Coffee culture comes to the boil in Shanghai

Outlets locked in the fierce battle for business in prime areas

Canadian coffee chain Tim Hortons opened its first store in China on February 26, joining a fast-expanding market that already had dozens of competitors.
The outlet, in Shanghai's Huangpu district, is the brand's 4,580th in the world and is the result of an exclusive master franchise agreement with New York private equity outfit Cartesian Capital Group.
While Tim Hortons is still relatively unknown in China, Cartesian Capital Group is no stranger to the country. In 2012, it became one of the key players behind the further expansion of the Burger King fast food brand on the Chinese mainland.
In addition to classic offerings such as the Double Double, a coffee with two creams and two sugars, the Shanghai outlet serves a selection of light snacks exclusive to the Chinese market, such as salted egg yolk timbits and black pepper beef-flavored rolls.
According to industry experts, Shanghai is the center of China's burgeoning coffee culture.

Consumer base

Tim Hortons' entry into the burgeoning Chinese market comes amid a high-profile battle for business between Starbucks and local entity Luckin Coffee, one of China's latest unicorns, which raised 200 million U.S. dollars in its latest funding round in December. A unicorn is a privately held startup valued at more than one billion U.S. dollars.
Luckin coffee in Shanghai. /VCG Photo

Luckin coffee in Shanghai. /VCG Photo

Both companies have been rapidly expanding their footprint. According to Reuters, Luckin took just six months, between January and July last year, to open 660 stores in 13 Chinese cities. It took the market leader Starbucks 12 years to open the same number.
Starbucks, which according to market intelligence company Euromonitor holds a 58.6 percent share of the market, has also been stepping up its expansion. The U.S. coffee giant, which has about 3,400 stores in China, is aiming to have 6,000 outlets in the country by the end of 2022. Costa Coffee is planning to have 1,200 stores by 2022.
Tim Hortons will open about 30 stores in Shanghai this year as part of its plans to have 1,500 outlets in the country within a decade.
Although the streets of downtown Shanghai are already dotted with coffee houses, some industry players do not appear too concerned about oversaturation. Instead, it is consumption levels that are giving players cause to be optimistic. According to the International Coffee Organization, the average consumption in China is only about five cups a year. In contrast, the global average is 240.
A search for "coffee shop" on the consumer review site yields more than 7,500 results. In addition to the host of outlets operated by major chains, there are dozens of smaller local coffee entities such as Greybox Coffee, Coffee Box and Manner Coffee, many of which have only emerged in the past two years.
Some specialty coffee houses have diversified their business to stay competitive. For instance, Cafe del Volcán sells its coffee beans to some of Shanghai's best restaurants and hotels.
Starbucks has already made efforts to cater to more-discerning consumers. In February, it launched its upscale Starbucks Reserve Bakery Cafe in Shanghai, which offers made-to-order food, premium coffees and even cocktails.

Delivery resistance

Most coffee shops offer deliveries, but this tends to compromise the quality of the product.
This demand for convenience is further illustrated by Starbucks' partnership with to offer delivery services in Beijing and Shanghai. Industry players also point out that one of the key reasons behind Luckin Coffee's rise in popularity is the fact that it is primarily a takeaway model. Tim Hortons also plans to begin delivery services in the second half of this year.
Source(s): China Daily