Tims China reigns in outlet expansion amid ‘intense price competition’

Tims China reigns in outlet expansion amid ‘intense price competition’

The Shanghai-based operator opened just four net new Tim Hortons stores in the first quarter as it sought to reduce costs amid an ongoing price war among China’s largest coffee chains

Tims China operates 903 Tim Hortons outlets across the country | Photo credit: Tims China


 

Tims China’s cost saving efforts have delivered slender first quarter outlet and sales growth as the business faces ‘intense price competition’ in China’s branded coffee shop market. 

 

Shanghai-based Tims China opened 19 new Tim Hortons stores in the three months ending 31 March 2024 but closed 15 ‘underperforming’ company-owned stores. The business, which also operates 14 Popeyes restaurants in the east Asian country, now operates 903 Tim Hortons outlets. 


Tims China’s quarterly coffee shop outlet growth is at its lowest since launching in February 2019 and significantly below the 149 net new Tim Hortons stores opened in the fourth quarter of 2023. Although the chain said first quarters are ‘historically the weakest in terms of seasonality’, stalled outlet growth presents a significant hurdle for Tims China’s bid to reach 2,750 stores by 2026.    


Total first quarter revenues grew 3% year-on-year to RMB 346.8m ($48m) but fell 11% on the previous quarter and 21% on Tims China’s record RMB 436.4m ($59.8m) sales in the third quarter of 2023. 


The group’s operating loss fell slightly to RMB 129.4m ($17.9m) for the quarter, compared to RMB 130.4m ($19m) for the same period of 2023. 


“During the first quarter of 2024, and in the face of headwinds, we continued to enhance our operational efficiency. We pared back costs at the headquarter level, and we pruned our underperforming stores. These actions allowed us to deliver year-over-year reductions in food and packaging costs, rental expenses, and labour costs,” said Dong Li, Chief Financial Officer, Tims China. 


Tims China’s general and administrative expenses fell 17% during the period to RMB 58.7m ($8.1m), primarily driven by its decision to reduce headquarter staff count. Additionally, payroll, rental costs and food and packaging expenses decreased 5%, 4% and 2.5% respectively. 


In contrast, delivery costs grew 26% to RMB 28.6m ($4m) with Tims China reporting a 6% increase in digital sales and 8% rise in orders including food. 


“Going forward, and with driving profitable, and capital-efficient growth being front and centre of everything we do, we will continue to optimise our store unit economics and roll out our differentiating made-to-order fresh food preparation model to drive traffic,” Li added. 


Value-focused coffee chains have created a fiercely competitive landscape in China amid widespread heavy discounting and price undercutting. 


Market leader Luckin Coffee surpassed 18,500 stores in China in the first quarter after opening 2,340 net new stores during the period. However, the coffee chain’s ongoing price war with fast-growing rival Cotti Coffee has pushed the promotional cost of beverages to as low as 9.90 RMB ($1.37) per cup and contributed to Luckin’s first quarterly loss since 2021. 


In May 2024, Cotti Coffee’s Chief Strategy Officer Yingbo Li revealed the chain is preparing to freeze the price of all beverages at 9.90 RMB for three years despite heavy discounting taking a toll on franchisee profit margins. In April 2024, Li told Chinese media group Caixin that the chain would continue subsidising franchisees until the end of the year to ensure stores are profitable. 


While US-based Starbucks has asserted its premium offer in China and that it does want to be dragged into a price war, the coffee chain recently increased the number of discount coupons available on its app and third-party delivery platforms in the country, according to Reuters