China’s Coffee Market Soars with Explosive Growth and Intensifying Competition

China, the world's second-most populous country, is witnessing an unprecedented surge in coffee consumption, driving fierce competition among local and international coffee chains. This burgeoning demand has led to the opening of thousands of branded coffee shops in recent months, surpassing the number of coffee stores in the United States.

The number of branded coffee shops in China has skyrocketed by an astonishing 58% in the past year, reaching a total of 49,691 outlets, according to data from Alegra Group, a company that monitors the growth of coffee chains.

A new era of competition between local and foreign brands

Traditionally, the Chinese coffee market was dominated by international giants like Starbucks, Canada’s Tim Hortons, and the UK’s Costa Coffee. However, these brands now face increasing competition from Chinese chains such as Luckin Coffee, Cotti Coffee, and Manner Coffee, as well as local independent cafés in major cities like Beijing.

For coffee enthusiasts, this translates into a plethora of choices, ranging from classic Americanos to innovative lattes infused with pork flavors or Chinese liquor.

According to Alegra Group, China's Luckin Coffee has added 5,059 stores over the last 12 months, while Cotti Coffee has opened 6,004 outlets during the same period.

Luckin Coffee’s Chief Executive, Jinyi Guo, highlighted the company’s focus on expanding its market share during the firm's third-quarter earnings call. Meanwhile, Starbucks has opened 700 new stores in China over the past year and aims to operate around 9,000 stores by 2025. Similarly, Tim Hortons plans to expand to 3,000 stores in the country within the next four years.

Global brands eye china’s market potential

Bogotá-based Juan Valdez is also planning to enter China and Brazil by 2030 as part of its strategy to establish a presence in rapidly developing coffee markets. CEO Camila Escobar Corredor indicated that the brand intends to tap into the retail packaged coffee markets in these countries before launching physical stores, a strategy that has proven successful in markets like Turkey and Kuwait.

The intense competition has prompted foreign chains like Starbucks to adapt to local tastes by adjusting their menu options, redesigning store interiors, and forming partnerships with local businesses.

Data from the International Coffee Organization reveals that coffee consumption in China grew by 15% in the year ending September, reaching 3.08 million bags. Analysts predict that China’s increasing appetite for coffee will be a significant driver of future demand as coffee shops expand beyond major cities like Beijing and Shanghai into mid-sized cities, where young professionals are increasingly embracing the beverage.

Shanghai: The coffee capital of china

Shanghai has emerged as the epicentre of the coffee boom, hosting 2,056 foreign-funded coffee enterprises. Notably, organizations based in Shanghai contributed over 40% of the nation’s total raw coffee bean exports last year, cementing the city’s crucial role on the global coffee map. This trend has attracted new entrants to the market, including the Neumann Kaffee Gruppe, a multinational green coffee trading company that has recently established its first office in China, located in Shanghai’s bustling Changning District.

A Cultural Shift among young Chinese

China’s coffee imports primarily come from Africa and South America. The United States Department of Agriculture forecasts that China will consume 5 million bags of coffee in the 2023-24 season, making it the world's seventh-largest consumer. Despite this, Chinese coffee consumption still lags behind top consumers like the United States and Brazil, who each consume over 20 million bags annually. However, the growing demand indicates that China is undergoing a cultural transformation similar to other traditionally tea-loving Asian countries, including Japan and South Korea.

Historically, the Chinese have been known as tea aficionados, but a new trend is emerging as young, middle-class consumers find coffee’s caffeine kick more suited to the pressures of a competitive job market and demanding workplaces. According to Xin Ou from Statista, coffee is becoming increasingly popular among young people, with consumers aged between 25 and 44 forming the largest group of coffee drinkers. More than half of Chinese coffee drinkers consume at least three cups a week.

Li Yizhe, a 26-year-old government worker, shared that she has started drinking coffee daily over the past two years to boost her energy. “I used to drink milk tea, but now I’ve shifted to coffee,” she said while enjoying a cup at an artisanal coffee shop in a Beijing hutong, or alley. Zhang Jian, a 33-year-old freelancer, noted that he often buys his daily cup of coffee at Luckin, citing its convenience and affordability. “As colleagues start to pick up the habit, it gradually forms a coffee culture,” he explained, attributing the growing popularity of coffee to the high job stress and long working hours faced by Chinese workers.

Innovative campaigns and shifting preferences

Additionally, takeaway, payment, and social media platforms have launched the “Drinking in the City” campaign in Shanghai, investing nearly 100 million RMB (approximately US$13.8 million) into the consumer market. Among these initiatives, Ele.me collaborated with Starbucks to offer the “Every Thursday, This Cup is on Me” promotion, providing 550,000 cups of free coffee, while Xiaohongshu (RED) introduced the month-long “Coffee Stroll in Shanghai” event, featuring the “78 Choose 3” special coffee map.

Although instant coffee has long dominated the Chinese market, freshly ground coffee is expected to surpass instant coffee by 2023. A wide variety of coffees are now available, with Cappuccino being one of the favorites among consumers as of May 2022.

Changing Trends in Coffee Imports

China is also witnessing a shift in its coffee import preferences. While robusta coffee accounted for 86% of the total green beans imports in 2010, by 2023, Brazilian Naturals made up 59% of imports, relegating robustas to third place with a 12% share. Colombian Milds now occupy second place, holding a 20% share.

The new coffee culture in China has become a boon for coffee exporters in Ethiopia, the birthplace of Arabica coffee. Ethiopian exporters are enjoying the rising coffee market in China as more Chinese consumers begin to appreciate Ethiopian coffee. In 2023, Ethiopia was the largest exporter of Other Milds to China, accounting for 38% of the market, followed by Guatemala and Papua New Guinea with 27% and 15% shares, respectively. Colombia remains the dominant origin for Colombian Milds, with the volume of Colombian Milds increasing to 0.55 million 60-kilogram bags between 2010 and 2023.

Enormous growth potential

The potential for growth in the Chinese coffee market is enormous. With a population of over 1.4 billion people, potential coffee drinkers represent just over 10% of the population. However, per capita coffee consumption is only 0.15 kilograms, compared to the world average of 1.36 kilograms per capita. If China’s coffee consumption were to match the global average, demand would increase to 31.7 million 60-kilogram bags, making China the largest coffee market in the world.