Starbucks, Costa take on the challenge of growing the coffee business in China, the traditional land of tea
China’s coffee shop market is set to grow at nearly 6 per cent a year in the next five years, but competition is fierce and is forcing the chains to innovate
Zhang Xinyuan, a Shanghai white-collar worker, is happy that a new Starbucks outlet has opened near her flat in the city’s Pudong district.
“A cup of Starbucks espresso drink in the morning is an essential part of my daily life and the new outlet, within only five minutes’ walk from home, will save me a lot of time,” said the 35-year-old. “Starbucks has reasons to smile in this market since it has so many loyal customers like me.”
Zhang and many young middle-class Chinese like her are fuelling a boom in popularity in coffee drinking in the traditional home of tea, with the likes of Starbucks and UK-based Costa Coffee among the beneficiaries.
But analysts note that the big players will need to look over their shoulders as new entrants join the market, intensifying already cutthroat competition, although there is still plenty of room to expand into smaller cities.
“The overall coffee market is still underdeveloped in tier-three to tier-five cities in China,” said Jason Yu, the general manager of market research firm Kantar Worldpanel Greater China. “But the established players are facing competition from new entrants … and popular milk tea shops catering to younger consumers.”
Milk tea shops refers to numerous chains that sell various tea-based drinks that often have either milk mixed in or come with cheese as a topping. Their popularity has surged in the past two years in China, Hong Kong and elsewhere in Asia.