Innovation in China’s Coffee Industry Accelerates 2023

More and more consumers are choosing coffee as their beverage of choice in China. According to the 2023 China Urban Coffee Development Report, the scale of China’s coffee industry in 2022 was 27.83 billion US Dollars, and it is expected that the scale of China’s coffee industry will reach 51.21 billion USD in 2025.

A Variety of Flavors to Enhance Consumer Interest

starbucks china

In recent years, Starbucks China has consistently introduced at least one new product every month, drawing inspiration from valuable customer feedback.

“Whenever a new product is launched, the store provides free coffee samples every day to invite customers to taste it, and solicit and collect their opinions in order to bring freshness and more choices to customers. According to Li Kexin’s observation, on the first day of the new product’s launch, more than eighty percent of customers are willing to try it.

The evolving preferences of consumers drive innovation in the coffee supply chain, challenging domestic and foreign coffee brands to enhance their user understanding and product development capabilities. Novel flavors such as black sesame latte, yuzu Americano, and sesame sauce coffee continue to extend the boundaries of coffee. 

sesame latte and yuzu americano

A well-established brand in China, Tims Tianhao Coffee, has consistently expanded its product offerings, introducing over 30 new items per year in the past. This number jumped to over 70 last year, and the brand continues to accelerate its new product development, further strengthening its ‘coffee + warm food’ combination to enhance customer loyalty.

Another popular coffee chain, Cotti Coffee, has been consistently introducing two to three new beverages every two to three weeks, catering to health-conscious consumers with drinks like raw cheese lattes, raw coconut lattes, and a limited-edition peach gum series.

Li Kexin, manager of Starbucks Reserve Beijing Kerry Center flagship store, also acknowledged the growing demand for healthy, low-fat, and sugar-free options, emphasizing that Starbucks will prioritize these preferences in their new flavor development.”

Marketing Innovation in China’s Coffee Shops

In addition to exploring taste, major coffee brands are actively pursuing innovation and change in services, preferential activities, and marketing strategies.  Diverse promotional methods such as bringing your own cup for discounts, credit card points redemption, and other incentives are gaining popularity. 

Starbucks and AMAP collaboratively launched the “pick up along the street” service to make coffee consumption more convenient. Luckin Coffee + Kweichow Moutai, Cudi Coffee + Wuchang Rice and other cross-border cooperation has attracted waves of traffic.

credits to Wu ShiYuan

Xiong Haifeng, an associate professor at the School of Cultural Industry Management at Communication University of China, believes that brand co-branding is an important way of marketing innovation in the coffee industry. It involves a mutual empowerment and collaboration between brands to generate buzz, gain traffic, and ultimately drive sales growth.

Recognizing the significant differences in consumer needs and concepts across generations, brands can leverage co-branding to cultivate a younger and more innovative image, thereby expanding their consumer base.

For coffee brands in China, creating “popular” products is not the ultimate goal. Ensuring the continuous flow of customers is their long-term pursuit. Xiong Haifeng suggests that when that when engaging in co-branding initiatives, coffee brands should carefully consider the alignment between the essence, tone, and target consumer groups of the brands involved. Emphasizing long-term planning and strategic thinking, brands can skillfully transform temporary hotspots into opportunities for category research and development, facilitating market expansion. The ultimate goal is to convert fleeting traffic into sustainable customer retention.

Stimulating the Consumption Potential

Book Cafe, a coffee shop in Beijing offers great ambience for bookworms and coffee lovers alike.  Not only is it adorned with rows of bookshelves, its coffee menu is curated to cater to popular taste, with options ranging from the classic Americano to the creamy latte.

Wang Xihan, the founder, told reporters that the daily traffic of their coffee shop attests to their popularity. “Quiet in the middle of a bustling environment” and “a place suitable for work and study” are the feedbacks given by many netizens after checking in.

There are a variety of coffee shops in the vicinity of Dongsi Area. In addition to a library coffee shot, China has a diverse coffee consumption scene, such as a combination between clothing store and coffee shop, as well as a terrace coffee shot.

Now running a coffee shop can’t be limited to selling coffee, supporting services must keep up and enrich the ‘content’ in order to retain people for a long time.

