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Tim Hortons' first restaurant in Shanghai, China.

The Globe and Mail

Can a salted egg-yolk Timbit help Tim Hortons make it in China?

That’s just one of the items that the Canadian-based coffee-and-doughnut chain will offer on Tuesday when it launches its first restaurant in China with an aim of expanding to 1,500 there in a decade. At the outlet in Shanghai, it is banking heavily on a Canadian image – such as a maple leaf in a prominent red-quilted wall hanging and a maple macchiato drink. But there are also some distinct Chinese touches, including the salted egg-yolk Timbit, shrimp sandwiches and a green-tea-based “matcha” latte produced especially for that market.

Alex Macedo, president of Tim Hortons Inc., acknowledged that the chain is a late arrival in China, where the coffee wars are fierce. They’re led by U.S.-based powerhouse Starbucks Corp., which has operated there for 20 years, as well as digitally savvy startups such as the local low-frills Luckin Coffee.

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Tim Hortons president Alex Macedo at the Hockey Hall of Fame Tim Hortons store in Toronto on Aug. 16, 2018.

Nathan Denette/The Canadian Press

“We’re coming in later than the others, but I think there’s enormous opportunity,” Mr. Macedo said in an interview at the company’s new downtown Toronto head office, also decorated with images of the maple leaf. “But we’re very confident that our coffee and our beverages in general will be very well accepted in China.”

For Tim Hortons, China is key to growth. The company is owned by Restaurant Brands International Inc., which also owns the Burger King and Popeyes Louisiana Kitchen chains. Tim Hortons is getting close to blanketing the café landscape in Canada, but is stalled in trying to gain traction in the important U.S. marketplace.

“Tims has to succeed in China if it is going to continue growing,” Jean-Pierre Lacroix, president of retail consultancy Shikatani Lacroix Design, said in a phone interview from Shanghai where he viewed the new Tim Hortons location while on a trip for another client. “The appetite for new brands is significant and, long term, China will be the centre of the business universe.”

The coffee-shop segment in China has exploded over the past decade or so, benefiting from a burgeoning coffee-drinking culture in a country that is known for its tea consumption.

Coffee-shop sales jumped by 235.8 per cent to almost US$4.5-billion between 2012 and 2017, according to researcher Euromonitor International. In 2017, top player Starbucks held 58.6 per cent of the market with 2,900 outlets, the data show. Today, Starbucks has closer to 3,700 cafés with a goal of about 2,400 more in the next four years. Much growth lies ahead, but at a slower pace.

Stuart Eunson, managing director of Arabica Coffee Roasters, said a young generation has grown up in a country more open to international trends and equipped with disposable income to pursue their tastes. “I think the opportunities here for Tim Hortons are almost unlimited,” he said.

But others have stumbled. China has been a graveyard for doughnut shops. Krispy Kreme tried twice and failed. Dunkin Donuts is now on its third attempt to build a presence in the country.

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“Chinese consumers like sweet beverages, but they don’t necessarily like sweet desserts that much,” said Benjamin Cavender, principal with Shanghai-based China Market Research Group.

He said Tim Hortons has “no name brand in China. Nobody knows who they are,” and it will be competing against better-recognized marques for retail space in shopping malls. To do that, “you have to either overpay or make some compelling marketing pitch to say you should choose us instead of them – but, by the way, the consumer has never heard of us so we won’t be driving traffic.”

Tim Hortons’s competition includes upstart Luckin, which is expanding at supernatural speed and plans to have 4,500 locations by the end of this year. It has pioneered a system of delivered brews that is upending the market, serving up a large Americano for as little as 85 cents.

Luckin is just one in a wave of companies desperate to caffeinate China. Local investors are pouring money into domestic names such as Coffee Box, FishEye Cafe and Greybox Coffee – the latter selling $9.40 cups of Ethiopian Guji in permutations such as tropical fruit and floral.

Meanwhile, an army of foreign-headquartered competitors is continuing to advance, such as British chain Costa Coffee, which has said it hopes to reach 1,200 locations by 2022.

Mr. Lacroix, who said he was “underwhelmed” by the new Tim Hortons restaurant in Shanghai, added the chain will need to build a presence quickly with dozens more outlets. And it will need to gain “bragging rights” because the Chinese are very aware of status symbols and like to boast about them on social media, he said.

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But Tim Hortons is taking a risk by opening its first store in China at a time of potentially volatile political relations with China, said George Minakakis, a retail consultant and former executive of eyewear chain Lens Crafters in China. Tensions were sparked in December when Huawei Technologies Co. Ltd. executive Meng Wanzhou was arrested in Vancouver at the request of U.S. authorities.

Tim Hortons’s Mr. Macedo said the company didn’t consider delaying its opening and is focusing on creating a premium-looking restaurant with wood finishes, comfortable seating and long communal tables – a friendly destination for lingering over a chicken and roasted pumpkin salad or a wrap made with Laffa bread rather than a tortilla, as is used in Canada. “We can’t control things that are not in our control,” he said.

He said Tim Hortons’s prices in China will be similar to industry averages in the market and up to 30 per cent lower than those at Starbucks – but higher than prices in Canada. For example, a medium-sized Tim Hortons hot brewed coffee costs $1.71 in Canada and $3.34 in China.

"We want to be the brand where you can go everyday,” he said. “We don’t want to be a brand where you go only on special occasions.”

He said Tim Hortons is not rushing its rollout in China, with 10 to 20 outlets planned for this year. The chain will borrow a leaf from the Chinese playbook in introducing digitally friendly features, including WeChat mobile payments and deliveries, he said. To raise its profile, it is considering sponsoring Timbits sports teams.

“There is not huge brand awareness but I think people understand what Tim Hortons is,” he said.

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