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spk07: Ladies and gentlemen, welcome to Teams China's first quarter 2024 earnings conference call. All participants will be in the listen-only mode during management's prepared remarks, and there will be a question and answer session to follow. Today's conference is being recorded. At this time, I'd like to turn the call over to Gemma Bax, who heads Team China's investor relations efforts for prepared remarks and introductions. Please go ahead, Gemma.
spk06: Thank you very much. Good morning and good evening, everyone, and thank you for joining us on today's call. My name is Gemma Box, Head of Investor Relations at TH International, and we announced first quarter financial results 2024 earlier today. The press release, as well as an accompanying presentation, which contains operational and financial highlights, are now available on the company's IR website at ir.pimschina.com. Today you will hear from Yongchen Liu, our CEO and director, and Albert Lee, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session. You can find the webcast of today's earnings call on our website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements which are subject to future events and uncertainties. Statements that are not historical facts including but not limited to statements about the company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors included in our filings with the SEC. This presentation also includes non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to these non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With all that said, I'd like now to turn it over to Yongchen Liu, our CEO and Director, over to you, Yongchen.
spk03: Thank you Gemma. My name is Yongchuan Lu, CEO and Director of Teams China. During the first quarter of 2024, which is historically the weakest quarter in terms of seasonality, we delivered 7.1% year-over-year growth in system sales and our seventh consecutive quarter of positive adjusted EBITDA. We delivered this despite a challenging industrial landscape of intense price competition and significant macro headwinds. This quarter, driving profitability and improving operating cash flow remain a top priority for us and will remain so going forward. Our team has been focusing on strategic initiatives that boast our bottom line while supporting profitable growth. With a strong focus on operational efficiencies, and targeted marketing efforts, we are confident that our dedication to enhancing profitability will yield positive results. With a goal of achieving our first quarterly adjusted corporate EBITDA blue given this year, we persisted in strategically pruning underperforming stores in Q1 2024, aligning with our previously outlined strategic initiatives. On March 31, 2024, we reached a significant milestone, surpassing 20 million registered lorry club members, representing 63.6% year-over-year growth. The average number of members per store exceeds 22,000, serving both as a catalyst for growth and a testament to the customer support of Team China's lorry programs. The support from our customers has been an inspiration for our team, continually spurring us to elevate our commitment to deliver top-tier products and exceptional services. We continue to deliver growth in a capital-efficient manner and we remain committed to offer absolute convenience for our guests. Our strategic partnership with sub-franchisees is underpinning the expansion of our store network, including our density in existing cities for quicker services and broadening our outreach into new cities to welcome new customers. New cities we entered during the first quarter include Huizhou and Huzhou. Starting February 26, 2024, we launched a campaign nationwide to celebrate the significant milestones of our fifth anniversary in China and the 60th anniversary of Tim Horton's brand with the theme of 60 years of freshness and deliciousness. As part of this campaign, we introduced a new series of core products called Tim's China Double-Double, which enhances the original Double-Double Blue Coffee with rich milk, and more flavors. Additionally, three flavors of donuts were reintroduced, strawberry and rainbow. Throughout the campaign, over 160 media agencies covered the history and legacy of Tim Hortons, resulting in over 20 million media exposures. The hashtag double double reached over 14 million views on Douyin while the live broadcast on Douyin attracted over 6 million viewers during the campaign period. Continuous product innovation remains a cornerstone of our strategic vision. We launched 14 new beverages and 18 new food products during the first quarter of 2024. New products including Cherry Americano and Casson series have been a particular success. we sold over 1.7 million units between them. Recognizing the popularity of our Smile Bagels, we have expanded the platform with enticing new flavors this quarter, including low sugar dark chocolate and low lychee, offering a taste of innovation while maintaining the quality and appeal that our customers cherish. In Q1 2024, Our collaborations with Tango Angel and Dove Chocolate have also achieved significant success, reaching over 10 million media exposures on Douyin and Little Red Book during the campaign period. As a leading international coffee brand renowned for delivering exceptional value for money, high-quality products, we focused on advancing our distinctive Coffee Plus strategy. During the first quarter of 2024, we initiated the Bagel Turn-Turn-Cut campaign. This promotional offer allowed customers to enjoy a delicious Tim's Bagel for just RMB 9.9, a move designed to boost food orders and attract a fresh wave of patrons to experience our offerings. In the first quarter of 2024, The percentage of orders that included food rose to 52.7%, an increase of over 8 percentage points from 44.2% in the same quarter of 2023. Lastly, our Popeye's brand continued to grow. So far, we have launched 14 Popeye's restaurants in Shanghai and are actively fine-tuning our menu, including expanding our product offerings beyond our core fried chicken products. Our 14 restaurants will serve a solid base for further growth in Shanghai and beyond. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our first quarter 2024 financial performance in more detail. Albert.