Wang Xihan

Wang Xihan told reporters that the diversified business model can not only enhance the attractiveness of the store, but also reduce the business risk, “for a period of time, the offline operation of the coffee shop is not very good, but the online sales of the bookstore can bring eight or nine thousand yuan of revenue every day.”

The new consumption scenario has brought new growth points to the coffee industry. Book Cafe has a branch in Xicheng District, Beijing, with an area of more than 400 square meters, in addition to reading books and drinking coffee, it can also undertake small new book launches.

“A single coffee shop can only carry out activities such as coffee training, but our stores have developed various functions such as reading clubs, art classes, craft classes, meeting spaces, etc., which naturally drive more consumption,” Wang Xihan said.

For the business like “bookstore + coffee”, the Shanghai government has issued the “Shanghai Publication Distribution Industry Coffee Service Standard”. Xiong Haifeng emphasizes that enhancing standardized operations is crucial for cafes to elevate service quality. This involves subdividing service specifications, implementing grade divisions and evaluations, including aspects like coffee blending and skill assessments. Such measures not only offer operators clear guidance but also enable consumers to make more intuitive judgments about the environment, facilities, and personnel at consumption places.

With the expansion of the coffee audience base, new consumption scenarios are emerging, and store forms are becoming more and more abundant. “Coffee+” has become a business trend, which is not only necessary for its own development, but also a positive response to consumers’ pursuit of quality. “Coffee + Theater”, “Coffee + Flower Shop”, “Coffee + Camping Store” and so on have become good places for consumers to plant grass and check in.

According to data from Meituan and Dianping, in the past six months, the number of group purchase orders for coffee shops has increased over 340% year-on-year, and the Dianping evaluation notes related to “coffee + bookstore” have have nearly doubled in the same period.

“These ‘Coffee+’ operations enable coffee to play a more empowering role. It enhances the consumer experience, encouring longer stays and fostering socialization and enjoyment,” said Xiong Haifeng. He highlights that cross-border development emphasizes maximizing each other’s advantages and realizing the “two-way rush” in business format. This requires the industry to selectively choose cross-border partners based on its own characteristics, amplify its strengths through organic integration, and lead consumer trends.

In Wang Xihan’s view, coffee shops are establishing a new way of life, seamlessly integrating into the daily lives of local residents and extending into various aspects of clothing, food, housing, and transportation. 

Indigenous Coffee is on the Rise

Chinese coffee beans are popping up in a myriad of coffee shops. From Luckin’s enticing Yunnan Citrus series to Starbucks proudly showcasing their Selected Yunnan Coffee Beans, these innovative offerings are continually enhancing consumers’ appreciation for locally sourced coffee.

In the past, coffee was almost the domain of foreign brands, and with the booming consumer demand, the competitive landscape of the coffee market is quietly changing. Local coffee brands represented by Luckin, Yongpu, Sumida River, etc. are rising strongly. The Chinese people have more choices when it comes to sourcing their beans. According to Qichacha, in the first 10 months of 2023, there will be 49,900 new coffee-related enterprises in China, a year-on-year increase of 72.53%, of which the stock of coffee enterprises in Shenzhen, Guangzhou, and Pu’er ranks among the top three in the country.

The buzz around local coffee isn’t just a coincidence; it’s intricately tied to an innovative brand strategy.  Aside from having the province of Yunan focused of coffee bean cultivation, it’s Pu’er coffee beans have also gradually become a sought-after commmodity for coffee enthusiasts.

In 2021, the “post-90s” Da Meng successively rented more than 100 acres of land in Pu’er City, Yunnan Province, part of which was specially used to grow local specialty small-grain coffee. In June this year, the “Spring in the Ears” specialty coffee developed by the Da Meng team was officially launched. Surprisingly, this coffee not only allows consumers to experience the mellow taste of high-quality coffee, but also integrates the unique local ethnic customs into it, conveying a new concept of organic integration of coffee and local culture.

Xiong Haifeng said that this reflects the development trend of diversification of the coffee market. For local coffee brands, only by constantly innovating in technology, taste, and mode can they better meet the segmented needs of consumers.

1. China Daily

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Mesphird Yang

I have been brewing and drinking coffee for almost 6 years now. At first, I was just dazzled by how baristas look and that's why I started learning. In the long run, I became obsessed with its charm. I have tried many coffee brewing methods, with different kinds of beans in various roast levels. If I could have more than 4 cups of coffee a day, I definitely would!

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