Why China’s coffee industry is booming

Chinese coffee chains are rapidly expanding into lower-tier cities, sparking fierce price wars. 

The coffee culture in China has witnessed growth, with coffee becoming a daily staple for millions. In 2023, the number of specialist coffee and tea shop outlets in China surged by 72%, surpassing the average growth in both Asia and globally.

In a Euromonitor report, Chinese coffee chains, like Luckin Coffee and Cotti, are rapidly expanding into lower-tier cities, sparking fierce price wars. 

Since early 2023, brands have slashed prices to as low as RMB9.9 per cup, forcing competitors like Starbucks to adjust their pricing, despite trying to maintain their premium image.

To survive in the competitive market, brands are focusing on product innovation. For instance, Luckin Coffee releases new products weekly, including lattes with varied milk bases and a tea-coffee blend. Their creative partnerships, like the popular Jiangxiang-flavored latte with Kweichow Moutai, help attract new customers.

Health-conscious consumers are also driving demand for lower-calorie drinks, prompting brands like Luckin and NOWWA to introduce healthier options, such as light milk tea and lower-calorie lattes.

Chinese coffee chains are now eyeing international markets, particularly in Southeast Asia. Starbucks remains the dominant player in the region, holding 30% of the market share in foodservice value sales. However, Chinese brands are making inroads. Luckin Coffee opened its first overseas outlet in Singapore in March 2023, featuring a variety of affordable options, including its popular coconut latte. The brand is expected to expand further in 2024, with Malaysia likely to be the next market.

However, unlike its aggressive growth in China, Luckin’s international expansion has been more cautious, prioritising brand recognition over price wars. Cotti Coffee, on the other hand, has taken a more aggressive approach, launching in Asia Pacific markets in August 2023. 

Cotti’s strategy mirrors its domestic expansion, offering premium coffee at competitive prices alongside a broader menu that includes baked goods. A partnership with payment platform Adyen has also facilitated smoother transactions in these new markets.

Cotti Coffee, which began its Asia Pacific expansion in August 2023, is more aggressive. It’s replicating its domestic strategy, focusing on low prices and a broad menu of coffee and baked goods. Partnerships with payment platforms like Adyen are helping facilitate this expansion.

Despite their success at home, Chinese coffee shops face a different set of challenges in international markets. Understanding local tastes and preferences will be key, especially in regions where affordable pricing and local coffee brands dominate. Differentiating their offerings—whether through unique products, convenient locations, or loyalty programs—will be essential to stand out from local competitors.