A Bagel success story, and a Red Bull slayer

“You’re never going to go anywhere competing directly on coffee against Chinese brands. Pick something distinctive, move fast, and hope the novelty lasts.”

By Doug Young & Rene Vanguestaine

In China’s fiercely competitive consumer market, survival often hinges on finding a niche. Two companies illustrate this vividly: Tim Hortons, trying to regain its footing with bagels after coffee setbacks, and Eastroc Beverage, emerging as China’s homegrown challenger to Red Bull.

Tim Hortons has struggled in China, finding itself awkwardly positioned — more expensive than Luckin Coffee but cheaper than Starbucks. Its early attempts faltered, and doughnuts, its trademark item in the West, vanished from Chinese menus, reflecting local indifference toward overly sweet snacks. Recently, however, Tim Hortons has discovered bagels — a niche surprisingly underserved in China. Its pivot towards becoming a bagel specialist appears to be paying off, stabilizing same-store sales declines.

We believe bagels are a clever choice: unique enough to differentiate but simple enough to scale. However, caution is warranted. Chinese entrepreneurs are notoriously swift at replication, and what starts as novelty can quickly become commoditized. Tim Hortons must build momentum rapidly or risk losing its edge to agile local competitors. The real question remains whether Chinese consumers will embrace bagels beyond initial curiosity.

The rise of a Red Bull slayer

Meanwhile, Eastroc Beverage, selling functional energy drinks under the Dongpeng brand, has become a domestic legend by successfully challenging Red Bull’s dominance. Using a strategic approach, Eastroc penetrated China’s smaller cities first, avoiding direct confrontation with Red Bull’s established presence in big metropolitan areas. This methodical encirclement allowed Eastroc to quietly amass market share before tackling bigger urban centers. A drawn-out legal dispute between Red Bull and its Chinese licensee further cleared the way for Eastroc’s rise.

Eastroc’s impressive 36% annual revenue growth underscores the demand among China’s tech-driven, overworked “996” workforce. Unlike Red Bull, known globally for its association with extreme sports, Eastroc appeals to a broader, more cost-sensitive demographic in smaller cities. Still, brand loyalty and lifestyle associations are formidable barriers. Red Bull’s dedicated customer base, tied closely to its energetic, sporty image, won’t easily be replaced by cheaper alternatives.

Eastroc’s forthcoming IPO in Hong Kong, reportedly aiming to raise as much as $1 billion, has sparked investor interest. However, comparisons to established beverage giants like Nongfu Spring — a bottled-water titan with a market capitalization in the tens of billions of dollars — and Chagee, a bubble tea brand deeply embedded in daily social rituals that raised only around half a billion dollars, suggest Eastroc might face challenges achieving that ambitious fundraising goal. Additionally, functional drinks like Eastroc’s cater to specific consumer needs rather than habitual consumption, raising further questions about the sustainability of its long-term growth.

Investors considering Eastroc must weigh its impressive growth against its niche market constraints. Tim Hortons, conversely, must swiftly solidify its new bagel niche or face the need to make yet another costly pivot in China’s unforgiving market landscape.

About China Inc

China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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