Tencent-backed Tims China, the Chinese venture from coffee giant Tim Hortons, saw its revenue increase 67.9% to RMB 182.1 million ($25.5 million) for the third quarter of 2022, while its net loss widened by 72.4% from last year to RMB 195 million, according to the firm’s first financial report since listing on the Nasdaq following a SPAC merger in September.
Why it matters: The nearly 70% revenue growth in the third quarter shows the Chinese arm of Canadian coffee shop Tim Hortons’ aggressive expansion plan has already translated into sales figures, with the company’s adjusted store earnings margin seeing an increase of 4.1%. However, it remains to be seen whether Tims China can maintain the momentum.
Details: Tim Hortons has a total of 486 stores in China as of September, covering 27 major cities. Tims China opened 46 new stores between June and September, on average opening one store every two days.
- The company’s operating expenses grew significantly with the increase in the number of stores nationwide. Company-operated store costs and expenses increased by 36.3% to RMB 299.9 million in the third quarter, while its marketing expenses saw a 70.5% increase to RMB 24.9 million, with the figure accounting for 8.1% of total revenue.
- Covid resurgence and strict control policies in China continue to hit retail sales in the country. Tims China reported reduced operating hours and temporary store closures in the quarter. The financial report pointed out that the firm temporarily closed an average of approximately 23 stores per day during the period, though this was better than the 138 stores closed per day during the previous quarter.
- Lockdowns have also led retailers in China to become more flexible with their sales channels. Tims China’s home-delivery orders recorded an increase of 111.1% compared to the same period last year as consumers’ reliance on delivery services soared.
Context: According to Chinese market research firm iiMedia Research, the market size of China’s coffee industry is expected to maintain a 27.2% annual rise in growth to reach RMB 10,000 billion by 2025. The huge growth potential of the Chinese coffee market has led major domestic and international coffee brands to regard the world’s second-largest economy as a significant growth frontier.
- Tim Hortons’ competitors in China are also expanding in a yet-to-be-fully penetrated coffee market. Starbucks opened its 6,000th store in the country this September, and local coffee brands backed by domestic venture capital including Luckin, Seesaw, and Manner Coffee have all witnessed huge growth in the past few years.
- As it continues to expand its number of stores, Tims China is also actively partnering with local grocery retailers to leverage their influence to create new avenues of revenue growth. For example, the coffee shop operator plans to bring bottled coffee drinks to Alibaba’s Freshippo consumers in China starting this December, following similar moves by Starbucks and Costa, whose bottled drinks are available in convenience stores and supermarkets in most major Chinese cities.
- Statistics from market research company Statista show that Starbucks Coffee held the largest share of the freshly ground coffee market in China at 36.4% in 2020, followed by Luckin Coffee and Costa with 6.8% and 2.3% respectively. Tim Hortons held just 0.5% at the time.