Tencent backs Tim Hortons as China’s tech-driven coffee wars come to a boil

Canadian coffee chain Tim Hortons has secured an undisclosed amount of investment from Chinese internet giant Tencent, in the latest crossover between the tech industry and coffee foodservice in China.

The iconic Toronto-based brand announced the investment on Weibo, a Chinese microblogging site.

Its China unit will use the funds to accelerate its digitalization, expand its tech infrastructure, and open more outlets throughout the country.

Tim Hortons China – a joint venture between Tim Hortons owner Restaurant Brands International and New York’s Cartesian Capital Group – currently runs about 500 stores in the country. The company said the investment from Tencent will help it to hit its target of 1,500 China branches sooner than the 10-year timeframe originally set when the joint venture was formed in 2018.

Tim Hortons opened its first store in the country in Shanghai in February last year.

A link-up between Tencent – the Shenzhen-based tech behemoth best known for its mobile games and all-encompassing WeChat ‘super app’ – and as-Canadian-as-possible-under-the-circumstances Tim Hortons, may sound strange to some ears.

But to anyone who has been watching the coffee-centric foodservice sector in China, the context will be clear.

Tech-driven coffee wars

Convenience coffee is big business in China, and tech has transformed the segment.

As of 2018, China still ranked fairly low in per-capita coffee consumption, at three cups a year versus 363 cups in the US. But total consumption grew at an average of 16% per year, much higher than the 2% global average, according to the International Coffee Organization.

Luckin Coffee is among the first homegrown players to have adopted a ‘digital-first’ model, allowing customers to order via a mobile app and engage with the brand online before heading to the brand’s brick-and-mortar stores.

As an indication of its popularity, Luckin took just 20 months from launching in 2017 to debut on New York’s NASDAQ in May last year – making it the fastest startup to IPO ever. However, it has since become embroiled in an accounting scandal which has seen trading of its shares suspended, and questions raised over the growth story that helped to propel it into the history books.

In late 2018, Luckin made another tech play when it partnered with Tencent-backed Meituan Dianping, China’s largest on-demand app, to enable rapid doorstep delivery of its coffee and other food products to Meituan users.

Tencent archrival Alibaba quickly responded by partnering its food delivery platform, Ele.me, with US coffee giant Starbucks to enable on-demand delivery.

This followed on from a wider agreement between Alibaba and Starbucks, under which the US company leverages the fulfillment and delivery capabilities of its tech-enabled, ‘new retail’ supermarket chain, Freshippo.

Alternative protein

Starbucks has been busy on other tech fronts in China, too. The country is its second largest market after the US, playing host to 3,521 directly operated stores as of last September.

Last month, the coffee chain unveiled an alliance with VC firm Sequoia Capital, under which the two will make “strategic co-investments” in emerging, tech-driven food and retail businesses “created in China, for China.”

This followed the announcement of its plans to open a $130 million “coffee innovation park” in Kunshan near Shanghai, incorporating a high-tech roasting plant, warehouse, and distribution center.

Starbucks has also dipped its toe into China’s nascent alternative proteins market. Last month it launched a new menu in select Chinese outlets featuring plant-based products from Beyond Meat, Omnipork, and Oatly.

Given all this, Tencent’s decision to invest in Tim Hortons begins to make sense. Takeout coffee is a rapidly growing business in China, and Chinese consumers are comfortable using tech to get their daily (or twice-daily… or thrice…) caffeine fix.

What we can expect to see as a result of this investment is a much more digitally inclined incarnation of Tim Hortons in the near future, with app-led ordering and payments, and closer integration with Tencent-affiliated platforms like WeChat and Meituan.