(By Xia Fenglin, Edited by Zhou Fangyuan)
Can Canadian National Coffee make it in China? Who should they benchmark against and how should they compete?
This has been the question that Lu Yongchen, a professional manager who joined Tims China in 2019 during the "pre-pandemic era," has had to answer continuously.
On one hand, the capital market has limited patience. The stock price of Tims China (NASDAQ: THCH) has long been trading in a narrow range between $2 and $3, with its market value shrinking from a peak of $1.4 billion to less than $100 million.
On the other hand, the fierce competition in China's coffee market is evident. By 2024, China's coffee industry scale expanded at an annual compound growth rate of 17.14%, reaching 265.4 billion yuan. Up top, global leader Starbucks maintains a market value consistently above $90 billion while engaging in market expansion and price wars. Down below, domestic newcomers Luckin Coffee and Cotti are already competing on a scale of tens of thousands of stores. Meanwhile, new players like Miaxue Bingcheng and Wangbaicha Ji have entered the scene, reducing the differentiation strategy space.
For Tims China, everyone knows that to maintain real competitiveness in the market, burning money for economies of scale is a necessary path, yet seemingly a dead-end path. The international capital group RBI does not have the resolve to take drastic measures nor the patience for delayed gratification.
All these factors combined lead to an interesting latest financial report: the company's revenue decreased by 10.8% year-over-year to 1.391 billion yuan in 2024, with a net loss reduced by 53.15% year-over-year to -409 million yuan, showing significant improvement in profitability.
However, upon closer examination of the underlying logic, various challenges become apparent—continuing losses sustained through financing, expanding scale but unable to match the scale effect of ten-thousand-store-level competitors, attempting to enter the lower-tier market without abandoning high pricing, and the differentiated positioning of warm food coffee shops facing localization and low-barrier tests.
The Chinese market is no longer a paradise where simply hanging a foreign label can easily allow entry and harvesting.
Operating for years without profit, relying on shareholder capital injection to survive
Tims China's 2024 financial performance shows total revenue of 1.391 billion yuan, down 10.83% year-over-year, with a net loss of 410 million yuan, although narrowed by 53% year-over-year, the scale of losses remains significant.
It is worth noting that Tims Tianhao China, as the main entity of Tim Hortons' China business, entered the Chinese market in 2019. However, after years of operation, it has never achieved profitability.
Under continuous losses, Tims China's financial condition is concerning.
According to Dongxincai Choice data, the company's total assets are 1.564 billion yuan, while total liabilities reach 2.397 billion yuan, making it insolvent.
Luckily, Tims has continuous financial support from its overseas parent company.
In July 2024, Tims Tianhao China announced receiving a total of $65 million in financing and additional funds from its founding shareholders, Cartesian Capital and RBI (Restaurant Brands International Inc.).
Public records show that Cartesian Capital, founded in 2006, is a global private equity investment fund managing over $5 billion, primarily investing in emerging international markets. RBI was established in 2014 and is one of the largest fast-food companies globally, owning four globally renowned fast-food brands under its umbrella: Burger King, Tim Hortons, Popeyes, and Firehouse Subs. Its system-wide annual sales approach $45 billion, operating more than 32,000 restaurants in over 120 countries and regions.
In July 2018, Cartesian Capital and RBI Group jointly established a joint venture to hold exclusive franchise rights for Tim Hortons in China, known as Tianhao China.
This $65 million is divided into two parts: one part is a $50 million convertible bond obtained by Tims Tianhao China, of which $40 million will be paid upfront, with the remaining portion payable within seven months under certain conditions. Another $15 million payment went to Tims Tianhao China from a subsidiary of RBI acquiring the Popeyes China business.
In fact, since entering the Chinese market, Tims Tianhao China's entire expansion process has been inseparable from capital assistance.
In 2020, it received strategic financing of hundreds of millions of yuan from Tencent; in 2021, Sequoia China led the second round of financing; and in March 2022, a PRE-IPO financing of $194.5 million allowed this four-year-old enterprise to quickly accumulate capital.
Regarding its own profitability, Tims Tianhao China stated that in 2024, through measures such as closing loss-making stores, establishing a strategic focus on franchising operations, enhancing supply chain capabilities, and optimizing operational efficiency, "the company's profitability has seen significant improvement."
Nevertheless, Tims Tianhao China's financial situation in 2024 remains bleak.
Franchise expansion fails to mask 'economies of diseconomy,' trapped in a dilemma of differentiated competition
To improve profitability and financial health, Tims Tianhao China intensified its efforts to open franchises in 2024.
Since entering the Chinese market in 2019, Tims Tianhao China has primarily operated directly-owned stores. Additionally, prior to September 2023, it opened some franchise stores through partnerships with companies like Liangpin Puzi, Sinopec Yijie, and 21st Century Property Management. It wasn't until September 2023 that it announced the opening of single-unit franchises in Beijing and Shanghai, adopting another small store model, namely Tims Go (Jiefeng Store).
In May 2024, Tims Tianhao China further announced the nationwide opening of single-unit franchises. This time, it offered more franchise incentives, giving franchisees not only more store type choices but also lower加盟 prices.
