Coffee Scene in China Cozies up to Retail Chains—Part 3

By Colleen Luckett

This is part three of a 3-part series on the specialty coffee industry’s emergence in China. You can read Part 1 here and Part 2 here.

Chinese millennials, such as those pictured here in front of the Guangzhou Library, are driving the coffee-chain explosion in China.

Chinese millennials, such as those pictured here in front of the Guangzhou Library, are driving the coffee-chain explosion in China.

With the economy in China booming, many people there are finding it easier to open their wallets a little wider than usual. One of the industries seeing a large boost is the specialty coffee industry, so let’s look at some of the coffee shop chains leading the way.

No coffee shop article would be complete without a Starbucks mention, so let’s get that one out of the way first! Starbucks opened its first store in China in 1999, and many were skeptical about whether they could become successful in a predominantly tea-drinking country. But nearly 20 years later, Starbucks has shown they had something up their coffee sleeves: China is the company’s fastest-growing market, with a new store opening every 15 hours. The goal is to open 6,000 stores across 230 cities by the year 2022.

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Starbucks was also instrumental in supporting China’s local coffee farmers, opening its first Asia-based Farmer Support Center in China’s Pu’er City, Yunnan Province. The Farmer Support Center has trained more than 17,300 farmers in Yunnan on sustainable farming practices and certified more than 1,700 farms. In January of 2017, Starbucks launched its first single-origin Yunnan coffee across all locations in mainland China, thus completing its bean-to-cup journey.

Britain-based Costa Coffee has historically done very well in the UK, but pace of growth has fallen sharply in recent years.  Costa first entered the Chinese market in 2003 and has been second to Starbucks in the area for many years. In 2017, Britain-based Costa Coffee chief executive Dominic Paul saw enormous potential in China for the company. Indeed, with the August 2018 announcement of Coca Cola buying out the company for $5 billion, Costa Coffee is now in a much better position to compete with Starbucks in China. The chain boasts 449 stores there and plans to expand to 1,200 stores in China by the end of 2022. However, Costa Coffee will obviously have to so some heavy lifting in order to catch up to Starbucks’ rapid expansion in the country.

Luckin Coffee is a China-based coffee shop, now Starbucks’ most aggressive challenger there. Luckin, a homegrown start up launched in 2017, within only one year is now worth $1 billion. The company has expanded rapidly, marketing itself with ubiquitous ads, steep discounts, and an aggressive media campaign.  What sets Luckin apart is its coffee delivery model: half of its outlets are kitchens dedicated solely to fulfilling online orders. Luckin is still smaller than Costa and Starbucks, but  David definitely has Goliath feeling a bit nervous. In fact, Starbucks announced just last month their new delivery service that will allow consumers to order coffee from their phones. Any local shop that gives Starbucks a run for its money is a-okay in our minds!

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In China, the instant coffee market grew from 5.6 million yuan ($88.3 million) in 2012 to 6.6 billion yuan in 2017. Nestle, the world’s largest coffee producer, has continued to upgrade its coffee business and diversify its products in the midst of China’s trend toward hand-brewed coffee shops in the country. According to the company’s 2017 fiscal reports, the growth in China continued with positive momentum, particularly for coffee and culinary products. Altug Guven, senior vice-president of Nestle’s coffee business unit in China, says that Nestle’s core mission for their coffee brands in China is to “Drive the coffee culture and consumption and becomes the most preferred and pioneering coffee brand for future generations.”

China has already become one of the key markets for Nestle, and its popular instant coffee Nescafe has a full product line ranging from ready-to-drink coffee to soluble coffee to capsule coffee. And in answer to Chinese consumers’ increasing demand for the high-end coffee retail experience, Nestle China last year launched a pop-up café in Sanlitun, a central business area of Beijing.

With all these rivals seeking to corner the market on coffee sales in increasingly prosperous China, this slice of the coffee world  will definitely be an exciting one to watch in the coming years. Let the “Coffee Wars” begin!

Want to add your personal experience with coffee chains in China? Tell us in the Comments section below.