spk05: Thank you, Yongchuan. During the first quarter of 2024, facing intense industry competition, and microeconomics headwinds, we remained steadfast in our commitment to deliver exceptional value for money, high-quality products to an expanding customer base and to enhancing our operational efficiency. In the first quarter of 2024, our system sales grew by 7.1% year-over-year to RMB $363.5 million. The growth was primarily driven by an increase in the number of system-wide stores from 648 as of March 31, 2023 to 917 as of March 31, 2024. Overall, monthly average transacting customers were 2.8 million during the first quarter of 2024, representing an increase of 22.8%. from 2.3 million in the same quarter of last year. Digital outers as a percentage of total outers increased from 79.1% in Q1 2023 to 85.4% in Q1 2024. And we continue to strengthen our digital capabilities to meet the growing demand potential for delivery and takeaway services. During the first quarter of 2024, we continued to enhance our operational efficiency. As a result of refinement to our supply chain management and economy of scale, our food and packaging costs as a percentage of revenues from company-owned and operated stores have decreased by 1.0 percentage points year over year. We continued to prune our underperforming stores and optimize our unit economics. These actions allowed us to further deliver year-over-year reduction in rental and labor costs as a percentage of revenues from company-owned and operating stores by 0.9 percentage points and 1.3 percentage points, respectively. We also paired by costs at the headquarter level helping to reduce our general and administrative expenses as a percentage of total revenues by 4.1 percentage points year over year. Turning to liquidity, as of March 31st, 2024, our total cash and cash equivalents and time deposits were RMB 218.2 million compared to RMB 220.8 million as of December 31st, 2023. The change was primarily attributable to cash disbursements on the back of the expansion of our business and store network nationwide, repayment of bank borrowings offsite by the US dollar 20 million junior promissory notes financing provided by Cartesian Capital Group, our existing shareholder. Moving forward, While driving profitable and capital-efficient growth, being front and center of everything we do, we will continue to optimize our store unit economics, roll out our differentiated made-to-order fresh food preparation model to drive traffic, enhance our supply chain capabilities and efficiencies, and facilitate our franchisees to manage the growth and profitability of their stores effectively. Now I will turn the call over to Gemma for today's Q&A session.
spk09: Gemma, thank you.
spk06: Anything you want to say introducing the Q&A, or shall I go ahead with the first question?
spk07: Just a reminder, to ask a question via the telephone, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. To ask your question via the webcast, please use the Q&A box available on the webcast link.
spk09: Thank you, thank you, Amberlynn.
spk06: Our first question comes from Steve Silver from Argus Research. Steve, go ahead with your question.
spk02: Thank you and good morning and good evening, everybody. So my question is, if the competitive and the macroeconomic challenges that the company is seeing lasts for longer than is currently expected, I'm just curious to get management's thoughts on how the company plans on staying the course in terms of expanding its store-level EBITDA margins and then more broadly executing on its growth strategy?
