Why Did the Les Coffee Chain Tims China Slide After Listing?
Tims China listed on Nasdaq under the ticker THCH on September 29, 2022, becoming the second Chinese coffee company to trade in the US after Luckin. It closed its first day at $7.29, down 8.76%, and on October 28 traded at $3.55, roughly 64% below the SPAC shell company's $10 issue price.
The chain entered China in 2019 with backing from Cartesian Capital Group, its largest shareholder, and grew revenue quickly while net losses passed 600 million yuan over three years. Caught between Luckin and Starbucks, and facing higher raw material prices and pandemic disruption, its burn-money-for-scale strategy remains unproven.
It has been a full month since Tims China listed on Nasdaq, but its stock price performance has remained sluggish, trading at a discount of about 64% compared to the SPAC shell company's issue price, with its largest shareholder, Cartesian Capital Group, suffering heavy losses. This coffee chain brand, once expected to be the "second Starbucks," has seen rapid revenue growth since entering the Chinese market in 2019, but its net losses have expanded in tandem, with cumulative losses exceeding 600 million yuan over three years. Caught in the fierce battle between Luckin and Starbucks, Tims has attracted a group of young consumers with its bagels and small red maple leaf cups, but amid rising raw material prices and the impact of the pandemic, whether its "burn money for scale" strategy will work remains unknown. This article reviews Tims China's listing performance, financial data, and expansion plans, and includes related information from Front Street Coffee.
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A month has passed since Tims China landed on Nasdaq, yet this coffee company aspiring to become the "next Starbucks" still has a report card in the U.S. stock market that is hard to call optimistic.
On September 29, 2022, Tim Hortons China business (hereinafter referred to as Tims China) officially listed on Nasdaq under the ticker symbol "THCH." It thus became the second Chinese coffee company to list in the United States after Luckin. But it broke below its issue price on the first day of trading, closing at $7.29, down 8.76%. It started low and has since moved downward with volatility.
According to Sina Finance, on October 28, Tims China (THCH) traded at $3.55, a discount of about 64% compared to the SPAC shell company's $10 issue price. With such a decline, it is likely not only ordinary investors who are disheartened, but also an important capital backer behind Tims China — Cartesian Capital Group.
Tim Hortons was founded in Canada in 1964. In 2018, its parent company RBI and Cartesian Capital jointly established Tims China, with Cartesian Capital Group as the largest shareholder. In 2019, Tim Hortons officially entered the Chinese market, with its first store located at Shanghai People's Square. At that time, Luckin and Starbucks China were locked in fierce competition, and Tims China had only just obtained its admission ticket.
Tims does not have discount coupons like Luckin's 38% off, yet with just a small red cup printed with a maple leaf and bagels smeared with cheese, it still successfully won over many young people. Some consumers feel that rather than a coffee shop, Tims is more like a bakery, because the reputation of its bagels clearly surpasses that of its coffee. On Xiaohongshu, some netizens even commented: "I have it for breakfast every day. I usually go to Tims to buy bagels and to Manner to buy coffee."
Public online information shows that from 2019 to 2021, Tims China's revenue was 57.257 million yuan, 210 million yuan, and 640 million yuan, respectively, with income mainly coming from sales of products at self-operated stores, franchise fees, other franchise businesses, and e-commerce business. In 2021, these four businesses accounted for 95.9%, 0.3%, 1.5%, and 2.2% of revenue, respectively.
From the above data, it is not difficult to see that 2021 was the year of Tims China's most rapid expansion, with revenue surging 203% year-on-year, more than tripling that of 2020. However, net losses also expanded exponentially: from 2019 to 2021, Tims China's net losses were 87.828 million yuan, 140 million yuan, and 380 million yuan, respectively. The 2021 loss was more than double that of 2020, with cumulative losses over three years exceeding 600 million yuan.
This situation resembles the dilemma of a certain new-style tea beverage brand — the more stores opened, the greater the losses. Tims China attributes the severe losses to rising raw material prices and the impact of the pandemic. Indeed, not long after Tims China was established, global coffee bean prices continued to climb, and this year, affected by multiple factors such as weather and the pandemic, the increase has been especially drastic.
Even while continuing to lose money, Tims China still chooses to "burn money" in exchange for scale. According to the plan of Lu Yongchen, market head of Tims China, the brand will continue to expand into lower-tier second- and third-tier cities, and the total number of stores is expected to increase to 2,750 by 2026, which may bring a more efficient strategic layout.
But for now, Tims, with 500 stores, is still far from forming a scale advantage. Listing is only the prologue. For Tims, which has suffered successive stock price declines just after going public, there is no need to be overly pessimistic. After all, in China's booming coffee market, who will have the last laugh is still unknown.
Image source: Internet
The above content is compiled by CoffeeHunters, a coffee news website.
