July 11, 2018 / 11:32 AM / 9 days ago

Canada's Tim Hortons to enter China as it battles slump at home

(Reuters) - Fast-food company Restaurant Brands International (QSR.TO) said on Wednesday it plans to open 1,500 outlets of its Canadian coffee-and-donut chain Tim Hortons in China over the next decade, capitalizing on a growing cafe culture in the world’s second-largest economy.

The move, its biggest expansion outside of the core Canadian market, is part of new President Alex Macedo’s two-pronged strategy to battle intense competition in the fast-food industry at home and to fix its bruised reputation.

“One is improving and increasing our leadership in Canada, and the second is taking a little bit of Canada to the world,” Macedo, told Reuters in an interview ahead of Wednesday’s announcement at parent Restaurant Brands International’s (QSR.TO) Oakville, Ontario, headquarters.

The move into China, in a joint venture with private equity firm Cartesian Capital Group, adds to Tim Hortons’ global footprint, after last year’s entry into the Philippines, Britain, Spain and Mexico. Tim Hortons will keep its beverage offering the same in China but will customize its food menu for the local market, Macedo told Reuters on Wednesday.

Tim Hortons has operated in the United States since 1984 and the United Arab Emirates since 2011. Tim Hortons has 4,256 locations across Canada, 725 in the United States and between five and 20 in the countries it entered last year, according to the company.

Macedo, who became president of Tim Hortons in December, is seeking to stem profit declines and sweeten customer sentiment amid a bitter and public feud with a group of unhappy franchisees in Canada and the United States that pushed public perception of the chain to 50th place in a January survey from fourth a year earlier.

FILE PHOTO: Tim Hortons employees serve shareholders before the company's annual general meeting in Toronto, May 8, 2014. REUTERS/Peter Jones

China’s coffee and tea consumption is expected to climb to 750,218 metric tons by 2020, from 693,748 in 2015, according to Statista. Shanghai alone has an estimated 6,500 coffee houses, with small chains, independent stores and bakeries battling for a slice of a market that research firm Mintel says could grow to 79 billion yuan ($11.84 billion) by 2022 from 60 billion yuan this year.

Starbucks Corp (SBUX.O) is aiming to have 10,000 coffee shops in China within a decade, more than the United States.

“I wouldn’t say (Tim Hortons) has saturated the market in Canada, but they’re mightily close,” said Brian Madden, portfolio manager at Goodreid Investment Counsel in Toronto. Madden is waiting for the franchisee issues to be resolved and for valuations to come down to buy the stock.

RBI shares were up 1.8 percent at C$82.57 in early trades, their highest level since November.

At home, Macedo admitted Tim Hortons could have operated differently to reduce negative publicity and said the company is taking a slew of measures, including upgrading outlets, a new kids menu and all-day breakfast. It also began testing deliveries this week and plans to introduce self-service kiosks, he said.

Many of these ideas came from franchisees, he said, acknowledging the company had not communicated well with them in the past and that he was trying to change that by meeting disgruntled franchisees all around Canada.

Great White North Franchisee Association, which was formed last year to fight the company’s alleged mismanagement of franchise operations, did not immediately comment. It has previously said that RBI inflated prices on items franchisees buy from the corporate office, a claim the company and the official franchisee advisory board, which has largely distanced itself from the GWNFA, attribute to market moves and to lack of proper communication about the reasons.

“Public perception of this brand has really been tainted and tarnished over the last year to 18 months,” Goodreid’s Madden said. “It’s going to require things that put money back into the pockets of franchisees to fix it.”

Reporting by Nichola Saminather in Toronto and Karan Nagarkatti in Bengaluru; additional reporting by Laharee Chatterjee and John Benny in Bengarluru; editing by Patrick Graham, Saumyadeb Chakrabarty and Jonathan Oatis

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