spk03: Okay, thank you, Steve. Yeah, I mean, the pricing competition does, you know, last for longer than expected. But for us, we don't really compete head-to-head with our peer coffee brands since we not only sell coffee but also So provide fresh prepared food. As I mentioned earlier, more than 50% of our orders come with food, which is much higher than the market average. And coffee plus food will continue to serve as our big differentiating point, which can increase our average check and also our sales at the store level. So such differentiated positions has attracted thousands of sub-franchisee applications. We have received over 3,000 applications already. So we'll accelerate our sub-franchisee development in the coming quarters and years to grow our network.
spk01: Thank you so much. Thank you, Steve.
spk07: Thank you. Gemma, over to you for the next question.
spk06: We have a submitted question from an investor who's asking about margins and Luckin's number. He's observing Luckin's number went down significantly in the quarter, including same-store sales and margins as well. What do you think is the reason that Tim's margins are up, be it sequentially over the same quarter last year only? Anything that Tim's is doing differently? Or what is your take on this?
spk05: Okay, I will take this question then. I think managing our cost structure effectively is very important to us, and we target to achieve margin expansion even at both store and corporate level, and even with this very challenging in terms of industry competition, in terms of the price war, and in terms of the pressure on the same-store sales growth. So we want to expand our margin with these challenges. So we continued to implement rigorous capital expenditure control and cost reduction measures. And we made decisive decisions to prune those underperforming company-owned and operating stores. And we collaborated very closely with almost every supplier to strive for better pricing, for our food and packaging items, and we invested in our warehousing and logistics to reduce our overall freight and transportation costs. And we also constantly review the pricing of our core products offerings to ensure we can actually get optimal margin out of those products that we sell. and we deploy AI and big data technology. So actually our technology platform can enable us to predict our daily sales more precisely so that actually we can manage our labor scheduling and inventory level more effectively. And as I mentioned, we cut down the headcount of our corporate personnel at the corporate level And in the meantime, I think with the expansion of our franchise store network, that will bring us more profitable growth along the road. So we are confident that our dedicated effort can help us actually improve our overall profitability at both the store and corporate level. Thank you, Gemma.
spk07: Thank you. Over to Gemma for the next question.
spk06: We have a question from Suni Huang from Nordic Asia Investment Group, and it is, how do you view the extended price war? The question is, is it more about lacking industry demand or aggressive competitors, given the increased number of coffee stores in China in 2023? The question is also about potential price hikes for certain Tim's products. There were some in May. It's asking... if you could speak to the sustainability of product price hikes and any further plans of price hikes going forward.
spk03: Okay, I'll take this question. As I just mentioned, the pricing competition does not last longer than expected. I think that's because most of coffee brands just compete on coffee products. And coffee products have become more in common, similar taste, similar profile. And if they want to grab shoes, they have to compete on price. But for us, we not only sell coffee, we sell a lot of food. And food is a big differentiation point for us. Yeah, we did increase our bagel and bagel sandwich price early May and we don't see much impact on our sales because that's the huge differentiation point for us. So I mean we have two lines for coffee, for the drinks. We will have to give discounts to attract our customers or to maintain our customer base and we plan to launch a series of value for money June clients as well in the future to handle the price competition for food. No, we are We are very different. No, I'm people love our bagels. They'll come back for the Peter purchase We don't see much impact on that and also for the combos We sell our combos at a very competitive price for example breakfast one cup of coffee plus one bagel and only an IMB 19.9 R&D, which is very competitive in the market. And also our lunch menu, like one cup of coffee, plus one bagel sandwich, starting from 26.9 R&D, which is also very competitive in the market. So I mean, that's our view for Tim.
spk09: We are quite different from the peer coffee brands in the market right now. Thank you.
spk07: Over to Gemma for the next question.
spk06: We have another submitted question that is, how has your franchising strategy been evolving since you first announced it last September and what parts of it have exceeded your expectations and what has lagged your expectations?
