When Coffee Meets Shanghai
As the largest consumer market for freshly ground coffee in China, the Shanghai market seems to be still some way off from hitting saturation.
AT present, Chinese consumption of coffee is far less than that of tea products. However, with the improvement of people’s living standards and the growing coffee culture coupled with the huge demographic dividend that stimulates domestic consumption, there has been a continuous expansion in the coffee consumption.
The average growth rate of global coffee consumption is two percent, which is close to market saturation, whereas coffee consumption in China is growing at an astonishing rate of 15 percent annually. According to data from the International Coffee Organization, the market size of China’s coffee industry will reach RMB 1 trillion in 2025. Its coffee market is entering a stage of rapid development, and new brands are constantly emerging.
On January 6, Chinese President Xi Jinping communicated his encouragement to Howard Schultz, chairman emeritus of Starbucks Corporation, expressing his wish for Starbucks to continue to play an active role in promoting Sino-u.s. economic and trade cooperation and the development of bilateral relations.
Coffee from Abroad
The Starbucks Index is an indicator that reflects one region’s economic vitality and investment environment. The more Starbucks stores there are in a place, the more dynamic its economy is. Since entering the Chinese market in 1999, Starbucks has opened 4,700 stores in nearly 190 cities. It is among the first international coffee brands to enter China and has served as a bridge for cultural integration.
In 1989, the American urban soci
ologist Ray Oldenburg proposed “the third place” in his book The Great Good Place: outside the home and office, the place where people want to spend a good time. This concept was developed by Schultz into the cornerstone of Starbucks culture. It was also quickly embraced by Chinese citizens, and a growing number of them are now accustomed to working and socializing in the café.
Affected by the COVID-19 epidemic, Starbucks’ business was facing some issues, so opening stores in China turned out to be a life-saver. Last year, Starbucks accelerated the speed of opening stores in China while closing stores in the U.S. and Canada. In 2020, 259 new stores were opened in China, setting a new record. Starbucks expects to add 2,150 new stores and 1,100 new online stores in the next fiscal year, and it is expected to open an additional 600 stores in China.
In addition to the increasing number of cafés, many chain brands upgraded in 2020, hoping to take a share of the immense potential of the growing Chinese coffee market.
Being optimistic about the future of coffee consumption, Mcdonald’s upgraded its Mccafé in 2020. It plans to invest RMB 2.5 billion over the next three years to operate more than 4,000 stores in Chinese mainland. Mccafé entered the Chinese market in 2009, and the first store opened in Pudong, Shanghai. At that time, the success of Starbucks caused Mcdonald’s to notice the business opportunities for freshly brewed coffee, and Shanghai has also become the Chinese city with the highest sales of Mccafé in recent years. There are currently more than 230 Mccafé stores in Shanghai. After the upgrade in 2020, the average number of cups sold per store per day has basically doubled.
KFC, which launched their freshly ground coffee brand K Coffee in 2014, also upgraded the entire brand in 2020, from the raw materials, formulas and processes to packaging. KFC also opened K Coffee image stores for young people, comparable to cafés that are popular online.
Lawson started to promote its L-café in 85 percent of its convenience stores in Jiangsu, Zhejiang, and Shanghai in
Affected by the epidemic, Starbucks’ business was facing some issues, so opening stores in China turned out to be a life-saver.
2020 in direct competition with Family Mart’s Parcafé. Convenience stores in Shanghai are very developed and competition is becoming increasingly fierce. For these convenience stores, selling freshly ground coffee can not only attract more white-collar workers, but also increases the income of a single store. According to Lawson, at present, the 1,550 stores in Jiangsu, Zhejiang, and Shanghai (hosting 850 stores alone) that sell freshly ground coffee have a total sales volume of about one million cups per month.
As the largest consumer market for freshly ground coffee in China, the Shanghai market seems to be still some way off from hitting saturation. This is the main reason why major brands have continued to enter the coffee market there one after another. Openness has become the epitome of Shanghai’s coffee market and one of the city’s defining characteristics.
Some of the coffee sold in Lujiazui Financial City come from the China International Import Expo (CIIE). Since 2018, exhibitors from nearly 30 countries and regions including Ethiopia, Jamaica, Malaysia, Mexico, Indonesia, Thailand, Italy, and Japan have displayed coffee products at the CIIE. In the past three years, their products have become known to more Chinese consumers, and in various forms have become a good cup of coffee on the streets of Shanghai.
Coffee is not only an emerging industry of RMB 100 billion, but also represents Shanghai’s stylish cultural gene. Coffee beans from all major producing areas around the world can be found in the city, making the strong fragrance blend in with the urban characteristics.
