RBI Bets Big on China’s Burgeoning Coffee Market
Courtesy of Tim Hortons
Restaurant Brands International inked a major Tim Hortons development deal in the Chinese market. The multi-brand owner of Burger King, Popeyes Louisiana Kitchen and Tim Horton’s announced a deal to build 1,500 Tim Hortons locations across China in the next 10 years.
“China’s population and vibrant economy represent an excellent growth opportunity for Tim Hortons,” said Tim Hortons President Alex Macedo. “We have already seen Canada’s Chinese community embrace Tim Hortons and we now have the opportunity to bring the best of our Canadian brand to China with established partners.”
The deal is an “exclusive master franchise joint venture agreement” with some very established partners: the private equity firm Cartesian Capital Group. The group provided the capital for TFI TAB Food Investments operated by the Kurdoglu family. If that sounds familiar, it happens to be the largest Burger King franchisee in the world with more than 1,300 locations. In a 2012 deal, the family used Cartesian financing to grow the Burger King footprint in China from 85 to more than 900 locations with another 100 locations planned. There has been no word yet on the operating partner for the Tim Hortons push.
The second round of collaboration with Cartesian got investors excited. The stock rose nearly 2 percent on the news, the highest it’s been since November as stock buyers bought into the growth prospects of a new market. The move comes as RBI sees a slowdown for the Tim Hortons in North America. Tim Hortons same-store sales declined by 0.3 percent in the latest quarterly earnings filing, accelerating downward from a 0.1 percent decline in the prior quarter. It’s also facing higher costs of sales in home markets. The brand is also in the midst of a franchsiee dispute.
Time will tell if China is ready for a brand like Tim Hortons. According to the International Coffee Organization, the average Chinese citizen drinks just five or six cups in a year, and most of those consumer drink instant coffee at home.
That does mean plenty of white space, and Starbucks has had some success in the country by positing itself as a luxury brand. According to Euromonitor data, Starbucks controls 55 percent of the specialist coffee shop market but boutique coffee shops pop up at an explosive rate. Shanghai alone has an estimated 6,500 shops. And on the same day RBI made the announcement, Chinese coffee startup Luckin Coffee raised $200 million to propel its own coffee market domination goals.
Those are strong signals that China’s coffee culture is ready to expand, but it’s unlikely that RBI will find the daily caffeine addicts that typically fuel the brand.