To succeed in the already crowded Chinese coffee market, Tim Hortons will need to localize its approach, focus on offering premium experiences, cater to new consumption habits like delivery service and creatively interact with its consumers.
That’s the tall order put forward by branding experts following the opening of the Canadian brand’s restaurant in Shanghai on 26 February—the first of a planned 1,500 locations that it hopes to open over the next 10 years.
Alex Macedo, president of Tim Hortons, said in a media statement that “China is an attractive growth market, and we can’t wait for guests to try our classic favourites and some new offerings crafted specifically to the Chinese market.”
While current geopolitical tensions between China and Canada aren’t necessarily a factor (witness the success of outerwear brand Canada Goose in China), Tim Hortons will face fierce and established competition in the coffee arena.
In fact, Benoit Garbe, senior partner with brand and marketing consultancy Prophet, said that Canada Goose is an instructive example. It has a clear story and a clear linkage between an inspirational image of Canada and its brand and product. By contrast, the values of Tim Hortons, as well as the emotional attachment many Canadians have built with the brand from childhood to adulthood, could be hard to duplicate and translate into China.
Zhu Danpeng, a Chinese food industry analyst, said that while Tim Hortons aims to meet consumers’ needs with both food and beverage products, it doesn’t have much of a specialty, compared with domestic Chinese light-meal brands. “Tim Hortons should make outstanding its coffee culture and Western lifestyle in its marketing,” he said.
“To compete effectively in China, Tim Hortons needs to localize its approach and understand how to cater its offer, experience and brand to the new, more demanding and discerning Chinese consumers,” agreed Garbe. Moreover, consumers’ rising expectations for more premium experiences, healthier alternatives and hyper convenience must be key considerations, he added.
Even with China’s large population of 1.4 billion, the coffee sector still presents great growth potential, However, the increasing sophistication of the Chinese middle class, as well as deeper mobile internet penetration, has pressed competitors Starbucks and Luckin to move fast and experiment on a number of dimensions.
Facing slowing growth, Starbucks has been shifting to a new retail mode. In August, Starbucks established delivery partnership with Chinese internet giant Alibaba, under which Starbucks integrated a “virtual store” into Alibaba’s online shopping and payments apps like Alipay, Taobao and Tmall.
In addition, Starbucks is rapidly expanding its “Reserve” concept to be more upscale and experiential. On Feb. 15, Starbucks opened its first Starbucks Reserve Bakery Café in Shanghai, offering made-to-order food, premium Starbucks Reserve coffees and a new evening Italian aperitivo experience.
Meanwhile, Chinese Millennial-focused coffee brand Luckin is taking full advantage of digitalization. The company not only provides high subsidies (for example, consumers can buy a cup of Luckin coffee for free on Fridays), but also delivers within several minutes.
Luckin Coffee’s social function also adds value to its brand. Zhu said that Luckin features “red envelopes”—allowing users to gift digital coffee coupons to friends via their mobile phones—and mobile games to increase loyalty. As for branding campaigns, its emphasis on “youth”, “independence” and “self-reliance” wins favour among white-collar workers, according to Zhu.
“Will Tim Hortons build its brand, retail and digital experience with consideration of these new consumption habits?” Garbe asked. “Will they introduce delivery services? These require high logistical and value-chain investments, which large brands like Starbucks and KFC have taken on, yet are still piloting or deploying at the moment.”
Pricewise, there's a risk Tim Hortons could get lost in between its two main competitors. “Starbucks [has] the high ground, raising the bar even higher with Reserve and Roastery stores," Garbe said. "Luckin [is] the perfect low-cost disruptor, giving great value, a brand aura, a chic experience, yet at much lower price. I always struggle with brands in the middle, as they do not show a meaningful alternative, and I wonder where Tim Hortons sits.”
Both the experts have reservations about how much Tim Hortons can build its brand at scale in China.
“Being somewhat of a late-comer with a positioning that is family friendly, though mass, it does not come across as truly inspirational, experiential or millennial centric, especially compared to Starbucks and Luckin Coffee,” Garbe said.
Prophet doesn't see the trade war really trickling down into consumers’ perceptions and brand choices, at least not yet. "However, local brands have done a much better job at being relevant to Chinese consumers," Garbe added. "One could argue that the rise of Chinese brands is more supply-led than consumer-led. Even though we also see a sense of pride in buying Chinese brands, the Chinese consumer is pragmatic, and only buys Chinese if the product and service is seen as better value.”