China Consumer

Starbucks brewing threat?

Tim Hortons enters the grinding war to lure Chinese coffee lovers


Wanna try a salted egg doughnut?

Starbucks’ hottest product in China this month isn’t quite what you’d expect. Known as the “Cat Paw Cup” it’s a translucent tumbler with a paw-sculpted interior. It was so popular stocks sold out in less than a day, while prices bid for it on auction websites surged as much as nine times to Rmb1,800 ($150). The subsequent release of 1,000 more mugs on the coffee chain’s Tmall store were likewise snatched up in a single second. The item was so highly coveted that brawls broke out among disgruntled patrons in queues outside Starbucks’ outlets.

Punch-ups aside, the positive PR around the Cat Paw Cup in China will buoy Starbucks executives who have been getting nervous about competitive pressures, particularly from the fast-growing Chinese upstart Luckin Coffee (see WiC418). And another challenger is joining the fray: Tim Hortons, which opened its first shop in Hamilton, Ontario in 1964.

Best known for its bite-sized doughnut “timbits” and “double-double” – a type of coffee with a double serving of both sugar and cream –Tim Hortons opened its debut store in China in Shanghai’s People’s Square last month. Adopting the name “Tims Coffee House” the Oakville-based café chain is pricing its offerings at just a yuan or two below Starbucks. Though cheaper, the sleek décor of its newest store aims to exude the vibe of affordable luxury and provide more of a draw than a standard Starbucks.

China’s potentially huge coffee market – which Starbucks began brewing for two decades ago – is still in its nascent stage. In the 25 years between 1992 and 2017, coffee consumption rose 12% on average each year, versus the global average of 2%, according to the London-based International Coffee Organisation. And yet coffee consumption per capita is just three cups a year (or no more than 20 in tier-one cities), compared to America’s 363 cups and the UK’s 250 cups. That supports Tim Hortons’ gameplan to open 1,500 Chinese stores over the next decade (Starbucks took 20 years to build its 3,600 outlets).

Despite the fraying diplomatic relations between Canada and China (see WiC439), Tim Horton has played up its Canadian roots in the Chinese market. Decked out in red and white – like Canada’s flag – the brand’s flagship shop is replete with maple leaf ornamentation (including latte art on its coffees) and a hockey stick door. Its décor will appeal to large numbers of Chinese that have lived or studied in Canada. Chinese students made up 28% of its tertiary international students, totalling 140,530 in 2017. In other words, one of Tim Hortons’ strategies is to lure overseas returnees who are nostalgic about their time studying in Canada.

Sceptics of Tim Hortons’ bold plans point towards the fierce competition in China, where existing rivals include Taiwan’s UBC Coffee, Costa Coffee from the UK, South Korea’s Zoo Coffee, McCafé (McDonald’s China franchise is controlled by state giant Citic Group) and Hong Kong’s Pacific Coffee (which is owned by another state heavyweight China Resources).

Other than these chains, there are thousands of boutique cafés selling artisan coffee, not to mention the rise of new-style teahouses such as HEYTEA (most famous for its naigai cha, meaning cheese-foamed tea) which are extremely popular among younger consumers.

Tim Hortons – whose Canadian menu is somewhat akin to Dunkin’ Donuts-meets-Subway (sandwiches) meets-KFC (chicken strips) meets-Starbucks – has learned from prior entrants that it must localise its offering. One such item is a mini-doughnut made with salted egg yolk, a Shanghai delicacy.

The localisation effort is supported by its partner Cartesian Capital, a private equity firm that has worked with Tim Hortons parent company Restaurant Brands – which also owns Burger King and Popeyes – and the Kurdoglu family, a long time Burger King master franchisee. Burger King currently has 1,000 outlets in China and plans to double that figure over the next three years.

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