Caixin
Nov 09, 2020 07:36 PM
BUSINESS & TECH

Tim Hortons Eyes Techie, Mid-Range Coffee Drinkers in Rapid-Fire China Expansion

A Tim Hortons coffee shop in Shanghai, Oct. 17, 2020.
A Tim Hortons coffee shop in Shanghai, Oct. 17, 2020.

Two years after its arrival, Canadian coffee and doughnut chain Tim Hortons is going into high-caffeine mode in China in hopes of becoming one of the nation’s top three players over the next decade.

The model is typical for Western companies entering China. Such brands typically spend their first year or more developing a menu and format suited to local tastes, often in Shanghai, before stepping on the accelerator in terms of new store openings and movement into other cities.

In its case, the Canadian chain started by a professional hockey player of the same name is aiming to have 1,500 stores in China by 2028, China CEO Lu Yongchen told Caixin in an interview. That could be enough to make the chain one of China’s top three coffee chains by then, he added.

“We won’t expand without considering costs,” he said. “We definitely will wait until we’ve perfected the individual store model before going big. At the moment, the trends for all of our stores in the cities we’ve entered are all positive. But in terms of overall profitability, each city needs at least several dozen stores.”

The China operation headed by Lu is a joint venture announced in July 2018 between Tim Hortons’ parent, Restaurant Brands International, and partner Cartesian Capital Group. The venture has exclusive rights to open stores on the Chinese mainland. 

It opened its first store in Shanghai in early 2019, and moved later that year to the cities of Zhengzhou and Dalian, in Central Hebei and Northeastern Liaoning provinces respectively. This year, it has expanded to the Eastern Chinese city of Hangzhou, the capital Beijing and to Chongqing in the country’s Southwest. Next up is Shenzhen, the boomtown in Southern Guangdong province bordering Hong Kong. Its total store count now numbers more than 100.

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Unlike the pricier Starbucks, whose coffee typically costs 30 yuan ($4.54) or more per cup, Tim Hortons, which also goes by simply Tims in China, is aiming for a lower segment in the 15 yuan to 20 yuan range. That range is more typical among brands that are less known for coffee in China, such as KFC, McDonald’s and U.S. chain Dunkin’.

Lu said such a lower range is also more suited to second-tier cities where consumers typically have less discretionary income for products like coffee, explaining his choice of cities like Dalian, Zhengzhou and Hangzhou for expansion. At the same time, the company is taking a rapid-fire approach to opening new stores after entering each market to quickly raise awareness of its brand.

“Letting consumers see us at all times, having a certain density so they can see us everywhere, is a very important step,” he said.

While China looks attractive to big Western chains due to its huge size, experience has shown that time, big numbers of stores and localization are all important factors behind the success of names like KFC and Starbucks. Numerous smaller chains have come to the market with high hopes and failed, including names like Hooters. Other brands like Taco Bell and Popeyes have failed in early attempts at entering the market, though they have come back later for second tries.

In keeping with the customization strategy, Tim Hortons is also placing an emphasis on mobile interfaces for Chinese consumers who often prefer to buy their drinks online and have them delivered rather than drinking in stores. The company’s mini app on WeChat currently has more than 1 million members, who account for more than 80% of its sales. It also sells through the country’s two major online takeout services, Ele.me and Meituan, which collectively account for about 30% of orders.

“We know that mobile ordering is a major source for customers in the China market,” said Lu, a former senior executive with the China operation of Burger King, which is also operated by a joint venture between Restaurant Brands and Cartesian Capital.

Tim Hortons also began experimenting this year with takeout-focused smaller stores averaging 50 square meters to 75 square meters, about half the size of its usual sit-down stores. Lu said there’s still plenty of room for growth in the market because average coffee consumption is still quite low when compared with the West.

Starbucks and local imitator Luckin are currently China’s two biggest coffee chains, with the former boasting about 4,400 stores at the end of May. Luckin surpassed Starbucks at the start of this year following a massive expansion. But the company later became embroiled in a major financial fraud scandal that saw it delist in New York, and hasn’t updated its store count more recently.

Contact reporter Yang Ge (geyang@caixin.com)

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