McDonald's just brought back its $1 coffee promotion, wonderfully timed to coincide with Tim Hortons' price bump. This obviously makes the latter look pretty bad in comparison, but their problems run deeper than that.
Tim Hortons have been coasting for a long time by co-opting Canadian national identity as their own, rather than relentlessly focusing on the customer experience and the quality of their products. Profits are down and franchisees are unhappy, but decades of marketing have managed to inextricably link Tim Hortons to people's idea of what it means to be Canadian. But that can only take you so far.
McDonald's, on the other hand, is the exact opposite – they have a rather bad public image, that of a guilty pleasure at best – but they constantly tweak and refine and introduce new things to their menu. They've been very aggressive in promoting their coffee, setting their sights on Tim's in particular given the similar price bracket (as opposed to Starbucks or Second Cup).
Tim's over-reliance on public image rather than its products is catching up to them, as are their competition. It's a shame, but why didn't they see it coming?