A barista brews coffee at the Starbucks Beijing Xitieying Wanda signing store in Beijing on Nov. 23, 2023. [Photo/Xinhua]

When I last lived in China, it was easy to find an intersection in Shanghai with a Starbucks shop on every street corner. Now, four years later, China has even more coffee shops – and it's not just foreign brands like Starbucks. 

Driven largely by the growth of domestic brands like Luckin Coffee, China has surpassed South Korea as the country with the most branded coffee shops in the world. Shanghai was already the city with the most coffee shops in the world in 2021. However, China still does not have the most coffee shops per capita when compared to its large population – South Korea and Japan rank first and second in that regard. 

What might be surprising to some is that China already surpassed the United States in terms of coffee shops years ago. With 49,691 cafes, China has over 10,000 more cafes than the United States, according to Project Café 2023. Americans do drink a lot of coffee – 3.1 kilograms worth of beans per capita, according to Euromonitor – compared to 2.6 kilograms per capita for South Koreans and less for Chinese. But Americans typically enjoy their morning coffee at home, and we don't have the same social coffee culture as Asians or Europeans living in densely-populated cities.

Luckin Coffee, China's leading branded coffee shop with 13,000 outlets, has grown by focusing on creative coffee-based drinks. Their online menu lists their top three sellers: the coconut latte, a latte enriched with coconut milk that is subtly sweet and smooth; the velvet latte, which is made creamy and silky with Hokkaido milk; and the creamy dreamy latte. An iced minty coconut latte is one of Luckin's newest additions.

What is immediately clear is the importance of a smooth textured drinking experience for many of Luckin's drinks. China does not have a long history of coffee consumption as many European countries do. Coffee often tastes bitter to infrequent drinkers of the stuff. Tea is China's drink of choice, so Luckin has many drinks that mix coffee and tea. They also have a lot of drinks that blend coffee and juice. Their Exfreezo blended coffee drink, for example, comes in flavors such as matcha, peach jasmine, and mango jasmine. 

Luckin's comeback focused on attracting customers through quality and taste rather than racing to the bottom on price. When it first started, Luckin mostly only sold ordinary coffee drinks at extremely low prices. The prices were so low that the company couldn't make a profit. Students and workers just drank it for its affordability and convenience, but it didn't build lasting customers with brand loyalty, leading to an accounting scandal. Now, by focusing on producing unique and tasty products, it can increase prices and attract customers who like its specialty creations.

The profitable coffee industry in China has also attracted interest from other existing players and new entrants. Starbucks, which has over 6,800 locations in China, opened over 850 new stores this year and has plans to reach 9,000 by 2025. That would require even faster growth of 13% per year, above the company's current annual growth rate of 10%.

In addition, another local startup, Cotti Coffee, is expanding aggressively. Cotti Coffee already has 6,061 locations in 28 countries after just having been launched by a couple of former Luckin executives in August 2022. Cotti seems to be focusing on the low-price strategy that Luckin pursued early on. Their Americano cost half the price of a leading competitor's Americano when they opened their first shop in Thailand this month. Cotti already has shops open in South Korea, Indonesia, and Japan, among other countries.

Luckin opened its first foreign location in Singapore in early 2023, and now has 24 stores there. One of its most innovative drinks is the Big Cheese Latte, which uses New Zealand cream cheese and aromatic blends of coffee.

Manner Coffee has had a different growth trajectory. It grew slowly from just one stall on the street of Shanghai to over 300 stores as of 2021. Other smaller local cafe brands include M Stand and Seesaw Coffee. Canadian coffee leader Tim Hortons is also aggressively expanding in China with over 700 stores targeted at "underpenetrated cities," especially those in the northeast.

The different strategies of different companies show the many possibilities for growth in the Chinese coffee market.

Mitchell Blatt is a columnist with China.org.cn. For more information please visit:

http://www.jhzsvip.com/opinion/MitchellBlatt.htm

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