Fast Food's Newest Combo Meal: Cold Stone and Tim Horton's

Posted by: Michael Arndt on February 06, 2009

Cold Stone Creamery boasts that it offers 11 million combinations of ice cream and mix-ins such as candies, nuts, fruit, and baked foods. Soon the premium ice-cream chain will feature even more.

On Feb. 6, Cold Stone and Tim Horton’s announced a partnership under which each will add the other in 100 franchised locations within 90 days.

If the combos generate expected sales—and two test-market restaurants suggest they should—Cold Stone could be serving Tim Horton’s coffee, donuts, and sandwiches at many more of its 1,450 sites by year-end, says Kevin Blackwell, chief executive of Kahala, a privately held company that acquired Cold Stone in 2007.

The partnership looks smart for these dour times. It’s a relatively cheap way to expand. Blackwell told me that remodeling a restaurant to make room for the second brand costs about 25% to 30% of what it costs to put up a new building.

The two-in-one concept isn’t brand new in fast food, of course. This isn’t even the first ice-cream-and-donut linkup: Dunkin’ Brands has outlets across the U.S. with both a Dunkin’ Donuts and Baskin-Robbins. And Yum! Brands has been at co-branding for a dozen years, with one-stop combos of its KFC, Pizza Hut, and Taco Bell subsidiaries.

Indeed, Tim Horton’s itself had more than 150 so-called co-locates with Wendy’s when it was owned by the burger company.

One difference is that this partnership joins two separate companies: Kahala, a Scottsdale, Ariz., that owns 13 restaurant chains, and Tim Horton’s, which is based in Oakville, Ontario, and had been a subsidiary of Wendy’s International until it was spun off in 2006.

Another: Many of the other two-in-ones maintain separate kitchens and counters, while sharing dining areas.

Blackwell told me he had been looking for a partner for a while when he bumped into Donald Schroeder, Tim Horton’s chief executive, a year ago at a restaurant industry gathering in Toronto.

The typical Cold Stone generates about $350,000 in sales a year. Blackwell’s goal is to raise that total to $500,000. The only way to do that is to generate traffic before 4 p.m., which is when people usually start buying ice cream. Tim Horton’s fit perfectly since its units do almost all of their business during breakfast and lunch.

The two CEOs agreed to test their idea in two Tim Horton’s in metro Providence, R.I.. Since those remodeled restaurants opened last fall, Blackwell says, they’ve exceeded revenue targets. “The two can operate under one roof simultaneously with a lot of synergy,” David Clanachan, Tim Horton’s chief operations officer, told me in a separate interview.

The next combo will open in Columbus, Ohio, on Feb. 7. The following 99 will be in Michigan, New York, Ohio, and Rhode Island.

For Tim Horton’s, the partnership may help it expand in the U.S. The company has 3,000 stores in Canada, but just 500 in the U.S., in 11 states in the Midwest and Northeast. Cold Stone runs from coast to coast.