Business Beat: China’s domestic coffee industry

China has a long-standing tea culture and Nayuki Holdings Ltd, the first listed milk tea brand globally, is an example of the popularity of the tea market. In addition, providing a variety of tea brands and price ranges to customers also boosts the prevalence of tea culture in China. However, coffee is still recognized as a high-end commodity. The preference for tea — which goes well with traditional Chinese food — still dominates. As a result, the coffee industry seems not to play a big part in China.

According to a report from Deloitte comparing China to South Korea and the U.S., where total coffee per capita consumption recorded 367 cups and 329 cups, respectively, China consumed only nine cups in 2020. However, the coffee industry is growing in Tier-1 and Tier-2 cities where the social elite class typically resides. Considering the figures, they are quickly approaching the numbers of South Korea, an estimated 326 cups. The coffee industry in China is also expected to reach 144.7 billion yuan by 2025, giving coffee the news value as a business beat.

Therefore, when covering the coffee industry of China, I will analyze China’s customers’ purchasing power in Tier-1 and Tier-2 cities, the market share of coffee brands and why China’s local coffee brand hasn’t performed well.

First, understanding the gap between the cities is essential because business in China is likely to expand after success in the large cities in China. In terms of market share, “Tim Hortons,” “Peet’s Coffee,” and “Starbucks” are steadily expanding their business. However, there are still no distinctive local coffee brands in China. So, investors from “Meituan” and “Byte Dance” give tremendous investments to local brands.

Among such local brands, Luckin Coffee is called the “Starbucks in China.” Luckin Coffee made a significant impact on the Chinese coffee industry. Although Luckin was delisted from NASDAQ for accounting fraud in 2020, it’s still in China and has many fans among Generation Z. Low prices, consistent beverage development and convenient delivery services have attracted their preference. Therefore, by using all those factors, I’ll cover the ups and downs of the coffee business and corporate trends in China.