Feb. 6 (Bloomberg) -- Tim Hortons Inc., Canada’s largest restaurant company, and ice-cream chain Cold Stone Creamery will create 100 co-branded stores in the U.S. to expand sales throughout the day.
A three-month test of two stores in Rhode Island led to a double-digit percentage gain in sales, said Kevin Blackwell, chief executive officer of Cold Stone parent Kahala Corp. The companies are also developing menu items that incorporate products from both restaurants.
Tim Hortons is looking to broaden its American presence after a third-quarter loss in the U.S. prompted them to shut 15 locations in New England. The coffee-shop chain competes with McDonald’s Corp., Starbucks Corp. and Dunkin’ Donuts Inc. at its 500 U.S. locations. Cold Stone, which allows customers to choose from a variety of toppings to mix with their ice cream, wants to expand customer traffic during mornings and midday.
“This truly hits that morning and lunch day-part that will help drive sales,” Blackwell said in a telephone interview yesterday. “The results have been fantastic.”
The companies are testing product combinations, including Tim Hortons coffee with a scoop of Cold Stone’s French vanilla ice cream and a muffin a la mode, said Lee Knowlton, chief operating officer of Kahala. The co-branded stores may feature the new items within four to six weeks, he said.
Doughnuts, Ice Cream
The restaurants are expected to open in the next 90 days in the northern U.S., stretching from Maine to Michigan. The companies will work with franchisees to build Cold Stone stores within 50 Tim Hortons locations, while another 50 of the coffee shops will go into the ice cream parlors. The renovations are expected to cost about $100,000 per location, Blackwell said.
During mornings, the menus will primarily focus on Tim Hortons coffees, doughnuts and pastries, with some information on Cold Stone’s ice-cream cakes and pies, before shifting the emphasis by evening, Blackwell said. He hopes to duplicate or top the double-digit sales gains from the first two stores as the warmer weather approaches. The companies may expand the venture based on how the initial 100 stores perform, he said.
“The brands are very complementary,” said David Clanachan, chief operating officer of Tim Hortons. “It’s not cannibalistic. We’re not fighting for the same food-service dollar.”
Tim Hortons, based in Oakville, Ontario, rose 10 cents to C$29.90 at 4 p.m. in Toronto Stock Exchange trading. Kahala, based in Scottsdale, Arizona, bought Cold Stone Creamery in 2007. The closely held company owns 13 brands including Ranch 1 Grilled Chicken and Blimpie sandwich shops.
To contact the reporter on this story: Courtney Dentch in New York at cdentch1@bloomberg.net.
To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net.
Tim Hortons, a popular Canadian express coffee and doughnut chain, has announced that they will be co-branding with another popular chain, Cold Stone Creamery, an American ice cream parlor chain.

The deal includes a total of 100 new stores, at CA$121,690 (US$100,000) each.  Each company will have 50 stores that they will build as, or convert into, dual-operation franchises.  Each of the 50 stores will offer menus from each company and be located in 7 states, mostly in the Northeastern U.S.. 

Executives at Tim Hortons believe that mixing the two together is perfect because Tim Hortons makes most of their profit in the morning, while the Creameries are more popular in the evening. The idea proved successful when tested for three months in Rhode Island, in two different stores.

"We're very excited about the complementary daypart piece. It's something unique in what we see from a co-branding perspective," said Tim Hortons chief of operations, David Clanachan. Construction has already started and stores are expected to open in May.

Tim Hortons was founded by Canadian ice hockey player Tim Horton. The first store opened in Hamilton, Ontario in 1964. In July of 2007, there were over 2,700 locations in Canada and 500 in the U.S.. Cold Stone Creamery was founded in 1988 in Scottsdale, Arizona. There are over 1,400 operation, in locations such as Japan, South Korea and the U.S..