As of December 31, 2024, Tims Tianhao China had a total of 1,022 stores, including 576 company-operated stores and 446 franchise stores. This is one year later than the expected thousand-store scale by Tims Tianhao China's management in 2023.
On one hand, in first- and second-tier cities, the coffee market competition becomes increasingly intense—Starbucks dominates the premium market with its brand advantage, while Luckin Coffee and Cotti expand rapidly with high cost-performance ratios. Fast-food giants like McDonald's and KFC also leverage their mature supply chains and store networks to capture market share.
It is understood that in 2024, many of TIMS Tianhao China's closed stores were directly operated stores located in first- and second-tier cities such as Beijing, Shanghai, Tianjin, Nanjing, Qingdao, Dalian, Xiamen, and Ningbo. These cities have relatively high rent and labor costs, and in cases of poor performance, high operating costs further exacerbate store losses.
In the second quarter of 2024, after closing 34 self-operated stores, Tims China achieved its first positive adjusted EBITDA in that quarter.
Adjusted EBITDA refers to the actual gross earnings generated by the company's operating activities, directly reflecting the quality of the business itself, and is one of the important indicators for measuring the company's operational benefits and profitability.
On the other hand, in the seemingly promising lower-tier markets, Tims Tianhao China faces similar challenges. Despite considerable market growth potential, the top brands have already preemptively laid out their strategies. Tims' brand influence neither matches the deep-rooted legacy of KFC and McDonald's nor rivals the贴近lower-tier market consumer preferences of Luckin Coffee and Cotti. In terms of product positioning, it awkwardly falls between Starbucks and Luckin Coffee, also facing encirclement by numerous coffee brands such as Manner and M Stand.
To accelerate expansion, Tims Tianhao China launched the "county-level franchise" plan, reducing individual store sizes and lowering investment costs. At the same time, to adapt to the purchasing power of lower-tier cities, it developed high-value product combinations, such as 9.9 yuan freshly ground coffee + 5 yuan bakery package, while retaining core best-sellers like bagels. However, the low-price strategy, while boosting sales, further compresses individual store profits, making the contradiction between scale and profitability more pronounced.
To subsidize the price wars in lower-tier cities, Tims Tianhao China raised prices for signature products like bagels during the reporting period, with increases ranging from 1 to 2 yuan. This also sparked consumer complaints on social media platforms, potentially leading to customer attrition and loosening Tims' "cost-effective" tagline.
On the other hand, the "coffee + warm food" product combination protection moat is shallow and easily replicable and substitutable. Starbucks introduced a 9.9 yuan combo with bagels during breakfast hours, while McDonald's diverted Tims' lunch scene with low-priced burgers.
Moreover, there may be structural contradictions in this product combination. Lu Yongchen,在接受 media interviews, stated that the gross margin of food is indeed much lower than that of beverages. It might be inferred that Tims' warm food has a lower gross margin than coffee. Although Tims China did not separately disclose the specific revenue contribution of warm food categories in 2024, the proportion of warm food orders has increased to more than 50%. As the scale of warm food categories grows, its dilutive effect on overall profitability becomes more apparent.
Trapped in a profitability dilemma, stock price long-term low-level consolidation
In the challenging competitive environment both internally and externally, Tims Tianhao China's vision of having 2,750 profitable stores by 2026 seems arduous.
The market's patience is gradually waning, with Tims' stock price lingering in the $2-$3 range for a long time. Its market value has shrunk from a peak of $1.4 billion to less than $100 million, forming a stark contrast with its initial valuation at listing.
This is behind the loss of market confidence in its growth story. Despite repeated emphasis by management on medium- and long-term strategies, the lack of substantial improvements in profitability and scale breakthroughs makes the future prospects of this coffee chain increasingly vague.
More importantly, the absence of a profitability turning point raises questions about whether RBI is willing to continue funding to drive store expansion. On one hand, RBI Group has clearly stated its intention to "deeply participate in Tims Tianhao China's operational decision-making," but whether this commitment can consistently provide substantive resource tilts to Tims Tianhao China remains uncertain. On the other hand, whether Tims Tianhao China's franchising expansion strategy can如期迎来 a profitability turning point is still unknown. If same-store sales growth cannot be achieved in 2025, whether RBI Group will adjust its investment strategy or even reduce risks through equity restructuring will become a focal point of market attention.
When Tims first entered the Chinese market, it positioned itself differently with the "coffee + warm food" concept, coinciding with Luckin Coffee's rapid rise in the fast-fashion coffee sector. At the time, it was once viewed as a new option outside the Luckin model.
However, today, compared to Luckin Coffee, Tims Tianhao China lags far behind in both store scale and profitability.
Ongoing losses and weak expansion have gradually eroded market patience, despite attempts to cut costs through franchising and joint marketing campaigns. The deficits in the financial reports remain glaring.
Tims China's predicament is both a microcosm of the coffee track's internal competition and a typical case of an international brand's localization transformation. From "high start low finish" to "lying flat for survival," Tims needs to reassess its positioning and find a new fulcrum between scale expansion and profitability balance, localization innovation, and cost control. Otherwise, what awaits it may not only be continued sluggish stock prices but also the risk of being completely marginalized by the market.
Original source: https://www.toutiao.com/article/7506359763152765452/
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