spk03: Okay, I'll take that. Our individual franchising strategy has been evolving very well and has received over 3,000 applications already, as I just mentioned, which has exceeded our expectations. We don't really promote that much yet. But the vetting process of the partners and the sites is very time-consuming, since we want to make sure we only select the right partners to work for the for many years ahead, and also we want to open the right sites to ensure the profitability and the payback for our sub-franchises. So the vetting process does take a lot more time than we expected. So we are getting more personnel. We are streamlining the process to make it faster to open our franchise stores in the future.
spk09: Thank you.
spk07: Over to Gemma for the next question.
spk06: Thank you. We have a question about the supply chain. And the question is that you have a lot of products that are new and new flavors as well. Could you provide color on what your supply chain looks like and how you optimize it?
spk03: OK, I'll take that as well. I mean, over the past five years, we have built a robust supply chain infrastructure and capabilities. we have leveraged our increasing scale to secure very competitive costs from our suppliers to achieve high gross margins for both all stores and all franchises. And we have at least two suppliers for almost all materials to make sure we can supply all materials safely. And also we have multiple distribution centers in China to cover the whole country so we can open in many new cities if we want. And in addition, we have set up a flexible and nimble process so we can launch new products every two weeks to adapt to the market and customer demand.
spk07: Thank you. Over to Gemma for the next question.
spk06: We have another submitted question. It touches on the competition again. How have you seen that developing over the last year especially, but also what it means to Tims given the perceived weakness of the Chinese consumer?
spk03: Yeah, we touched about that already. I want to say something. As we all know, Kodi has emerged from the market very quickly and opened thousands of franchise stores last year. and initiate the pricing war for the whole coffee industry, which has affected all brands, including us, in the market to some extent. The pricing war might continue for a while. Having said that, as I mentioned earlier, teams don't really compete head-to-head with our coffee brands, given our coffee plus food differentiation strategy. So we'll continue to focus on our differentiated product offerings and accelerate our sub-franchising development to expand our network.
spk07: Thank you. Over to you, Gemma, for the next question.
spk06: Our next registered question speaks to the food orders and the efforts TIMSS has made to boost them. How do you see those efforts relating to the competition?
spk03: It works very well for us. As you can see, The percentage of our orders that include food rose to 52.7%, increased by over 8 percentage points from 44.2% in the same quarter of last year. With such differentiation in the strategy, we don't really need to compete head-to-head with our peer coffee brands. We don't need to compete just on price.
spk07: Greg, thank you. Over to you, Gemma, for the next question.
spk06: Our last submitted question is about Tim's loyalty program, loyalty customers program. How many of your loyalty customers are transacting on average is the question, and do transacting customers have a higher spend? Do you work a lot with coupons?
spk05: Okay, I will take this one down. We just celebrated the core milestone of surpassing 20 million loyalty club members as of March 31st, 2024. And our monthly average transacting customers, as I mentioned before, were about 3 million during the first quarter this year. On average, our loyalty members, they purchase about 2.5 to 3 times a month. And I think on average, our loyalty members they spend 80% more than a non-member customer. And then on the discounts question, so we do offer many attractive promotion activities and actually discounts to attract new customers and also to encourage our existing customers to repurchase, actually to increase customer frequency. But however, I do not think we rely heavily on coupons. We have creative marketing, we have many attractive products. We believe our overall products, quality and services offering are very attractive to our customers. Thank you.
spk07: Thank you. Over to you, Gemma, for the next question. This completes our questions. as far as I can see, yeah. All right, thank you. So we're coming to the end of the conference call. Gemma, over to you.
spk06: Thank you. Thank you, operator. Thank you very much, Yongchen and Albert. This concludes today's earnings conference call. We thank you so much for your participation, for dialing in, and also for your interest in TIMSS. We look forward to reconnecting with you again in the very near future.
spk03: Thank you. Thank you to all. Thank you all.
spk07: Thank you. This concludes our call today. You may disconnect. Thank you. Thank you. Thank you.
spk00: Thank you.
