China's coffee market is experiencing rapid growth, with domestic brands swiftly capturing market share as consumer demand continues to rise, prompting international coffee giants such as Starbucks to recalibrate their strategies in order to attract Chinese consumers and remain competitive in this dynamic landscape.
In recent years, China has emerged as one of the fastest-growing coffee markets globally. The shift in consumer preferences from tea to coffee has prompted an influx of local brands, including Manner and Cotti and Luckin, offering a variety of flavors and experiences tailored to the tastes of Chinese customers.
This trend has not only intensified competition but has also encouraged innovation in product offerings.
Starbucks is estimating a 14-percent-dip in revenues for its China business in the final fiscal quarter of the year. It has left some wondering if the brand has fallen out of favor with local consumers.
To regain customer loyalty and momentum, Starbucks is changing its strategy. The company says it will simplify its overly complicated menu and fix its pricing structure. This shift comes as the market in China becomes increasingly competitive.
Analysts say that coffee market penetration in China is growing – fueled by the blossoming of international and domestic coffee brands.
"The competition is quite fierce, both for international and domestic brands. The competition has also evolved to include different types of coffee drinks. In some cities, coffee is also competing with dairy and tea beverages. It shows the overall competitive landscape for coffee. This all comes from the diverse market across different cities in China," said Zhao Hui, general manager of Kantar Worldpanel North China.
Over the past decade, coffee consumption in China has grown over 160 percent. Brewed coffee doubled its market share, while domestic coffee brands have continued to expand and eat up shares previously dominated by international brands. There are almost half a billion coffee drinkers in China and these customers are becoming smarter and harder to capture.
"Coffee enthusiasts often gravitate towards more affordable options that offer similar taste profiles, as there are now numerous alternative products available in the market," said a Beijing resident.
"I frequently enjoy brands like Starbucks, Manner, Tim Hortons, and occasionally choose Luckin Coffee," said another resident.
Zhao Hui said that rapid expansion of China's coffee market can also be attributed to the diversification and convenience of shopping platforms, which have made coffee a fast-moving consumer good.
"China has one of the most complex systems for shopping channels and sources in the world. On average, people use more than seven different shopping platforms and channels per year for purchasing fast-moving consumer goods. And coffee falls under the category, where innovation plays a key role. A SKU (stock keeping unit) is created every minute in China. It underscores the importance of innovation in coffee as well as in all fast-moving consumer goods sectors," Zhao said.
Despite the downward store sales, the U.S. coffee giant added 290 new stores to its footprint on the Chinese mainland in the fourth quarter, which took up over 40 percent of its 722 newly opened stores globally.
This has brought the total number of Starbucks stores on the Chinese mainland to 7,596, covering about one-third of all the county-level markets in the world's second largest economy.
At the end of the quarter, stores in the United States and China comprised 61 percent of the company's global portfolio, the company said.
In recent years, county-level markets have become the "blue ocean" for coffee consumption in China. Experts believe that Starbucks' continuous expansion demonstrates its confidence in the Chinese coffee market.
China's coffee boom sparks intense competition
