Unveiling China’s Booming Coffee Industry

Coffee, once considered an exotic beverage, is now becoming the new "national drink" for the younger generation in China. It serves as a revitalizing elixir for workers, a perfect companion for fitness enthusiasts, and a symbol of the urban youth's quality lifestyle. As the coffee consumption habits of the Chinese people evolve, the market continues to experience rapid growth driven by the increasing demand for quality and specialty coffee. According to data from Meituan, the Chinese coffee industry reached 200.7 billion yuan in 2022, and it is projected to reach 369.3 billion yuan by 2025.

This article delves into the insights provided by the "2023 Report on the Development of Coffee in Chinese Cities," jointly released by the Hongqiao International Coffee Port, Meituan, Shanghai Jiao Tong University's Institute of Cultural Innovation and Youth Development, and CBNData.

Supply Chain Dynamics and the Competitive Landscape

From the perspective of the industrial chain structure, the upstream of the coffee industry involves the planting, picking and primary processing of coffee beans, the midstream is the deep processing of coffee beans, and the downstream points to the various brands offering different coffee products.

In the upstream, the competition revolves around "specialty coffee beans" that significantly impact quality. Established brands seek high-quality production areas globally, while Yunnan's fine coffee beans have emerged as leaders with government support, Shanghai-Yunnan collaborations, and brand-focused supply chains. This has accelerated the production of premium Yunnan coffee beans, establishing them as representatives of local excellence.

Leading brands like Starbucks and Luckin have achieved self-supply through their own baking facilities in the midstream sector, exploring B2B growth and building brand assets. Shared baking facilities, such as Shanghai's No. 6 Factory, cater to the needs of small-scale, high-quality baking for boutique or new industry players.

In the downstream sector, enthusiasm towards coffee has driven the entry of emerging brands. The evolving coffee consumption trends emphasize higher standards for professional baristas, focusing on standardization and quality. Shanghai's Hongqiao Pinhui, a barista social training and evaluation organization, played a major role in enhancing the standards of training institutions and promoting the nationwide adoption of the "Shanghai Standard" in 2022.

In the domestic market, chain cafe brands include not only Starbucks, Tims, COSTA and other European and American chain enterprises, but also local players such as Luckin, Manner, M Stand, %Arabica, etc., presenting a competitive pattern of old and new brands.

Starbucks ranks first among China's major coffee chain chains, and Luckin Coffee ranks second. The former is revered for its high-quality products and comfortable store atmosphere, while the latter breaks through the circle with its cost-effective products, and has become the chain coffee shop with the largest number of stores in China. In contrast, Tims China and COSTA rank third and fourth, while Manner, M Stand and %Arabica rank fifth to seventh.

Industry and category insights

Spiking Growth

The projected growth rate for the industry from 2020 to 2025 is estimated to be around 22%. This substantial growth highlights the immense potential and profitability of the Chinese coffee market, and presents a compelling opportunity for global coffee brands.

Shanghai as the Coffee Capital

In Shanghai, coffee shops are spread all over the streets and alleys, infiltrating into various daily scenes such as business, fitness, shopping, leisure and entertainment. The city has emerged as the undisputed coffee capital of China. With over 7,000 coffee shops, it surpasses renowned coffee hubs like New York and Tokyo in sheer numbers. The city's dynamic, international atmosphere has become a magnet for not only coffee enthusiasts, but also for both local and international coffee brands. Brands like Manner, M Stand, and Seesaw all started their journey in Shanghai, and online companies like Sandunban and Yongpu also chose Shanghai as their first destination.

Tier 3-4 Cities Driving Industrial Growth

While Shanghai takes the lead in the coffee industry, it is worth noting that Tier 3-4 cities have also become pivotal drivers of growth. These cities, which are typically smaller and less developed, have witnessed a surge in the establishment of local cafes and coffee brands. For industry players, this presents an opportunity to expand operations beyond the major cities.

Increasing Import Scale

In addition to the growth of local cafe and coffee brands, the import scale of coffee in China is on the rise. This indicates a shifting consumer preference for diverse and international coffee offerings. Chinese consumers are becoming more open to exploring imported coffee varieties. When introducing their products to the Chinese market, international brands must cater to the evolving tastes and preferences of Chinese consumers, and capitalize on the increasing demand for diverse coffee options.

Consumer Insights

Top 5 Coffee Cities

While Beijing and Shanghai remain key players, cities like Guangzhou, Chengdu, and Shenzhen have also established themselves as vibrant coffee hubs. This trend indicates that coffee culture is not limited to a specific region but is spreading across the country, presenting an opportunity for coffee producers and brands to target these emerging markets.

Consumer patterns

Consumers between the ages of 20 and 39 account for nearly 70% of the coffee consumption market. This age group values quality, experience, and social interactions, which aligns well with the coffee culture and café atmosphere. As more young people enter the workforce and adopt urban lifestyles, coffee is becoming a symbol of sophistication and a way to stay connected to global trends.

Additionally, there is a noticeable gender divide, with a higher proportion of female consumers embracing coffee culture. In the five major cities of Shanghai, Chengdu, Guangzhou, Beijing, and Shenzhen, most of the coffee drinkers are high-income and highly educated people with an average monthly average of more than 10,000 yuan.

Understanding these demographics enables coffee producers and brands to tailor their marketing strategies and product offerings to resonate with specific consumer segments.

Chinese vs. Western Habits

While the Western coffee culture often revolves around specialty coffees, China's market leans towards a blend of daily convenience, premium quality, and unique flavours. The rise of food delivery services has thus extended to coffee, with an increasing number of consumers opting for freshly ground coffee delivered straight to their doorstep. Coffee producers and brands can leverage this trend by partnering with delivery platforms or offering their own delivery services, ensuring a convenient yet ‘flavour-rich’ experience for consumers.

Daily Consumption

Chinese consumers are increasingly incorporating coffee into their daily routines, mirroring the traditional tea-drinking culture. This trend suggests a need for coffee producers and brands to position coffee as a habitual beverage, emphasizing convenience, affordability, and variety to capture a larger market share.

Premiumization

As consumers become more sophisticated in their taste preferences, there is a growing demand for premium, innovative, and unique coffee experiences. This consumer insight presents an opportunity for coffee producers and brands to showcase specialty coffee offerings, such as single-origin beans, small-batch roasts, experimenting with creative blends and unique brewing methods, and introducing localized flavours to cater to discerning palates.

To conclude, the coffee industry in China is in the midst of robust growth, presenting an attractive opportunity for global coffee businesses. While Shanghai’s status as China’s coffee capital showcases its prominence in terms of consumption and the number of cafes, tier 3-4 cities are emerging as new engines of growth, offering untapped potential for industry players. While local brands are massively on the rise, the increasing import scale also indicates a growing appetite for international coffee products. Understanding the consumer insights is vital for coffee producers and brands aiming to succeed in this thriving market. By delving into consumer patterns, appreciating the differences in preferences compared to the west, and capitalizing on emerging trends, producers and brands can tailor their strategies and offerings to meet the evolving needs and tastes of Chinese coffee enthusiasts, and position themselves for success.