spk07: ladies and gentlemen welcome to teams china's first quarter 2024 earnings conference call all participants will be in the listen only mode during management's prepared remarks and there will be a question and answer session to follow today's conference is being recorded at this time i'd like to turn the call over to jemma backs who hits team china's investor relations efforts for prepared remarks and introductions please go ahead jemma
spk06: Thank you very much. Good morning and good evening, everyone, and thank you for joining us on today's call. My name is Gemma Box, Head of Investor Relations at TH International, and we announced first quarter financial results 2024 earlier today. The press release, as well as an accompanying presentation, which contains operational and financial highlights, are now available on the company's IR website at ir.pinchchina.com. Today you will hear from Yongchen Liu, our CEO and Director, and Albert Lee, our CFO. After the company's prepared remarks, the management team will conduct a question and answer session. You can find the webcast of today's earnings call on our website. Before we get started, I'd like to remind you that our earnings presentation and investor materials contain forward-looking statements which are subject to future events and uncertainties. Statements that are not historical facts including but not limited to statements about the company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and our actual results may differ materially from those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and risk factors included in our filings with the SEC. This presentation also includes non-GAAP financial measures, which we believe can be helpful in evaluating our performance. However, those measures should not be considered substitutes for the comparable GAAP measures. The accompanying reconciliation information related to these non-GAAP and GAAP measures can be found in our earnings press release issued earlier today. With all that said, I'd like now to turn it over to Yongchen Liu, our CEO and Director, over to you, Yongchen.
spk03: Thank you, Gemma. My name is Yongchuan Lu, CEO and Director of Teams China. During the first quarter of 2024, which is historically the weakest quarter in terms of seasonality, we delivered 7.1% year-over-year growth in system sales and our seventh consecutive quarter of positive adjusted EBITDA. We delivered this despite a challenging industrial landscape of intense price competition and significant macro headwinds. This quarter, driving profitability and improving operating cash flow remain a top priority for us and will remain so going forward. Our team has been focusing on strategic initiatives that boast our bottom line while supporting profitable growth. With a strong focus on operational efficiencies, and targeted marketing efforts, we are confident that our dedication to enhancing profitability will yield positive results. With a goal of achieving our first quarterly adjusted corporate EBITDA break even this year, we persisted in strategically polluting underperforming stores in Q1 2024, aligning with our previously outlined strategic initiatives. On March 31, 2024, we reached a significant milestone, surpassing 20 million registered lorry club members, representing 63.6% year-over-year growth. The average number of members per store exceeds 22,000, serving both as a catalyst for growth and a testament to the customer support of Team China's lorry programs. The support from our customers has been an inspiration for our team, continually spurring us to elevate our commitment to deliver top-tier products and exceptional services. We continue to deliver growth in a capital-efficient manner and we remain committed to offer absolute convenience for our guests. Our strategic partnership with sub-franchisees is underpinning the expansion of our store network, including our density in existing cities for quicker services and broadening our outreach into new cities to welcome new customers. New cities we entered during the first quarter include Huizhou and Huzhou. Starting February 26, 2024, we launched a campaign nationwide to celebrate the significant milestones of our fifth anniversary in China and the 60th anniversary of Tim Horton's brand with the theme of 60 years of freshness and deliciousness. As part of this campaign, we introduced a new series of core products called Tim's China Double-Double, which enhances the original Double-Double Blue Coffee with rich milk, and more flavors. Additionally, three flavors of donuts were reintroduced, chocolate, strawberry, and rainbow. Throughout the campaign, over 160 media agencies covered the history and legacy of Tim Hortons, resulting in over 20 million media exposures. The hashtag, double double, reached over 14 million views on Douyin, while the live broadcast on Douyin attracted over 6 million viewers during the campaign period. Continuous product innovation remains a cornerstone of our strategic vision. We launched 14 new beverages and 18 new food products during the first quarter of 2024. New products including cherry Americano and croissant series have been a particular success. we sold over 1.7 million units between them. Recognizing the popularity of our Smile Bagels, we have expanded the platform with enticing new flavors this quarter, including low sugar dark chocolate and low lychee, offering a taste of innovation while maintaining the quality and appeal that our customers cherish. In Q1 2024, Our collaborations with Tango Angel and Dove Chocolate have also achieved significant success, reaching over 10 million media exposures on Douyin and Little Red Book during the campaign period. As a leading international coffee brand renowned for delivering exceptional value for money, high-quality products, we focused on advancing our distinctive Coffee Plus strategy. During the first quarter of 2024, we initiated the bagel turn-turn-cut campaign. This promotional offer allowed customers to enjoy a delicious Tim's bagel for just RMB 9.9, a move designed to boost food orders and attract a fresh wave of patrons to experience our offerings. In the first quarter of 2024, The percentage of orders that included food rose to 52.7%, an increase of over 8 percentage points from 44.2% in the same quarter of 2023. Lastly, our Popeye's brand continued to grow. So far, we have launched 14 Popeye's restaurants in Shanghai and are actively fine-tuning our menu, including expanding our product offerings beyond our core fried chicken products. Our 14 restaurants will serve a solid base for further growth in Shanghai and beyond. At this time, I would like to turn it over to our CFO, Albert Li, to discuss our first quarter 2024 financial performance in more detail. Albert.
