Detonate

CHAPTER 4Dismantle Your P&L: Why Revenue Should Be the Last Thing You Worry About

In 1995, a then up‐and‐coming doughnut chain in Canada, Tim Hortons, was ripe for acquisition, and Monitor was helping a client evaluate its potential. The chain had declared publicly that its goal was to get to 2,000 stores by the year 2000. Clearly the price that anyone – our client or another bidder – would be willing to pay for Tim Hortons would be predicated on their faith in achieving this goal. Our team began investigating the assumptions underlying its sales targets.

Was 2,000 by 2000 anywhere close to an achievable goal? Canada had already, according to reports, the most doughnut stores per capita of any country in the world, and certain cities, such as St. Catherines, Ontario, and Moncton, New Brunswick, were particularly saturated – maybe as much as one doughnut shop for every 20 people. Figuring out just how many locations existed meant taking on the mind‐numbing task of obtaining the yellow pages for every major city in Canada from the Toronto public library and hand‐counting the doughnut chains in the listings. It took days.

The goal was to see what levels of saturation it would mean across Canada if Tim Hortons were to get to 2,000 by 2000. We assumed that if markets added doughnut stores, and Tim Hortons kept its share – or grew it modestly – then we could pressure test its growth assumptions. Naturally, our conclusion was that it was highly unlikely that Tim Hortons could make ...