Tiny coffee beans in China's big market

"In the first few years, we were thought 'we wouldn't be able to succeed here'. And now it seems that over the years we have shown great perseverance and conviction and persisted in long-termism. Howard Schultz, founder of the American coffee brand Starbucks, recently visited Shanghai and talked to teachers and students at Fudan University for the School of Management, recalling the Starbucks brand's early days when it expanded its stores in China.

In the memory of the "father of Starbucks", when he visited in 2006, there were less than 500 Starbucks stores in Chinese mainland China, but now Starbucks has opened more than 7,000 stores in more than 800 cities in Chinese mainland, including more than 1,000 in Shanghai. This number also makes Shanghai the city with the most Starbucks stores in the world.

According to the "2023 China Urban Coffee Development Report" released during the 2023 Shanghai Coffee Culture Week, the scale of China's coffee industry is expected to reach 369.3 billion yuan in 2025. Chinese consumers' coffee habits are becoming more everyday and high-quality. According to data from Meituan, the number of cafes in Shanghai has exceeded 8,500.

Small coffee beans, reflecting the big Chinese market. Not long ago, Schultz and other top figures in the global coffee industry came one after another, and a number of international coffee competitions were held at the 32nd Shanghai International Hotel and Catering Industry Expo, as well as supporting coffee food culture festivals. Starting in April, Shanghai will also hold coffee carnivals and coffee culture weeks as usual, so that the popularity of Shanghai's coffee industry can directly feel the strong pulse of Chinese consumption.

"Online first, offline later"

"Babies, hurry up and place your order! Don't miss your favorites this season!" said Andrés, a Colombian who loves coffee, when he pushed open the door of Yongpu Coffee's webcast room on the west bank of Shanghai, and he was surprised by the hot scene here. It's an average Monday afternoon, with about 15,000 customers watching the live stream online, and selling an average of 2 cups of cold brew per second.

A long table was covered with all kinds of coffee products, forty or fifty pieces, to say the least. There are cold brew liquid coffees, ear packs, capsule coffees, and a wide variety of coffee derivatives. A livestream salesperson is diligently promoting popular products online to consumers — classic blends from Colombia and Guatemala, homegrown washes from Yunnan, China, and Yirgacheffe cold brews from Ethiopia.

Whether from southern Asia, Africa, or Latin America, the world's most well-known coffee producing regions sell their beans to China. In the production process, Yongpu Coffee uses advanced technology to complete roasting and other procedures, and then extracts coffee concentrate, which can always be sold at a good price in the fast-paced international metropolis of Shanghai.

Andrés asked Yu Ye, co-founder of Yongpu Coffee, about the procurement of coffee beans in his country. He was quick to get an answer. Coffee beans from Colombia, ear packs and coffee concentrates made into ground coffee are sold in the Chinese market and are very popular.

"This portable 'flash brew' coffee capsule alone, made from Colombian coffee beans, has sold 300 million cups over the years. Yu Ye said.

The development of Yongpu Coffee has benefited from the rapid expansion of China's coffee consumption market in recent years, and the West Bank of Shanghai, where the company is located, is one of the main venues for the annual Shanghai Coffee Culture Week. The company itself is a microcosm of China's homegrown coffee start-ups.

Yongpu's "online first, then offline" operation model is different from many traditional coffee companies. On the one hand, the R&D and production of coffee liquid allow enterprises to grasp the initiative of raw materials, on the other hand, there is no need for too many scattered store sites in the early stage of entrepreneurship, and enterprises pay more attention to the layout of production lines, warehousing, logistics, etc. Therefore, in terms of sales channels, Yongpu has always taken the "online" route.

Until the preparatory period of Shanghai Xujiahui Academy (Xuhui District Library) in 2021, "what kind of café to introduce" tested this innovative presentation of the library. In order to serve young customers and pursue more "down-to-earth", Xujiahui Academy finally persuaded Yongpu, a coffee product company, to go offline and open its first offline experience store in the world.

At present, Yongpu has 1 physical store in Shenzhen, 2 in Shanghai, and a flagship store in Beijing will also open this year, each with exclusive products. Starting from Shanghai, the new generation of coffee companies no longer need to "cross the river by feeling the stones", but focus more on bold innovation and even cross-border integration.

Is there still a chance for brick-and-mortar stores?

As the city with the largest number of cafes in the world, Shanghai has more than 8,500 cafes, and its consumption vitality can be seen.

In the early morning of a weekday, Yongkang Road, a well-known "coffee street" in Shanghai, "woke up" from the aroma of coffee. "Post-70s" Miss Yang and her girlfriends made an appointment to chat and catch up in a flower-themed café on Yongkang Road. Each coffee cup is decorated with a seasonal flower, such as roses, lilies, etc., to mix the aroma of coffee with florals. Ms. Yang said that drinking coffee is a necessary step in socializing, and everyone's life has become more and more inseparable from the café.

After a while, there were more pedestrians on Yongkang Road, some people brought their thermos cups to familiar stores to "play" a cup of beloved hand-poured coffee, and some were nearby pet owners, who were used to buying a cup of coffee while walking their dogs in the morning. There are also quite a few delivery riders who rush to deliver the freshest, hottest coffee to the orderer.