spk05: Thank you, Yongchuan. During the first quarter of 2024, facing intense industry competition, and microeconomics headwinds, we remained steadfast in our commitment to deliver exceptional value for money, high-quality products to an expanding customer base and to enhancing our operational efficiency. In the first quarter of 2024, our system sales grew by 7.1% year-over-year to RMB $363.5 million. The growth was primarily driven by an increase in the number of system-wide stores from 648 as of March 31, 2023 to 917 as of March 31, 2024. Overall, monthly average transacting customers were 2.8 million during the first quarter of 2024, representing an increase of 22.8%. from 2.3 million in the same quarter of last year. Digital outers as a percentage of total outers increased from 79.1% in Q1 2023 to 85.4% in Q1 2024. And we continue to strengthen our digital capabilities to meet the growing demand potential for delivery and takeaway services. During the first quarter of 2024, we continued to enhance our operational efficiency. As a result of refinement to our supply chain management and economy of scale, our food and packaging costs as a percentage of revenues from company-owned and operated stores have decreased by 1.0 percentage points year over year. We continued to prune our underperforming stores and optimize our unit economics. These actions allowed us to further deliver year-over-year reduction in rental and labor costs as a percentage of revenues from company-owned and operating stores by 9 percentage points and 1.3 percentage points, respectively. We also paired by costs at the headquarter level helping to reduce our general and administrative expenses as a percentage of total revenues by 4.1 percentage points year over year. Turning to liquidity, as of March 31, 2024, our total cash and cash equivalents and time deposits were RMB $218.2 million compared to RMB $220.8 million as of December 31, 2023. The change was primarily attributable to cash disbursements on the back of the expansion of our business and store network nationwide, repayment of bank borrowings offsite by the US dollar 20 million junior promissory notes financing provided by Cartesian Capital Group, our existing shareholder. Moving forward, While driving profitable and capital-efficient growth, being front and center of everything we do, we will continue to optimize our store unit economics, roll out our differentiated made-to-order fresh food preparation model to drive traffic, enhance our supply chain capabilities and efficiencies, and facilitate our franchisees to manage the growth and profitability of their stores effectively. Now I will turn the call over to Gemma for today's Q&A session.
spk09: Gemma, thank you.
spk06: Anything you want to say introducing the Q&A, or shall I go ahead with the first question?
spk07: Just a reminder, to ask a question via the telephone, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. To ask your question via the webcast, please use the Q&A box available on the webcast link.
spk09: Thank you. Thank you, Evelyn.
spk06: Our first question comes from Steve Silver from Argus Research. Steve, go ahead with your question.
spk02: Thank you, and good morning and good evening, everybody. So my question is, if the competitive and the macroeconomic challenges that the company is seeing lasts for longer than is currently expected, I'm just curious to get management's thoughts on how the company plans on staying the course in terms of expanding its store-level EBITDA margins and then more broadly executing on its growth strategy?
