What does single-store franchising mean for the China coffee industry?

Tims Tianhao Coffee announced its Partner Program on September 19, opening single-store franchising first in Shanghai and Beijing under the small-format Tims Go model. The shift moves away from city-level franchising, where one franchisee per city had to open 15 to 20 stores, toward individual store operators.

Start-up capital exceeds 600,000 yuan: 400,000 yuan construction for Tims Go, a brand franchise fee of 50,000 yuan over three years or 80,000 over five, a one-time service fee from 30,000, deposit from 50,000 and first materials from 80,000. With ongoing losses and stiff competition, the china coffee industry watches whether this accelerates expansion or answers pressure.

Tims Tianhao Coffee recently announced the launch of its "Partner Program," initially opening single-store franchising in Shanghai and Beijing, marking a shift in its franchising strategy from city-level franchising to a single-store model. However, start-up capital of over 600,000 yuan, ongoing financial losses, and a fiercely competitive market environment have sparked widespread discussion about this move. This article reviews Tims' franchising details, cost structure, market background, and consumer feedback, exploring whether opening single-store franchising is a "big move" to accelerate expansion or a helpless response to difficulties amid intensifying competition in the coffee sector.

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On September 19, Tims Tianhao Coffee announced via social media the official launch of its "Partner Program," with the first franchising areas in Shanghai and Beijing, and the store format being a small-store model, namely Tims Go.

Tims China's stores are generally not small; its store formats mainly include three types: flagship stores with an operating area of over 150 square meters, classic stores of 80-150 square meters, and 20-80 square meter "grab-and-go" Tims Go stores.

This "Partner Program" is single-store franchising. Previously, Tims China's franchising strategy was a combination of "city franchising" and "KA franchising." That is, only one city franchisee was recruited per city, and the franchisee had to be highly experienced and have sufficient capital to open 15-20 stores. On this single-store franchising page, it is noted that the construction budget for Tims Go is starting at 400,000 yuan, while for an independent store it is 520,000 yuan, including standard decoration, various equipment, furniture, and other expenses. The brand franchise fee is charged according to the contract, with two options: 50,000 yuan paid over 3 years or 80,000 yuan over 5 years. In addition, the one-time service fee starts at 30,000 yuan, the deposit starts at 50,000 yuan, and the first batch of material allocation costs starts at 80,000 yuan. Calculating this way, to franchise a Tims Go, at least more than 600,000 yuan or more in reserve funds is needed. However, its restaurant operating costs are far higher than revenue. According to the listing documents, Tims' food material costs and employee costs are the two largest expenses in restaurant operations. Under such circumstances, investing over 600,000 yuan makes it difficult to recoup the investment in the short term, and more funds may need to be invested later.

Currently, the coffee sector is still very hot, and many brands have launched franchising models. For example, Luckin, while ensuring no franchise fee or brand management fee is charged, only requires an investment of about 400,000-500,000 yuan in equipment and decoration to franchise. Cotti has its "Coffee Dreamer Plan," requiring only 300,000-600,000 yuan to franchise. By comparison, Tims' franchising requires more than 600,000 yuan even for a small store, meaning more factors need to be considered when selecting franchisees.

Moreover, there are many complaints online: "poor internal store management," "staff look untrained," "staff are cold in attitude," "food preparation is extremely chaotic," "poor hygiene," "inconsistent standards across stores," and other issues also reflect Tims' management shortcomings, which are also common problems in most franchised stores.

On September 29, 2022, at 21:30, Canadian coffee brand Tims China (THCH.NASDAQ) officially listed on Nasdaq. From entering China to listing on Nasdaq, Tims took three and a half years, developing very quickly. However, behind this rapid development, the report card Tims China delivered was not good-looking: over these three and a half years, cumulative losses exceeded 600 million yuan. Although after the pandemic eased this year, the consumer market warmed up, and Tims wanted to accelerate store expansion by advancing a differentiated competition strategy. Opening single-store franchising may also be a means to accelerate its push into lower-tier markets.

For this "Partner Program," Tims set the first franchising areas in Shanghai and Beijing. But Shanghai is the city with the most cafes in the world. As of May this year, Shanghai had about 8,500 cafes. Beijing also has about 4,000 cafes. With so many stores, Tims continuing to franchise and open stores in Shanghai and Beijing will lead to fierce competition. In addition, Cotti and Luckin have successively lowered coffee prices, greatly affecting other coffee brands and even independent coffee shops. Product homogenization in the coffee market is relatively serious, and the price war has a particularly obvious impact on the entire industry. Whether opening franchising now is a good thing or a bad thing, what do you all think?

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The above content is compiled by CoffeeHunters, a coffee news website.