Almost at the same time, a few kilometers away from Yongkang Road, Starbucks Reserve Shanghai Roastery ushered in a large number of customers in the afternoon. Starbucks opened its first store in Chinese mainland in 1999, and this year marks its 25th anniversary. According to the plan, Starbucks will open 9,000 stores in Chinese mainland by 2025. For Starbucks and many other international coffee brands, China is the fastest-growing and largest overseas market.

While consumers are pursuing high-quality coffee, businesses are also constantly developing new products and introducing new flavors with regional cultural characteristics. At Starbucks Reserve Shanghai Roastery, its "Shanghai" brand blends of coffee beans tailored to the city of Shanghai continue to be popular with consumers, and even Starbucks' newly developed Itaolive Shanghai Workshop limited edition drink infused with a small amount of olive oil can be tasted.

Bai Ming, a member of the Academic Degrees Committee of the Research Institute of the Ministry of Commerce, believes that behind the change in Chinese consumers' choices is the trend of differentiation and diversification of consumer behavior with the transformation and upgrading of China's economy.

In recent years, the significant growth in coffee consumption demand has also brought about the capital increase and expansion of foreign coffee brands in Shanghai. In 2020, the Italian coffee brand LAVAZZA opened its first store in China and its first store in Asia through cooperation, focusing on promoting Italian food and life. American Blue Bottle Coffee, which officially entered the Chinese mainland market in 2022, has chosen to set up a special roasting plant in Pengpu, Shanghai, since its inception, to introduce small-batch freshly roasted specialty coffee beans from Yemen, Costa Rica and Bolivia to Chinese consumers.

Zhu Danpeng, an analyst of China's food industry, believes that the overall economic vitality of the Yangtze River Delta is strong, consumer demand has risen significantly, and foreign businessmen in the food and beverage field are willing to carry out heavy asset support, which not only reflects the confidence in China's economy, but also shows that these brands recognize the capacity of the entire Chinese market to further increase.

Shi Jun, secretary-general of the Coffee Professional Committee of the Shanghai Food Association, said that the number of local cafes in Shanghai can no longer be simply understood as a "horse race" for big brands, especially since last year, the opening of personalized cafes has become a beautiful scenery of Shanghai's urban renewal. Walking on the streets, people can easily find boutique cafes specializing in global single-origin coffee beans, cafes that spread intangible cultural heritage, cafes that integrate fashion comics and puppet toys, and cafes with regional styles that specialize in travel photography.

There is no end to innovation

According to a report released by research institute World Coffee Portal, the number of stores in the Chinese mainland freshly ground coffee market will increase by 58% in 2023, with a total of nearly 50,000, becoming the country with the most branded coffee stores in the world.

Also last year, Luckin Coffee successfully broke through the threshold of 10,000 stores in the local market, and Manner Coffee, which adheres to the direct sales model, has also achieved a scale of 1,000 stores.

According to Shi Jun's observation, the number of coffee brands in the Shanghai market ranks among the top three. "The increase in the number of stores is one of the aspects of the continued strong consumption of related products, and more importantly, the high-quality development of the industry as a whole, so that more people can drink high-quality coffee and enjoy its leisure, social, entertainment and other functions at the same time. This is also what contemporary young customers value the most. ”

"The road to innovation is endless" is a development idea that has been frequently mentioned by the industry at the recent coffee and food culture festival held in Shanghai.

Coincidentally, one of the themes of Howard Schultz's trip to Shanghai was also about innovation. Starbucks recently launched a new product to the Chinese mainland market, Olive Blossom, a series of beverages that incorporate a small amount of Italian extra virgin olive oil in coffee. On the first day of listing, sales in the Shanghai market were hot. Schultz believes that the coffee industry in China has the potential for continuous innovation, which is one of the secrets of the success of the Starbucks brand in China.

Tommaso Asaro, an Italian olive oil supplier and business owner in the small town of Partana in Sicily, who came to Shanghai with Schultz, said that when he first came to Chinese mainland, he was attracted by the vitality of the Shanghai market and believed that he would come to Shanghai often in the future to further expand his business in China.

The new idea of "coffee + olive oil" has attracted much attention for the newly launched Italian olive coffee. Andres, who was on a recent business trip to Shanghai, also had the pleasure of tasting the "Lane Tang Evening Breeze" cocktail coffee made with Starbucks "Shanghai" blended beans. "The coffee with a hint of Chinese rice wine is unique and unforgettable," he says. He also lamented that coffee beans from all over the world can always be used in China, because here you can see the scale effect covering the upstream and downstream of the whole industry chain and the trend of continuous product innovation.

Schultz believes that the coffee industry cannot rely on price reductions and "discount wars" to gain momentum, and today's innovation must be "disruptive", that is, to give consumers more new experiences in order to lead the market.

Innovation is endless, and growth is promising. Statistics show that although Shanghai has become the city with the largest number of Starbucks stores in the world, there will still be a lot of room for growth in the average number of coffee cups purchased by Shanghai consumers and even consumers in China every year, which is also the reason why a number of Chinese and foreign coffee brands are firmly optimistic about the Chinese market.

Source: Economic Information Daily