How Canadian Coffee Giant Tim Hortons Has Brewed Success in China

In February 2019, one of the iconic brands from Canada, Tim Hortons (which has more than 4800 locations in Canada and around the globe), debuted its very first coffee house in Shanghai. It instantly drew large crowds and long queuing line, but as anticipated, as any foreign brand’s “Virgin Opening” in China coupled with substantial discounts, tends to arouse overwhelming excitement from the local consumers, such as the recent ecstasy over “deflowering” Costco’s first supermarket in Shanghai.

The bottleneck issue is how long such lust toward foreign brands will sustain in this ultra digital-centric and intensely competitive consumer market?

Fortunately, the top management team of Tim Hortons China is very much localized and at least knows how to play the game properly, no longer a bunch of western background executives or foreigners pretending to wear the wig of “China Expert” to figure out the road map and digital strategy for the company. The China CEO is a native Chinese who has hatched out an aggressive plan.

Just 20 days after the first store in Shanghai, the second Tim Hortons in China soon followed. 50 days later, the third one came into the public eye. The goal is going to roll out 30 coffee houses in Shanghai by the end of 2019, and probably 1500+ chain stores across China in the next 10 years.

After all the core of the coffee chain business is all about scaling up.

Its current strategies can be summarized below:

  • Its coffee pricing benchmark is set to be cheaper than Starbucks but more expensive than Costa
  • Its food menu should retain 70% of the global product; the rest of 30% should be specifically developed and tailored to the Chinese customers
  • The selection of store location in Shanghai is usually situated in the central shopping area, which attracts traffic flow yet incommensurate with the rising rental
  • The store decoration is aiming at the style of comfortable and elegant as part of branding features and this can come as a no small cost as well
  • It is said now 80% of its sales revenues are contributed by loyalty membership, which means maintaining the repetitive purchase rate should be its main focus
  • It puts strenuous efforts on building the digital infrastructure for the brand. Its IT division is even very open-minded to sign a contract with a local leading BI startup, ditching traditional western BI tools to consolidate, visualize and analyze the data from CRM, product, store operation, inventory, etc so as to have a birds-eye view to monitoring the progress.

Its China CEO, Lu Yongchen, is said to hold the caliber of accomplishing the grand vision. He was the former CFO of Burger King China, the sister brand of Tim Hortons under RBI group, which is already establishing the network of 1000+ restaurants in the country via the franchise model. In an article by China Daily, Lu explained that coffee consumption in China is till relatively low: “Chinese customers only consume an average of five cups of coffee per year. In cities such as Shanghai, consumers drink about 20 a year.” Lu perceives this as meaning that the China market has large potential to grow in comparison to more mature coffee markets like North America, Japan and Europe.

Still, coffee business in China is destined to be the frothy pond and the entry of Tim Hortons  into China immediately faces 4 types of arch-rivals; in particular, the native-born, internet brand Luckin Coffee.

Today, Luckin should be the most buzzing and controversial player, often appeared in the media debate on the coffee war with Starbuck. Despite some critics’ disdain on its coffee taste, the deficit-ridden company is adept in bombarding customers with glaring advertising & massive coupons incentives while adding the convenience of in-app purchase and offline delivery. On top of that, the expansion of its brick&mortar is at the pace of opening 7 stores per day solely relying on the mechanism of direct operation. Now all these cash bonfire tactics can be fueled by the after IPO money from Wall Street (Luckin stock surged 54% in November).

In the short run, Tim Hortons is not going to be profitable, either. But it seems to lay some good groundworks for a marathon run in China.

By: Cecilia Wu