Coffee Wars

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The coffee market in China is really heating up. Who would have thought it would become such a keenly contested market but now we have a new player – Tim Hortons – a Canadian brand backed by Tencent (owners of the WeChat platform) which, according to Caixin will “upgrade its digital infrastructure and open more stores in the country, where coffee consumption still lags far behind that of North America and represents a big growth opportunity”. According to the CEO Tim Hortons stores will “use WeChat-embedded mini programs to improve the customer experience and boost sales in China, one of the world’s fastest growing coffee markets”.

Meanwhile, Luckin Coffee Inc, which listed on the Nasdaq in May 2019 with plans to open 2,400 stores, removed its CEO and COO “amid an ongoing probe of a massive accounting scandal”. Caixin reports that “the Chinese coffee chain disclosed in late April that nearly half the revenue it reported for the last three quarters of 2019, or 2.2 billion yuan ($310 million), was fake. The company’s shares have been suspended for more than a month, following an 80% plunge in their value on news of the scandal”.

Which all plays into the hands of Starbucks whose CEO recently reported that, despite the 46% year-over-year decline in revenue to $384 million during the second quarter, “Today, almost 100% of our stores in China are open, many with limited seating, reduced hours, and other safety protocols in place. Since we started reopening stores in late February, we have seen meaningful improvements in China comparable-store sales in commercial, residential, and office locations”. 

We’ll know that life in China is back to normal when Starbucks say they’re back to pre-Covid trading volumes.

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