Tim Horton goes to China

A double-double here today, featuring in two of my least-favourite things about Canada: the business coverage of the Toronto Star, and the ubiquitous Tim Horton's "coffee" chain.

A few posts ago I mentioned that the Star had outsourced most of its business coverage to the Wall Street Journal.  Mostly that's been a huge improvement, but some of the old hacks have stayed on, including hapless business columnist David Olive.  His contributions are usually backgrounders on Canadian policy issues, obviously not a strength of the WSJ, or snide criticisms of companies he's taken a dislike to.  Bombardier is a frequent target (Olive wants it broken up), and so is Restaurant Brands International (RBI), the Brazil-based owner of a large number of restaurant chains, including Tim Horton's.

As Olive reports in this column, Timmies is about to undertake a big expansion into China, with plans to open 1500 stores there over the next decade.  Bad idea, says Olive, making the extraordinary suggestion that

It’s likely that RBI, all starry-eyed about high-spending Chinese millennials, isn’t aware that about 400 million Chinese still live in poverty.

I highly doubt if he's right about RBI's lack of due diligence, but even if he is, doesn't that leave well over a billion Chinese who can afford a daily cup of Tim's brown sludge?

Olive thinks that RBI is looking for a big hit in a new market because its business in Canada is stagnating.  He notes that Tim's same-store sales in Canada fell 0.1 percent last year, which he describes as "a five-alarm fire in retailing".  The same-store sales comparison is widely used in retailing but poorly understood outside the industry, and evidently we can count David Olive among those who don't get it.

Tim's continues to open so many stores in Canada that it's inevitable that newly-opened outlets will cannibalize existing ones to some degree.  My own little town is about to get its third Tim's, to serve a resident population of about 17,000, many of whom flee to Florida in the peak coffee-drinking months from December to March.  If you keep opening stores at the rate Tim's does, holding the same-store loss as low as 0.1 percent is a good showing. 

Something else I know from our little town is that we are seeing an enormous number of tourists from China here these days.  Tim Horton's won't be showing up there as an unknown quantity.  What may work against it, however, is that Tim's is very much at the low end of the market in terms of prestige, something which Chinese consumers, those "high-spending millennials", take very seriously.  At the risk of throwing in one too many local references, our wineries here in Niagara consistently report that the biggest-selling item for Asian clients is icewine, which is far more expensive than the regular wines and hence seen as prestigious.

I'm betting that RBI has done its homework before committing to the Chinese market.  It will take some time before success or otherwise can be determined, but I'm betting that if things work out well, we won't hear much about it from David Olive.