China’s new thirst for coffee is fueling intense coffee competition

Chinese coffee consumption is growing rapidly, prompting fierce competition between local and foreign coffee chains that have opened thousands of brand-name stores in recent months and outnumbered coffee shops in the United States.

Analysts expect China’s growing thirst for coffee to be a key driver of future demand for the beans, as coffee shops expand beyond Beijing and Shanghai to dozens of mid-sized cities where young professionals have become enamored with the beverage. .

China’s growing coffee demand is an opportunity for international chains such as Starbucks and Tim Hortons to invest heavily in China, although they face a sharp challenge from fast-growing local brands.

Data from the International Coffee Organization sent to Reuters showed coffee consumption in China rose 15 percent in the season ending September from the previous cycle to 3.08 million bags.

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“The Chinese consumer is increasingly adopting a Western lifestyle, and coffee is obviously one of the beverages that represent this,” said Jason Yu, managing director of market research firm Kantar Worldpanel.

The number of branded coffee shops in China rose 58 percent in the past 12 months to 49,691 outlets, according to Alegra Group, a company that tracks the growth of coffee chains.

There is fierce competition between local chains and international chains, said Matthew Barry, drinks analyst for Euromonitor. Everyone is trying to grab as much of the growing market as they can, he said.

Alegra Group estimates that China’s Luckin Coffee ( LC0Ay.MU ) added 5,059 stores in the past 12 months, while another Chinese chain, Cotti Coffee, opened 6,004 stores during the period.

“The scale of the opportunity is such that both (local and international chains) will have to be very aggressive to take on the other and I think that will ensure a very dynamic market in the coming years,” Barry said.

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U.S.-based Starbucks ( SBUX.O ) has opened 700 stores in China in the past year and said it is on track to operate about 9,000 stores in the country by 2025, while Canada’s Tim Hortons plans to have 3,000 stores in the country in four years .

Grabbing market share is one of Luckin’s key goals, CEO Jinyi Guo said during the company’s third-quarter earnings call.

Store openings are now happening in China’s smaller cities, Jason Yu said, which still have millions of residents each.

“This basically means that in those places there is still a lot of room for coffee chains to grow,” he said.

Zixi Zhao, a 20-year-old student from Beijing, said he drinks coffee every day.

“I started drinking when I went to college,” he said. “I don’t generally drink a lot of tea, but my mom, dad, grandma all drink tea.”

Ruoxuan Zhao, a 19-year-old student from Beijing, said drinking coffee is part of the fast-paced lifestyle of young people in China, who welcome the caffeine boost.

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Happy growers

The development is good news for coffee producers who are already benefiting from high prices due to adverse weather conditions in some developing regions. Arabica coffee futures are trading near an eight-month high, while robusta coffee hit a 15-year high last week.

China imports coffee mainly from Africa and South America.

Brazilian coffee exporter group Cecafe said shipments to China will nearly triple in 2023 to top 1 million bags for the first time, making China its eighth-largest market.

The United States Department of Agriculture sees China using 5 million bags of coffee in the new season (2023/24), which would make it the world’s seventh largest consumer.

Chinese coffee consumption still pales in comparison to top consumers in the United States and Brazil who use more than 20 million bags a year. But growing demand signals that China is undergoing a cultural shift similar to other tea-loving Asian countries, including Japan and South Korea.