What Does Tims China's Q1 Mean for the China Coffee Industry?

Tims China opened just 4 net new coffee stores in the first quarter of 2024, down sharply from 149 net new stores the previous quarter. Revenue rose 3.1% year over year to RMB 346.8 million and system sales reached RMB 363.5 million, but the net loss hit RMB 142.8 million and the debt ratio climbed to 127.8%.

The chain has been drawn into the 9.9 yuan price competition shaping the broader china and coffee market, while its bakery price increases brought limited relief. Franchise applications reached 3,000 but only 19 stores opened, far from the stated goal of 10,000 stores in 5 to 10 years, though USD 20 million in financing from Cartesian Capital eases near-term cash flow pressure.

Tims China announced its Q1 2024 financial results, with revenue up 3.1% year-over-year to RMB 346.8 million and system sales up 7.1% to RMB 363.5 million. However, this seemingly steady performance failed to win investor approval, and the stock price fell on the day the results were released. More concerning is that the company added only 4 net new coffee stores in Q1, a sharp contraction from 149 net new stores last quarter and the lowest expansion record since its listing. At the same time, the coffee industry's price war continues to escalate, forcing Tims into the 9.9 yuan competition. Combined with the limited effect of its bakery product price increase strategy, the company's net loss reached RMB 142.8 million, and its debt ratio rose to 127.8%. Although it has secured USD 20 million in financing from Cartesian Capital to ease cash flow pressure, its financial difficulties have not been fundamentally resolved. In franchising, although applications reached 3,000, only 19 actually opened, a stark contrast. Tims once proposed a goal of 10,000 stores in 5 to 10 years, but judging by the current situation, this vision is becoming increasingly distant.

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On June 5, before the U.S. stock market opened, Tims released its Q1 2024 operating data. The financial report shows that the company's Q1 total revenue reached RMB 346.8 million, a year-over-year increase of 3.1%; system sales were RMB 363.5 million, up 7.1% year-over-year.

Judged from the brand's own perspective, this quarterly report card is still passable. However, the capital market clearly took a different view—on the day the financial report came out, Tims' stock price fell.

Similar to Luckin and Starbucks, Tims also came under pressure in same-store sales in the first quarter of this year. But the difference is that Luckin and Starbucks are still in an expansion channel in terms of store scale, with the former adding 2,342 net stores and the latter adding 118 net stores. By contrast, Tims added only 5 net stores in the same period, including 1 Popeyes fried chicken store. In other words, Tims actually opened only 4 new coffee stores in the past three months.

It should be noted that Tims' net store increase in the previous quarter was 149. By comparison, the pace of store expansion this quarter not only slowed markedly, but the number also directly set the lowest record since its listing.

Since last year, the competition between Cotti and Luckin over 9.9 yuan coffee has continued to heat up. Recently, Starbucks responded with disguised price cuts, while Lucky Cup announced that it had entered the "6.6" era. These moves are tantamount to adding more fuel to the price war. Now, specialty coffee brands such as Peet's and Seesaw have also been affected, launching low-priced products one after another to compete for consumers' attention.

Tims naturally found it hard to stay unaffected. On the one hand, the brand lowered coffee prices and joined the 9.9 yuan price war; on the other hand, it raised prices for bakery products such as bagels, trying to maintain store revenue balance through this approach. But in terms of actual results, this strategy has had little effect.

Revenue growth fell short of expectations, while losses have always followed like a shadow. In March this year, Tims signed a USD 20 million financing agreement with existing shareholder Cartesian Capital, which eased cash flow pressure to some extent, but this cannot fundamentally resolve the brand's financial predicament. In Q1 2024, Tims' net loss exceeded RMB 142.8 million. As of the end of the quarter, the company's total assets were RMB 2.039 billion, total liabilities reached RMB 2.607 billion, and the debt ratio climbed to 127.8%, further up from 119% last year.

In addition, since Tims officially opened franchising in September last year, according to insiders, the cumulative number of franchise applications received has reached "3,000." But the reality is that the brand actually opened only 19 new franchised stores, less than one percent of total applications.

Behind this contrast, on the one hand, it stems from the brand's strict review standards and cumbersome procedures; on the other hand, franchisees likely still have doubts about Tims' profitability. After all, judging from this still-fresh financial report, the situation of this Canadian national coffee brand in the Chinese market is not optimistic.

Tims had previously expressed its ambition—planning to achieve a scale of 10,000 stores in the next 5 to 10 years. However, considering the current expansion speed and the brand's financial condition, this once-made goal looks more like a pie in the sky that can be seen but not eaten. For Tims at this stage, the 10,000-store dream may be becoming increasingly out of reach.

Image source: Internet

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