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TheStreet Open House

Tim Hortons Coffee Can't Perk Up Burger King

Stocks in this article: BKWTHIDNKNSBUXPNRACMG

PORTLAND, Ore. (TheStreet) -- Burger King  (BKW) bought Tim Hortons for a lot of reasons, but the one that affects consumers most is likely the weakest.

It may have spent $11 billion (with help from Warren Buffett) to make Brazilian backers 3G Capital and owner Jorge Paulo Lemann a fortune, which is fine. Or the deal may have been made to dodge U.S. taxes and mandates for employee health care in favor of a new home country with a universal health care system -- which is certainly its right. It may have been a search for higher ground on the sinking island that is the quick-service food industry, which isn't all that great a move, really.

Read More: Olive Garden Is the Hill Darden Wants to Die On

But if it's to give the flagship chain better coffee while giving the company as a whole a means of ditching fast food for a foray into the fast-casual segment that's treating Panera  (PNRA) and Chipotle  (CMG) so well, then Burger King has a shorter memory than any of us could imagine.

Tim Horton's has been a welcome presence in Upstate New York and several Great Lakes states since the mid-1980s, but a push to expand its U.S. footprint back in 2010 slammed to a halt as it withdrew from Dunkin Donuts  (DNKN) territory and closed 36 stores in New England. The chain still has more than 800 locations in the U.S. -- up from 500 in 2008 -- but that pales in comparison to its more than 3,400 Canadian locations.

 

The same year that Tim Horton's hit the wall in the U.S., Burger King attempted to revamp its menu by offering coffee made by Starbucks subsidiary brand Seattle's Best. That not only failed to improve sales, but led to Burger King's $3.2 billion sale to 3G Capital later that year. But the Seattle's Best brand stuck around -- brewing a "Smooth Roast Coffee" especially for the burger chain last year -- and was soon surrounded pulled pork sandwiches, smoothies, sweet potato fries and even delivery in some markets back in 2012. As company-owned stores were sold to franchisees and sales improved, share prices more than doubled.

But its lack of breakfast sales and continued pummeling by McDonald's (MCD) , whose Egg McMuffin and McCafe coffee -- itself an upgrade from Newman's Own organic coffee that it used to give away for $1 -- still dominate fast-food breakfast. As other coffee competitors, including Caribou and Peet's, were bought up by German holding company Joh A. Bensicker in 2012 and both Dunkin Donuts and Starbucks expanded, Burger King saw both its breakfast options and burger niche -- now endangered by better-burger chains like Five Guys and Smashburger -- endangered.

Read More: Have American Consumers Become Snobs?

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