s fortunes because “you’re not doing a good job with the core of what customers want,” she said.

The following phase, after all the innovation, is usually boring but successful, with the chain heavily investing to get better at what its customers expect it to be good at in the first place.

Tim Hortons was firmly in that innovation phase when the innovation cafe opened in 2019. That year, it tried serving Beyond Meat burgers — a notorious flop — as part of then-president Alex Macedo’s strategy of being the first, “or the very quick second,” to serve trendy new things in the market. That summer, the coffee chain also served poutine.

“Everything that we saw was very typical of a company that is searching for answers in the wrong places,” Senatore said.

In early 2020, following Macedo’s departure from the chain, Tim Hortons announced a new “back-to-basics” strategy, admitting that its flurry of innovations had only served to confuse customers and slow down its kitchens.

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As the chain moved to refocus on its roots — coffee and doughnuts — innovation became less of a priority. Duncan Fulton, chief corporate officer at Restaurant Brands International, said the strategy provided a “looking-in-the-mirror” moment, with the chain acknowledging that its pace of more than 60 menu experiments in 2019 was far too many.

The plan, now more than a year along, is seeing benefits, he said. But the decision to close the innovation cafe had nothing to do with the broader strategic arch of the business, he said, adding that the chain is still operating smaller innovation stores in Toronto and has expanded the test kitchen at its headquarters.

The store, Fulton said, was just “prime real estate on a downtown corner lot” that hasn’t had any foot traffic in nearly a year and isn’t likely to see customers return in the next several months.

“Of course, we didn’t want to close the restaurant in our building. It was a simple business decision,” he said. “I wouldn’t read more into the cafe’s closing other than it’s a downtown Toronto business reality in the middle of COVID and it really has nothing to do with what we’re finding in the back-to-basics plan.”