spk03: Okay, thank you, Steve. Yeah, I mean, the pricing competition does, you know, last for longer than expected. But for us, we don't really compete head-to-head with our peer coffee brands since we not only sell coffee but also So provide fresh prepared food. As I mentioned earlier, more than 50% of our orders come with food, which is much higher than the market average. And coffee plus food will continue to serve as our big differentiating point, which can increase our average check and also our sales at the store level. So such differentiated positions has attracted thousands of sub-franchisee applications. We have received over 3,000 applications already. So we'll accelerate our sub-franchisee development in the coming quarters and years to grow our network.
spk01: Thank you so much. Thank you, Steve.
spk07: Thank you. Gemma, over to you for the next question.
spk06: We have a submitted question from an investor who's asking about margins and Luckin's number. He's observing Luckin's numbers were down significantly in the quarter, including same-store sales and margins as well. What do you think is the reason that Tim's margins are up, be it sequentially over the same quarter last year only? Anything that Tim's is doing differently? Or what is your take on this?
spk05: Okay, I will take this question then. I think managing our cost structure effectively is very important to us, and we target to achieve margin expansion even at both store and corporate level, and even with this very challenging in terms of industry competition, in terms of the price war, and in terms of the pressure on the same-store sales growth. So we want to expand our margin with these challenges. So we continued to implement rigorous capital expenditure control and cost reduction measures. And we made decisive decisions to prune those underperforming company-owned and operating stores. And we collaborated very closely with almost every supplier to strive for better pricing for our food and packaging items, and we invested in our warehousing and logistics to reduce our overall freight and transportation costs. And we also constantly review the pricing of our core products offerings to ensure we can actually get optimal margin out of those products that we sell. and we deploy AI and big data technology. So actually our technology platform can enable us to predict our daily sales more precisely so that actually we can manage our labor scheduling and inventory level more effectively. And as I mentioned, we cut down the headcount of our corporate personnel at the corporate level And in the meantime, I think with the expansion of our franchise store network, that will bring us more profitable growth along the road. So we are confident that our dedicated effort can help us actually improve our overall profitability at both the store and corporate level. Thank you, Gemma.
spk07: Thank you. Over to Gemma for the next question.
spk06: We have a question from Suni Huang from Nordic Asia Investment Group. And it is, how do you view the extended price war? The question is, is it more about lacking industry demand or aggressive competitors given the increased number of coffee stores in China in 2023? The question is also about potential price hikes for certain Tim's products. There were some in May. It's asking... if you could speak to the sustainability of product price hikes and any further plans of price hikes going forward.
spk03: Okay, I'll take this question. As I just mentioned, the pricing competition does not last longer than expected. I think that's because most of coffee brands just compete on coffee products. And coffee products have become more in common, similar taste, similar profile. And if they want to grab shoes, they have to compete on price. But for us, we not only sell coffee, we sell a lot of food. And food is a big differentiation point for us. Yeah, we did increase our bagel and bagel sandwich price early May and we don't see much impact on our sales because that's the huge differentiation point for us. So I mean we have two lines for coffee, for the drinks. We will have to give discounts to attract our customers or to maintain our customer base and we plan to launch a series of value for money Dream clients as well in the future to handle the price competition for food. No, we are We are very different. No, I'm people love our bagels. They'll come back For the Peter purchase. We don't see much impact on that and also for the combos We sell our combos at a very competitive price for example breakfast one cup of coffee plus one bagel and only an IMB 19.9 R&D, which is very competitive in the market. And also our lunch menu, like one cup of coffee, plus one bagel sandwich, starting from 26.9 R&D, which is also very competitive in the market. So I mean, that's our view for Tim. We are quite different from the peer coffee brands in the market right now.
spk09: Thank you.
spk07: Over to Gemma for the next question.
spk06: We have another submitted question that is, how has your franchising strategy been evolving since you first announced it last September and what parts of it have exceeded your expectations and what has lagged your expectations?
