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China's budding coffee culture propels Starbucks, attracts rivals

Reuters  |  SHANGHAI/LOS ANGELES 

By Adam Jourdan and Lisa Baertlein

SHANGHAI/(Reuters) - In Wu Qiong's small cafe in downtown Shanghai, coffee beans nestle in glass jars on the bar while various brews bubble away behind the counter.

The cafe - one of thousands of trendy, artisan coffee shops in the city - reflects a growing cafe culture in that's driving growth for chains like Corp and attracting more competition.

"There are many more choices for consumers in the coffee market here now," said Wu, 35, who set up the store with her boyfriend this year, the couple's second outlet. "People can choose chains or go for specialist coffee stores."

dominates in where it has over 3,000 stores and is growing fast, even as in the United States it comes under pressure from a "third wave" of boutique coffee sellers and cheaper rivals.

At a launch event on Tuesday of its first overseas "Reserve Roastery" - an opulent flagship store with gourmet coffees and a bakery - executive chairman Howard Schultz said store numbers in would hit 10,000 within a decade.

"is going to be bigger than the United States in less than 10 years," he told in an interview at the store.

held a 54.8 percent share of China's 25.2 billion yuan ($3.81 billion) specialist coffee shop market last year, far ahead of rivals like McDonald's Corp's McCafe and Whitbread Plc's Costa Coffee, Euromonitor data show.

Unlike in the United States, Starbucks' challenge in has been winning over traditional tea drinkers to coffee, rather than fending off local rivals. That could be changing.

"Right now we notice an increasing number of small brands and independent coffee shops. They are registering explosive growth rates," said Shanghai-based Euromonitor analyst Yu Limin.

GROWING CAKE

alone has an estimated 6,500 coffee houses, with small chains, independent stores and bakeries battling for a slice of a market that Mintel says could grow to 79 billion yuan by 2022 from 60 billion yuan this year.

Convenience stores, which already offer hot food popular with breakfast crowds, are also rolling out coffee.

"There are a lot of new players and the cake is getting bigger," said Lawrence Ge, founder of Single Patch Coffee, who runs coffee workshops and cafes in and Suzhou.

International coffee chains are now looking to get in on the act, too - despite having a big head start.

Peet's Coffee, a craft chain that rivals at home, opened its first store last month, and has brought in local help from investment firm Hillhouse Capital and Sam Su, ex-head of Yum Brands Inc, who drove impressive growth for KFC and Pizza Hut in

"is top of my priorities for 2018," Pascal Heritier, chief operating officer of Italian coffee company Massimo Zanetti, told Reuters, adding the firm, which sells Boncafe and Segafredo coffee, was in talks with local partners about expanding its presence.

"It's not only for us, but the whole industry. It's something that is booming... So for actors in the coffee industry, will be a country to look at in the future."

CRAFT COFFEE

itself is doubling down on China, where in the latest quarter it saw 8 percent same-store sales growth and said it would buy out its joint venture partner in east for $1.3 billion.

As well as its new coffee "roastery", has rolled out higher-end coffee bars in China, is looking to improve its food offering, and has leveraged popular mobile payment platforms from Alibaba Group Holding Ltd and Tencent Holdings Ltd.

That premium push may be too late to win back consumers like Zhou Hanwen, a market analyst in who says she's a "serious coffee user", but has switched from Starbucks' lattes to smaller, trendy coffee houses.

"I like quieter venues and so usually go to rather arty, yuppie places," she said, while sipping a brew at downtown Mellower Coffee, which has coffees with names like "sweet little rain" - an Americano with a "cloud" of candyfloss.

Zhou added she also now more often makes coffee at home - another trend analysts say is challenging physical stores.

For now at least, China's developing cafe culture is likely to be more a boost than burden for big names like

"I think the more people who are successful with coffee in this market the better it will be for because more people will be educated around the product," said Schultz.

"There's always competition," he added. "We have competition all over the world."

($1 = 6.6182 Chinese yuan renminbi)

(Reporting by Adam Jourdan in SHANGHAI, Lisa Baertlein in and Martinne Geller in LONDON, with additional reporting by newsroom; Editing by Ian Geoghegan)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, December 05 2017. 19:11 IST
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