This is an English adaptation of a FoodBud historical article originally published on November 5, 2021.
On October 29, 2021, Tim Hortons China, referred to as Tims China, announced that it had reached 300 stores in China. Its 300th store opened in Tianjin.
The chain’s China store-count milestones were:
Tim Hortons is a Canadian foodservice company with 56 years of history and is described as Canada’s national coffee brand and the country’s largest quick-service restaurant chain.
Tims China was established in 2019 as a joint venture between Cartesian Capital Group and Restaurant Brands International Inc. Cartesian Capital Group is the controlling shareholder. The brand entered the China market that same year.
After entering China, Tims Coffee developed close ties with Tencent. In May 2020, reports said Tims had received a strategic investment of more than RMB100 million from Tencent. On February 26, 2021, Tims China announced a second financing round, led by Sequoia China, with Tencent increasing its stake and Eastern Bell Capital participating.
Its board at the time included four directors from Cartesian Capital Group, one from Tencent, Meizi Zhu, one from Sequoia Capital, Eric Wu, also known as Wu Haibing, and one from RBI.
In August 2021, Tims China planned to list in the United States via SPAC. Silver Crest Acquisition Corp. signed a merger agreement with Tims China, valuing the company at about US$1.688 billion including debt. The deal had previously been expected to close in the fourth quarter of 2021, but could be delayed to the first quarter of 2022.
The transaction was expected to bring US$345 million in cash to the new company, with an overall valuation of US$2.033 billion. After the merger, existing Tims China shareholders would hold 80.2%, SPAC shareholders 16.4%, and the sponsor 3.4%.
According to Silver Crest Acquisition Corp.’s Nasdaq filings, the investor story for Tims China rested on three main themes.
As with most coffee-chain capital stories, the first argument was that China’s per-capita coffee consumption remained low while the market was still growing quickly. The pitch emphasized incremental demand.
Tims China’s materials used North American coffee chain Dutch Bros as a benchmark. Dutch Bros went public at US$23 per share and had risen to US$69.71, with a market capitalization of US$11.38 billion, at the time of the article.
Tims China planned to reach 2,753 stores in China by 2026.
Cartesian Capital Group had also led Burger King’s entry into China, where the brand had more than 1,200 stores by September 2020. With Tims China, Cartesian again brought in partners including Tencent and Sequoia Capital.
Tencent’s support was mainly in digitalization and IP collaborations. For example, in August 2021, Tims opened its first upgraded esports coffee flagship store in Shenzhen in partnership with Tencent Esports.
Sequoia’s Wu Haibing brought 20 years of experience in corporate strategy, financial management, capital markets, and consulting. He had been a partner at Jeneration Capital and, before that, CFO of 7 Days Inn, later renamed Plateno Group in 2014. He helped lead 7 Days Inn’s 2009 NYSE listing, its 2013 delisting, and Jin Jiang Hotels Group’s 2016 equity acquisition of Plateno Group. That background was expected to support Tims China’s chain expansion and listing path.
Tims China said digital revenue accounted for more than 70% of sales. The order mix was:
As of June 2021, Tims China had 3.9 million loyalty members. In the second quarter of 2021, mobile orders totaled about 3 million.
In the first half of 2021, Tims China reached 219 stores, adding 82 net new stores during the period, up from 137 stores in 2020. According to GeoHey brand-monitoring data cited in the article, Tims China had already reached 308 stores. Even if it met its plan to exceed 2,700 stores by 2026, the gap with Starbucks and Luckin Coffee would still be large.
As of December 31, 2020, Tims China’s full-year revenue was about RMB212 million, with a net loss of about RMB143 million. Revenue in 2019 was RMB57 million, while estimated revenue for 2021 was RMB671 million.
After entering 2021, performance increased significantly. First-quarter 2021 revenue was RMB103 million, close to half of full-year 2020 revenue. However, as store count increased, same-store sales growth showed signs of slowing. According to documents disclosed in August 2021, Tims China’s same-store sales grew 42.5% in the first quarter of 2021, but slowed to 34.8% for the first half of 2021.
Tims China’s plan projected revenue of RMB7.637 billion by 2026. By December 31, 2021, its store count was expected to exceed the original plan of 388 stores and reach 489 stores. By 2026, the plan was to increase the China store base to about 2,753 stores.
Based on 2020 revenue of RMB212 million and 137 stores, average annual revenue per store was RMB1.547 million.
For comparison:
Using those figures, Starbucks’ annual revenue per store was RMB4.362 million, while Luckin’s was RMB1.078 million.
Tims China’s main formats were standard stores, Tims Go stores, and a small number of themed stores and Tims Lab creative experience stores.
Tims Go was similar to the compact-format stores explored by Starbucks and other coffee chains in recent years. These stores had smaller footprints and focused on mobile ordering, delivery, and pickup, giving them higher sales per square meter. Standard stores were generally located in comprehensive shopping centers and malls.
Tims China’s unit model was:
For Tims Go, with a footprint of 20 to 50 square meters, annual revenue of RMB1.75 million would imply annual sales per square meter of about RMB50,000, which the article described as A-level or even S-level performance.
For standard stores, including Golden Maple and Red Maple formats, Golden Maple stores were above 200 square meters, while Red Maple stores were 100 to 150 square meters. Taking 175 square meters as an average, based on a Shenzhen first store of 250 square meters, and annual revenue of RMB4 million, annual sales per square meter would be about RMB23,000. Compared with Heytea, Nayuki, and Starbucks, that productivity was low. The article cited annual sales per square meter of about RMB80,000 for Heytea, RMB50,000 for Nayuki, and RMB43,000 for Starbucks standard stores.
Tims Coffee’s China development was still mainly based on franchising, but Tims China CEO Lu Yongchen had publicly said that, to ensure food safety and management standards, Tims Coffee would continue to prioritize self-operated stores. In lower-tier cities, if company-operated expansion in nearby cities went smoothly, the company would experiment with franchised stores.
Across tea and coffee chains, the common pattern was large stores for brand-building and small stores for market-density expansion. A mall could host a Starbucks and still make room for another space-oriented coffee brand, but Tims China’s data suggested it still needed a sharper unit model.
Lu Yongchen also emphasized in investor roadshows that Tims China’s digital capabilities were stronger than those of players such as Starbucks. But in China’s coffee market, Luckin Coffee remained the benchmark for digital operations. After its accounting scandal, Luckin moved to the pink sheets, but its share price continued to rise in 2021, largely because its store operating capability and digital execution still led many players in the market.
Tims China also hoped to differentiate from Starbucks by improving meals and desserts. The article argued that this would not be enough. As store scale grows, revenue-generation efficiency per store tends to decline. The larger question was how Tims China could keep refining and building a sharper store model.
Note: IPO, valuation, financing, SPAC timing, store-count targets, revenue targets, and forward-looking operating figures are historical as of the article’s November 5, 2021 publication date.