spk03: Okay, I'll take that. Our individual franchising strategy has been evolving very well and has received over 3,000 applications already, as I just mentioned, which has exceeded our expectations. We don't really promote that much yet. But the vetting process of the partners and the sites is very time-consuming, since we want to make sure we only select the right partners to work for for many years ahead, and also we will open the right sites to ensure the profitability and the payback for our sub-franchises. So the vetting process does take a lot more time than we expected. So we are getting more personnel. We are streamlining the process to make it faster to open our franchise stores in the future.
spk09: Thank you.
spk07: Over to Gemma for the next question.
spk06: Thank you. We have a question about the supply chain. And the question is that you have a lot of products that are new and new flavors as well. Could you provide color on what your supply chain looks like and how you optimize it?
spk03: OK, I'll take that as well. I mean, over the past five years, we have built a robust supply chain infrastructure and capabilities. we have leveraged our increasing scale to secure very competitive costs from our suppliers to achieve high gross margins for both all stores and all franchises. And we have at least two suppliers for almost all materials to make sure we can supply all materials safely. And also we have multiple distribution centers in China to cover the whole country so we can open in many new cities if we want. And in addition, we have set up a flexible and nimble process so we can launch new products every two weeks to adapt to the market and customer demand.
spk07: Thank you. Over to Gemma for the next question.
spk06: We have another submitted question. It touches on the competition again. How have you seen that developing over the last year especially, but also what it means to Tims given the perceived weakness of the Chinese consumer?
spk03: Yeah, we touched about that already. I want to say something. As we all know, Kodi has emerged from the market very quickly and opened thousands of franchise stores last year. and initiate the pricing war for the whole coffee industry, which has affected all brands, including us, in the market to some extent. The pricing war might continue for a while. Having said that, as I mentioned earlier, teams don't really compete head-to-head with our coffee brands, given our coffee plus food differentiation strategy. So we'll continue to focus on our differential alien product offerings and accelerate our sub-franchising development to expand our network.
spk07: Thank you. Over to you, Gemma, for the next question.
spk06: Our next registered question speaks to the food orders and the efforts TIMSS has made to boost them. How do you see those efforts relating to the competition?
spk03: It works very well for us. As you can see, The percentage of our orders that include food rose to 52.7%, increased by over 8 percentage points from 44.2% in the same quarter of last year. With such differentiation in the strategy, we don't really need to compete head-to-head with our peer coffee brands. We don't need to compete just on price.
spk07: Great, thank you. Over to you, Gemma, for the next question.
spk06: Our last submitted question is about Tim's loyalty program, loyalty customers program. How many of your loyalty customers are transacting on average is the question, and do transacting customers have a higher spend? Do you work a lot with coupons?
spk05: Okay, I will take this one down. We just celebrated the core milestone of surpassing 20 million loyalty club members as of March 31st, 2024, and our monthly average transacting customers, as I mentioned before, were about three million during the first quarter this year. On average, our loyalty members, they purchase about 2.5 to three times a month. And I think on average, our loyalty members they spend 80% more than a non-member customer. And then on the discounts question, so we do offer many attractive promotion activities and actually discounts to attract new customers and also to encourage our existing customers to repurchase, actually to increase the customer frequency. But however, I do not think we rely heavily on coupons. We have creative marketing, we have many attractive products. We believe our overall products, quality and services offering are very attractive to our customers. Thank you.
spk07: Thank you. Over to you, Gemma, for the next question. This completes our questions, as far as I can see. Thank you. So we're coming to the end of the conference call. Gemma, over to you.
spk06: Thank you. Thank you, operator. Thank you very much, Yongchen and Albert. This concludes today's earnings conference call. We thank you so much for your participation, for dialing in, and also for your interest in TIMSS. We look forward to reconnecting with you again in the very near future.
spk03: Thank you. Thank you, all. Thank you, all.
spk06: Thank you. This concludes our call today. You may disconnect.
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