New Story in the Coffee Market
Even the COVID-19 epidemic has not disheartened companies of other sectors to branch into the coffee business:
Sinopec opened a coffee shop, and even the time-honored TCM store Tongrentang opened a shop to sell healthenhancing coffee. With the continuous rise of young consumers, new products have emerged in recent years as well.
Data show that 80 percent of Tims (the famous Canadian coffee brand Tim Hortons) China’s sales come from Wechat apps. China’s first e-sportthemed café jointly created by Tims and Tencent opened in Shanghai in November 2020, providing a new “e-sports + coffee” branded experience which resoand nated well with consumers.
According to Lu Yongchen, CEO of Tims China, Tim Hortons has achieved overall profitability. At present, the number of its members is nearly two million, with a monthly repurchase rate of 40 percent.
China’s local high-end coffee chain brand M Stand, known as the strongest emerging dark horse coffee brand of 2020, has recently raised financing of more than RMB 100 million led by CMC Capital Group and co-invested by Challenjers. Relying on creative products and a trendy environment, the M Stand brand is valued at RMB 700 million.
According to CMC Capital Partner and Chief Operating Officer Wei Choy Lee, M Stand offers high product quality to meet the needs of middle- and highincome consumers for brand power in lifestyle products and meets the upgraded needs of the relatively mature coffee market. As a representative of quality youthful offline lifestyle space, M Stand’s design meets the commercial space’s demand for high-quality experience business formats and has very clear value creation.
Another Shanghai coffee brand, Manner, also experienced a breakout moment in 2020. Manner opened at least 22 new stores last year. The total number of stores in Shanghai alone has exceeded 80, basically covering all major business districts.
Openness has become the epitome of Shanghai’s coffee market and one of the city’s defining characteristics.
Coffee Sentiments
In Shanghai, coffee shops are not only opened in business districts and industrial parks, but have also established roots in communities. According to Xiong Jing, a researcher at the China Institute of Urban Governance at Shanghai Jiaotong University, these coffee shops have reshaped social space,
cultural space, and psychological space, recreating new interpersonal and social relationships. These cafés are no longer just a social space, but a place to connect, providing a realistic carrier for the refined governance of the city.
In December 2020, the coffee shop HINICHIJOU on Yongkang Road, Shanghai, became popular. There is only a small hole on the front of the store, and fluffy bear paws will deliver the prepared coffee from it, and interact with the guests from time to time. It turns out that the store manager is a deafmute barista and the clerk who hands coffee with bear paws has suffered from facial burns. The original intention of the shop was to help people with disabilities find employment.
In Shanghai, there are many cafés that either offer employment opportunities for the disabled, or are dedicated to charity, pouring kindness into coffee and showing the city’s warmth.
For people with disabilities, the training and activities of baristas are relatively less taxing to learn and perform compared with many other types of work and are relatively safe (for instance working in a restaurant kitchen involves knives and hot oil), and the work environment is less stressful (cafés are often set in downtown areas or quiet communities).
Changning District Mental Health Center may be the first in Shanghai to open a café for special groups. Since the Xinyiba Café opened in the outpatient hall in 2014, all service staff are people who have been rehabilitated from severe mental disorders. They learn how to make coffee while gradually regaining their self-confidence at work and are constantly engaged throughout the process in integrating back into society.
According to social worker Xu Junjie of the center, 10 percent of mental patients are hospitalized and the rest recover in the community. Vocational rehabilitation such as coffee and beverage making has become a more suitable option for the younger group of people recovering from mental disorders. Therefore, the concept of fully participating in services by people with mental disorders was put into practice.
It is reported that behind every cup of coffee in Xinyiba Café, there is not only the continuous learning and adaptation of recovered patients for months or even years; there are also the availability of doctors’ intervention at any time and regular evaluation of the patients’ recovery process. Social workers are also within access of the patients ready to provide support and assistance to them in dealing with special situations when needed.
After seven years of operation, Xinyiba’s customers have been limited to medical staff in the Changning District Mental Health Center for in-hospital payment and settlement. This is due to safety considerations. “After all, this is a rehabilitation project, not a coffee bar in the true sense.” Still many young people with mental disorders have found motivation here. At the end of 2020, the fully automatic coffee machine here was replaced with a semi-automatic one, which increased the complexity of operation, but also made the coffee taste closer to that served in other cafés.
For many special cafés in Shanghai, coffee has become a carrier, not only conveying the goodwill of the city, but also showing the city’s inclusive character. C