Tim Hortons has arrived in China, joining the high-stakes battle to sell coffee in a massive country that mostly drinks tea. The Canadian coffee-and-doughnut chain, run by Burger King-owner Restaurant Brands International Inc., plans to focus on "everyday value" as it muscles up against the ambitious plans of local and foreign players such as Starbucks Corp. Its also debuting at a tricky time as a diplomatic row brews between China and Canada.

While more consumers may be giving java a shot, the coffee market remains relatively small. Only about a third of Chinese consumers bought hot coffee in 2017, according to a report from Kantar Worldpanel. Tim Hortons has its work cut out for it, said Jennifer Bartashus, an analyst at Bloomberg Intelligence."It's a tough market," Bartashus said. "Competitors have been there for a long time, and already established some sort of reputation with the consumer."

Tim Hortons is targeting to open 10 to 20 locations in Shanghai this year, Alex Macedo, president of the chain, said in an interview. The brand is trying to stand out from rivals with a robust food menu that includes made-to-order shrimp sandwiches and salads, he said."Some of these other competitors, these coffee shops, they don't have food at all," Macedo said. "We're going to migrate toward being more of a cafe destination for a place for you to sit and hang out for a while."

Geopolitical Issues

Besides joining a crowded field that includes Dunkin' Brands Group Inc., Coca-Cola Co.'s newly acquired Costa Coffee and local startup Luckin Coffee, Tim Hortons faces a slowing Chinese economy and complicated geopolitical situation.Its origins as a beloved Canadian brand may run into some nationalistic consumers, given the political tensions underway currently.

Chinese firm Huawei Technologies Co.'s chief financial officer Meng Wanzhou has been held in Canada at U.S.' request since last December. The Canadian government said in January that 13 citizens have been detained in China since Wanzhou's arrest. Many Chinese consumers, however, seem unfazed. Canada Goose Holdings Inc., which opened its flagship store in Beijing in December amid calls for boycott of Canadian goods, downplayed the backlash fears earlier this month after it saw shoppers line up outside its store.

Tim Hortons has struggled to build a following outside its home country. The chain, named for a Canadian hockey star, is opening its first Chinese shop on Tuesday in People's Square, in Huangpu, Shanghai and is banking on a growing middle class keen to try Western inventions like its honey cruller donuts."Tim Hortons will need to offer not just something unique that Chinese consumers can't find at other chains, but also spend heavily on marketing to build awareness of the brand," said Jason Yu, Shanghai-based general manager of Kantar Worldpanel in Greater China.

High-Profile Failures

Though the coffee market in China may be in its infancy, Yu said there have already been some high-profile failures. British chain Pret A Manger pulled out of China last December after failing to gain a following.Starbucks has operated in China for two decades, but is pushing harder to find growth amid concerns that it's peaked in the U.S. The chain opens a store in China roughly every 15 hours and has said that country will likely be a bigger market one day than the U.S., where it has more than 14,000 cafes. Starbucks, however is seeing slower growth in China, with transactions down 2 percent in its latest quarter. It's hoping to reverse that with a big push into delivery with Alibaba. "We've got a competitive edge," John Culver, president of international and channel development at Starbucks, said in January. "We've set new standards for delivery of coffee to our customers and to customers throughout China" with splash-proof lids and tamper-proof packaging, he said.

Mandy Nian, a 26-year-old student in Shanghai, likes foreign coffee but hasn't heard of Tim Hortons. She buys Costa when she's going to the movies, taking advantage of a discount that comes with the purchase of a ticket. She's willing to pay up because she views brands from outside China as "higher quality." "I can accept a little higher prices than the local brands," she said. Dunkin', meanwhile, failed in two previous attempts to crack the market but is trying again with its namesake coffee brand -- a favorite in Boston. The company has 39 locations in China, with plans to open 1,400 over the long term. George McAllan, vice president of international at Dunkin', said local franchisees are targeting Beijing and Shanghai and working on new menu items. Costa Coffee has hundreds of locations in China. The chain -- which Coke agreed to buy last year for $5.1 billion -- is a big piece of the soda giant's strategy to spur growth as consumers cut back on sugary soda.

Even KFC is betting on breakfast and a growing coffee business to help sales in China. The fried-chicken chain sold more than 90 million cups of it last year, exceeding company expectations. The Yum China Holdings Inc.-owned brand says it's not slowing down with its network of 5,900 restaurants.

Discount Allure

"We will continue to drive growth of this high-potential category by introducing innovative, high-quality products at a good price," CEO Joey Wat said last month. A recent economic slowdown in China put a spotlight on the difficulties for foreign brands banking on steady growth there. Research shows that Chinese consumers consider coffee more of a premium treat than a regular indulgence. But deals and discounts are becoming more prominent as local companies like Luckin push hard to take on Starbucks.

Jiani Zuo knows Tim Hortons but prefers local coffee. The 36-year-old brand director in Shanghai frequents a chain called Manner, which has low prices. Michael Li, another local coffee drinker, said he had been drawn to Luckin because of a "good discount."

QUESTIONS

2. Differentiate between the competitors in China's coffee market and explain Tim Horton's strategy to distinguish itself from these competitors.