The “Horton Bear Hug” is Coming to a Town Near You

The following article appeared in the July/August 2022 edition of Cannabis Retailer Magazine. For the full article, please check out the link here.

Imagine you’re driving down the 401 on a sunny afternoon. The road is dry, your tank is full, and traffic is relatively light - a somewhat shocking, but appreciated, surprise. You’re headed to a hockey tournament or a cottage or to see family: whatever the destination, it’s a fun one. The only thing that would improve this situation is a coffee in that empty cup holder. But from where?

Statistics would say that the majority of us reading that questions likely think of one of two places: if you’re like me and grew up outside of Toronto, you immediately thought of Tim Hortons; if you’re from Toronto, you thought of Tim Hortons and then wished there were more Starbucks options along the 401 (not to worry, Onroute is adding more for you!). Love them or hate them, 8/10 cups of take-out coffee in Canada are purchased at a Tim Hortons and they’ve ingrained themselves in our minds. But was “Tim Hortons” always synonymous with “coffee shop” in Canada?

Without mentioning the coffee chain that continues to propel his legacy around the world, Tim Horton, the hockey player, is remembered for his many impressive on ice accomplishments in the NHL. But what many of us wouldn’t know about is the “Horton Bear Hug”. If a skirmish occurred on the ice, Horton had a knack for taking control of the situation by holding onto one of the instigators of the “disagreement”, in a hug of sorts, and squeezing until the individual succumbed to the inevitable. This was the “Horton Bear Hug” and presumably, given Horton’s strength, resulted in many a man giving up when they ran out of oxygen. 

Ron Joyce, Horton’s partner in Tim Hortons coffee chain, wasn’t an NHL star, but leveraged his own version of the “Horton Bear Hug”. When Horton died in 1974 and Joyce purchased Horton’s share of the coffee chain from Horton’s estate. At the time, after a decade of efforts from the combined group, there were only ~35 locations open. The 500th Tim Hortons location opened in 1991 and the 1,500th location opened in 1997. 10 years for the first 35 locations, 17 years for the next 465 locations, and six years for the next 1,000. Not bad. But wait, weren’t there already other places for folks to buy coffee in the 1990s? Enter the “Horton Bear Hug”.

Tim Hortons was one of the players at the forefront of the Canadian craze for coffee and donuts from the 1970s onward. That meant there were countless competitors working the Canadian market to capture share in areas not yet served by Tim Hortons. These independent or smaller chains of coffee shops would serve their communities, but in doing so, they would also pave the way for Tim Hortons to understand the viability of a new market, should they enter. Tim Hortons would have the option to work with the independent coffee shop owner to convert to the Tim Hortons brand or move in across the street and compete head-to-head with them - “hug” until the competition succumbs to the inevitable. The result is a clear dominance in the Canadian market.

This is not an unusual tale in retail. We’ve seen similar strategies utilized in other channels we shop: grocery (Loblaw and Empire); electronics (Best Buy and The Source); discount department (Walmart); hardware (Home Depot and Home Hardware). The list goes on: as a market and channel mature, consolidation occurs and other players run out of oxygen, leaving a couple major players with the lionshare of consumers’ wallets. 

Now, if I adjusted the original highway driving example to asking about cannabis retail? Depends on where you are in the province/country, but assuming you’re in a province with private retail, the answer could be any number of banners. No single player has such dominance that we, as a consumer group, automatically (statistically) think of their name when asked about a cannabis store. Yet.

Tim Hortons is 58 years into its charge in the coffee space; Loblaw has 103 years serving groceries; Home Hardware has been serving communities for almost 60 years. And people have been buying coffee, groceries, and tools for much longer. In fact, for food and tools, the tenure of trade is counted in the thousands of years. So there was considerable refinement that went into the respective markets before these specific banners were ever a fleeting thought. The first legal recreational cannabis retail transaction in Canada happened about ~1,300 days ago. It’s fair to say we’re still in the refinement phase. And consolidation is, like the “Horton Bear Hug”, inevitable.

Who will do the consolidating of the cannabis retail market? Are there players already in the space now that will reign supreme in 20 years? Will there be new comers that enter a decade from now when the regulations have been refined and the business is more viable i.e. less taxes and fees to allow businesses to actually earn this elusive thing called “a profit”?

It’s anyone’s guess. Of course, this is to say that consolidation will take time: there will likely be lots of exciting headlines and plenty of transactions and store closures, but there are literally thousands of stores operating in Canada under hundreds of banners. Each transaction start to finish, with lawyers involved and regulatory reviews, can span three to six months from agreement in principle to completion of ownership change (yes, there are exceptions to this rule). And many of the legal, accounting, and regulatory elements of the deal are the same lift whether the deal is for one store or for 10 stores: assuming a consolidated structure for the 10 store package, the incremental effort over a one store transaction is relatively small. Thus, the biggest players in the market, the ones we keep hearing about in other articles, would seem more likely to look for larger deals that can have a meaningful impact on the scale of their portfolio. While the smaller players, who possess the ability to complete transactions swiftly and find efficiencies to best serve guests, will have the unique ability to conduct roll-up plays to eventually serve up to the larger entities. 

As with the first few years of the legal cannabis retail market, these next few years will be exciting. My hope is that consumers remain at the forefront of the consolidation: consumers vote with their wallets and whatever they like best should be what thrives into the future. But we know there will be some learnings before we reach proper maturity. 

Let’s hug it out.